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)