Minister balks at House furor on recapitalization

Minister balks at House furor on recapitalization

JAKARTA (JP): Finance minister Bambang Subianto fought back on
Thursday at legislators sniping and stalling on the government
bank recapitalization program designed to restructure the ailing
industry.

Bambang insisted that the government would continue with plans
to provide up to 80 percent in recapitalization funds for ailing
banks in a bid to preserve the country's shaky payment system.
The government says that the program is necessary to kick-start
the country's economic recovery.

The recapitalization measure will proceed despite strong
criticism concerning the unverified status of the amount of Bank
Indonesia liquidity support injected into troubled banks last
year.

"The main purpose of the bank recapitalization measure is not
just to bail out the banks but primarily to maintain the payment
system so that transactions can occur between customers and
producers or between creditors and debtors," he told members of
the House of Representatives Commission VIII who were
deliberating the 1999/2000 state budget proposal.

The commission deals with finance and budget issues.

The government expects the House to approve the budget
proposal on Feb. 26, in which Rp 18 trillion (US$2 billion) is
earmarked to partly finance interest on government bonds issued
to raise funds for the bank recapitalization program.

Under the program, banks are expected to provide at least 20
percent of the funding.

House approval is necessary before the government can begin
the recapitalization measure and liquidate banks which fail to
join the funding program.

President B.J. Habibie has said that on Feb. 27 the government
will announce which banks are earmarked for closure.

Action on the bank recapitalization program -- deemed
essential for the country's economic recovery -- stalled because
an earlier timetable was rejected by the House.

The government earlier nominated the privately run Lippo Bank
and Sanho Bank together with 10 provincial development banks as
the first batch of banks to be recapitalized by the government.

It had anticipated that the next three batches of bank
recapitalizations would be implemented between February and the
end of March.

Legislators lambasted plans for the first batch as the House
had not yet approved the 1999/2000 state budget draft. They also
disputed the decision to provide Lippo Bank with the lion's share
of the first batch of recapitalization funding.

Bambang said that the government had withdrawn the initial
plan and would commence the program only after budget approval.

The 1999/2000 budget projection for the recapitalization
program is Rp 18 trillion, adding to the total Rp 34 trillion
earmarked for the payment of interest on government bonds. An
estimated Rp 16 trillion is expected to be generated from the
sale of the Rp 102 trillion worth of fixed assets of liquidated
banks.

Bambang was optimistic that proceeds from the sale of assets
would be recoverable.

The government will proceed with the recapitalization program
despite incomplete verification of the precise amount of Bank
Indonesia liquidity support injected into troubled banks last
year.

"Completing verification (procedures) could take two to three
years. If the banks were not recapitalized, the economy would be
unable to sustain itself," he said

Legislators earlier disputed government plans to inject
additional funding through the recapitalization program for
ailing banks because the exact figure of liquidity support had
not been confirmed.

Bank Indonesia injected the liquidity support last year to
help deposit-run banks cope with massive withdrawals.

Bambang said that the publicized Rp 144.5 trillion in Bank
Indonesia liquidity support was a "temporary figure" subject to
further confirmation by the country's comptroller agency.

Bambang noted that until the banks were recapitalized,
requirement for additional central bank liquidity support
remained high, as the country's commercial banks were teetering
due to the country's worst economic crisis.

"So if we don't start recapitalizing the banks now,
verification will never be completed." (rei)