Minimum capital ruling eases

Minimum capital ruling eases

JAKARTA (JP): The government eased bank capital requirements
yesterday in another concerted effort to speed up the
restructuring process of the country's ailing banking industry.

Minister of Finance Bambang Subianto said existing banks were
no longer required to have a minimum paid-up capital of Rp 250
billion (US$16.12 million) by the end of this year.

"Only new banks are now obliged to meet this capital
requirement," Bambang told reporters after the first meeting of
the Economic and Monetary Resilience Council under President B.J.
Habibie's Cabinet.

The council was set up in January under the Soeharto
administration to monitor the implementation of reform measures
already agreed to with the International Monetary Fund (IMF). The
council includes all ministers with economic portfolios under the
leadership of Coordinating Minister of Economy, Finance and
Industry Ginandjar Kartasasmita.

Bambang added that the capital adequacy ratio (CAR) -- against
risk-weighted assets -- for banks was also lowered so that they
were now required to fulfill a minimum CAR of only 4 percent by
the end of this year, 8 percent by the end of 1999 and 10 percent
by the end of 2000.

"This is part of the overall effort to revive the economy and
the banking sector in particular," Bambang said.

The previous CAR requirements were 8 percent by the end of
this year, 10 percent by the end of next year and 12 percent by
the end of 2000.

Indonesia set tough minimum paid-up capital requirements of
between Rp 1 trillion and Rp 2 trillion last January in an effort
to force ailing banks to merge.

But the Rp 1 trillion requirement was later slashed down to Rp
250 billion following strong objections from the banking
community and the dateline for the Rp 2 trillion requirement was
extended to the year 2000.

Bambang urged owners of the country's ailing banks to
accelerate the process of recapitalizing their institutions to
meet the capital requirements.

"The government is opening the opportunity both to local and
foreign investors to become bank shareholders, and even majority
owners," he said, pointing out that amendments to the Banking Law
would soon be proposed to the House of Representatives (DPR) to
allow foreigners to control local banks.

He said that to accelerate the bank restructuring process, the
government would segregate bad debts from ailing banks and put
them under a special management entity.

The government will hand over the management of troubled banks
to those who have the expertise and international credibility to
heal them, and will allow them to become shareholders, he added.

Bambang stressed that Bank Indonesia remained the only
institution in charge of supervising banks, including those being
taken care of by the Indonesian Bank Restructuring Agency (IBRA).

"IBRA is assigned only to restructure ailing banks and to
speed up the recovery of Bank Indonesia's liquidity credits
already injected into problem banks."

The central bank has thus far pumped more than Rp 132 trillion
in liquidity credits into the country's banking sector. There are
now more than 45 problem banks being restructured by IBRA.

"To clarify the role of IBRA, the government will revise the
Presidential Decree on the establishment of IBRA," he said,
indicating that there would be changes on how the agency would
operate.

"To facilitate a quick restructuring process, we expect good
cooperation from the public by remaining calm and not being
easily misled by rumors."

He reaffirmed that deposits would remain safe in Indonesian
banks under the government's blanket guarantee scheme introduced
last January.

Not resigning

Ginandjar, who accompanied Bambang at the news conference
yesterday, flatly denied rumors that he would resign from
Habibie's Cabinet immediately after the conclusion of current
negotiations with the IMF.

"I have no intention whatsover of leaving as long as the
President wants me to help him," Ginandjar said in reply to
questions from reporters about the rumors over the past few weeks
that he would quit sometime next month.

Ginandjar announced immediately after the Cabinet's
installment late last month that he considered the Habibie
Cabinet a transitional one until a newly elected government was
set up.

Commenting on World Bank economist Jean-Michel Severino's
prediction that Indonesia's economy would contract 15 percent
this year, Ginandjar said the figure was too pessimistic.

"I don't think I subscribe to that figure," he said, citing
other analysts' predictions that put the country's negative
growth at a range between 5 percent and 20 percent.

Ginandjar avoided directly answering questions on whether the
government was considering asking for a rescheduling of its
foreign debt payment in view of its huge budget burden in meeting
increased subsidy spending.

"We and the IMF are considering all options for meeting our
budgetary needs and the foreign debt is one of the options. But I
don't want to create the impression that we are heading in that
direction (debt rescheduling).

"But as I understand, the IMF is considering all options to
help us meet our needs for external resources. It is not an
active proposition on our side," Ginandjar added.

But he conceded that the budget deficit for the current fiscal
year would most likely be much larger than an earlier estimate of
3.5 percent of the gross domestic product.

He said the government's priority now was to establish social
safety net programs to meet basic public needs and to create jobs
to revive the economy through the recapitalization of small
businesses, the revitalization of exports and the promotion of
agroindustry and tourism. (prb/rei)