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)