Sat, 17 Mar 2007
From: The Jakarta Post
By Urip Hudiono, The Jakarta Post, Jakarta
Bank Indonesia will relax its lending requirements so as to encourage the extending of more loans to the real sector, particularly to small and medium enterprises (SMEs), says Bank Indonesia Governor Burhanuddin Abdullah.

The central bank will also allow banks to extend new loans to selected defaulting borrowers, the BI governor said after a meeting Thursday with Vice President Jusuf Kalla.

For his part, Kalla said, "The real sector is actually up and running -- as can be seen from the rising demand for transportation and electricity -- but still not enough to support higher growth and living standards. Bank lending is also increasing, though a lot of money is still idle."

Thursday's meeting, which was also attended by Coordinating Minister for the Economy Boediono, State Minister for State Enterprises Sugiharto, Indonesian Chamber of Trade and Industry (Kadin) chairman M.S. Hidayat and executives from a number of public and private sector banks, was intended as a follow-up to a recent meeting with President Susilo Bambang Yudhoyono at the State Ministry for Cooperatives and SMEs.

Last week's meeting agreed on a banking industry plan to provide up to Rp 87.2 trillion (US$9.6 billion) in loans this year to some 3.5 million SMEs -- at average industry lending rates -- and up to Rp 28 trillion in guarantee funds for the loans.

The country's SMEs, despite their resilience in contributing to growth and providing jobs in times of economic crisis, persistently face problems in securing loans from the banking sector due to lack of collateral.

Four banks will be designated to provide up to Rp 20 billion each in loans to SMEs under the new scheme, far higher than the current Rp 500 million ceiling, Burhanuddin explained, while another 89 banks will extend up to Rp 10 billion each.

Among the bank executives attending Thursday's meeting were representatives from Bank Mandiri, Bank Negara Indonesia (BNI), Bank Rakyat Indonesia (BRI), Bank Central Asia (BCA) and Bank Danamon.

Regarding to the proposed new policy of allowing banks to provide new loans to defaulting borrowers, Burhanuddin said the banks would be given the flexibility to extend loans to such borrowers as long as their existing defaults were the result of problems in the overall economy, rather than mismanagement.

"We want the banks to remain prudent, and are interested in quality growth based on stability in the industry," he stressed, adding that under the proposal loans could be extended to defaulting borrowers operating in 10 strategic industries.

Burhanuddin declined to elaborate further on the proposed regulations pending their official issuance on April 1. However, he encouraged the country's banks to start putting them into effect immediately.

However, Kadin chairman M.S. Hidayat said that the 10 industries referred to consist of the manufacturing, textile and other labor-intensive sectors.

The central bank has also been encouraging higher lending through its policy of cutting the key BI rate, which now stands at 9 percent.

Higher lending to the real sector is essential to stimulate the country's economy sufficiently to bring down unemployment. The economy grew by a disappointing 5.5 percent last year, compared to 2005's 5.6 percent, as high inflation and interest rates hit spending and investment. Related photo -- Page 13



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