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)