Plan to use budget for recapitalization called 'unfair'

Plan to use budget for recapitalization called 'unfair'

JAKARTA (JP): The government's plan to use a large part of the
2000 state budget to finance bank recapitalization costs is
unfair, according to analysts.

Analyst Didik J. Rachbini said on Friday that the bank
recapitalization costs, approximately 50 percent of the total tax
receipts, would certainly impose a heavy burden on the people.

"Would it be fair if most of the tax revenues were used to
finance bank recapitalization?" Didik, a senior analyst at the
Institute for Development of Economics and Finance (Indef), asked
a press briefing.

The government has earmarked Rp 42 trillion (US$5.7 billion)
of state revenues for interest payments on bonds issued to
recapitalize the country's ailing banks. The amount is almost one
third of the total state revenues or about 50 percent of the
projected tax receipts.

Didik said the bank recapitalization costs would be born
mostly by taxpayers as the tax revenues were expected to come
largely from income tax payments.

In the Jan-Dec budget, the government expects to raise tax
revenue by 38.7 percent, or Rp 27.3 trillion, to Rp 91 trillion
from the same nine-month period in the current 1999/2000 fiscal
state budget ending in March.

The next budget will last only nine months as the government
will align its fiscal year with the calender year beginning Jan.
2001.

"Spending one third of the state revenues on bank
recapitalization is too much," Didik said.

According to him, the government should narrow bank
recapitalization costs to the asset values for the ailing banks
that the government has targeted to sell.

The Indonesian Banking Restructuring Agency (IBRA) controls
some Rp 600 trillion in bank assets, of which it intends to sell
Rp 16.2 trillion according to the draft state budget, dropping Rp
0.8 trillion from the present fiscal year target.

Didik said it would be difficult for the government to
recapitalize all the banks and suggested that only selected banks
should receive government funds.

Didik also suggested that the government consider lowering the
present Capital Adequacy Ratio (CAR) from four percent in order
to reduce recapitalization costs.

"A lower CAR would allow banks to channel loans so that we can
press down the recapitalization costs," Didik said, adding that
this move would require careful calculation.

Many banks are restrained from extending loans to keep their
CAR at the minimum level. Raising loans will mean a lower CAR
level, as a result many banks put their idle funds on Bank
Indonesia's promissory notes which offer interest rates lower
than the rate charged by banks to their depositors.

Analyst Arif Arryman from Econit said that in pushing bank
recapitalization, IBRA's target of Rp 16.2 trillion in sold bank
assets was too small compared to the value of assets it
controlled.

Banks, he said, should speed up the process of recovering non-
performing loans, as the slow recovery of these loans forces the
government to issue obligations that ultimately burden tax
payers.

He also said that the proposed state budget failed to give a
clear accounting of the sale of the government bonds which were
issued to recapitalize the ailing banks.

"If the government doesn't trade its bonds in the stock
market, the recapitalization program will remain a burden to the
state budget," Arif told the briefing. (03)