Bank lending expands<\/p>\n
The central bank disclosed on Wednesday a confidence-building
\ntrend within the economy, saying that bank lending increased by
\n25 percent to Rp 9.5 trillion (US$1.07 billion) in August from Rp
\n7.6 trillion in July. Yet more encouraging is that almost 34
\npercent of the total credits was extended to small and medium
\nenterprises.<\/p>\n
This is very encouraging, especially to analysts who remained
\nbearish about the economic prospects and who still harbored a
\nsense of foreboding, arguing that the economic recovery was still
\nquite fragile.<\/p>\n
The encouraging trend could feed on itself, reinvigorating
\nbusiness confidence. Many businesspeople had so far disregarded
\nthe government claim on the strengthening macroeconomic
\nstability, arguing that such stability was necessary but not
\nenough to revive the real sector.<\/p>\n
The lending expansion indicates many positive developments.
\nFirst of all, it reflects the easing of inflationary pressures,
\nas shown by the steady decline in Bank Indonesia's benchmark
\ninterest rate to as low as 13.78 percent on Wednesday from 17
\npercent early this year.<\/p>\n
The government's success in checking the inflation rate at
\n5.61 percent for the first eight months of this year should be
\nattributed partly to the relative stability of the rupiah at a
\nrange of Rp 8,800 to Rp 8,900 to the American dollar over the
\nlast few months.<\/p>\n
Yet, more heartening is the fact that the stability of the
\nrupiah seemed to have been able to pass two stress tests over the
\npast few weeks. One was the new bout of massive demonstrations
\nduring the annual meeting of the People's Consultative Assembly.
\nThe rupiah also held up despite the volatility in the yen-dollar
\nexchange rate.<\/p>\n
The credit expansion also shows that the banking industry has
\nbeen able to significantly improve its intermediation role, no
\nlonger dependent mainly on interest revenues from the government
\nbonds it holds as capital.<\/p>\n
Certainly, banks are confident and able to increase lending
\noperations without being overly concerned about eroding their
\ncapital standard only because the degree of economic risks has
\ndecreased.<\/p>\n
We are confident that bank lending will increase even at a
\nmuch faster rate within the next few months as a result of the
\nrecent release of 1,454 debtors with Rp 81.6 trillion in bad
\ndebts from the "hospital" of the Indonesian Bank Restructuring
\nAgency (IBRA).<\/p>\n
The new creditors will certainly work hard to restructure
\nthese corporate debtors to enable them to gain access to new
\ncredit lines and to increase their operational rates.<\/p>\n
Barring any major social or political developments that could
\nshatter the budding confidence, all these positive developments
\nwould strengthen the virtuous circle within the economy.<\/p>\n
Bank Indonesia will have a broader leeway to decrease its
\nbenchmark interest rate, thereby forcing banks to be more
\naggressive in seeking credit-worthy corporate borrowers.<\/p>\n
Lower interest rates will in turn encourage depositors to seek
\nother investment instruments with higher returns, and the stock
\nmarket will most likely be one of the first to benefit from this
\nshift. This process will sustain to make much of more efficient
\nallocation of resources.<\/p>\n
It is, however, entirely misguided for the government to be
\ncomplacent, let alone relax the implementation of reform
\nmeasures, notably in the economic and legal sectors. It should
\ninstead always be on guard, not yielding to the temptation to
\nlaunch populist programs.<\/p>\n
Billions of dollars in bad debts still languish at IBRA,
\nmeaning that thousands of businesses are still hostage to their
\nbad debts and unable to assume full-capacity operations. These
\ncorporate debtors have yet to be unshackled from IBRA to enable
\nthem to return to sound operations. After all, only sound
\nbusiness units can build up a robust economy.<\/p>\n
In addition, hundreds of ongoing concerns that were ceded by
\nformer bank owners in repaying their debts to the government are
\nstill debilitated under IBRA management.<\/p>\n
As these companies operate in a wide range of industrial
\nareas, including upstream manufacturing that produces basic
\nmaterials to downstream industries, their operations will affect
\nthe efficiency of the whole economy.<\/p>\n
Certainly, these businesses are currently unable to operate
\noptimally because the status of their owners is still uncertain
\nand their access to new credit lines is virtually closed. Unless
\nthese companies are also released to new investors who are
\ncapable of bringing in better management and fresh capital, they
\nwill never be able to operate soundly, let alone strengthen their
\ncompetitiveness.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/bank-lending-expands-1447893297",
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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