Interest rates will remain high this year, say analysts<\/p>\n
JAKARTA (JP): Interest rates will remain high this year unless
\nthe government limits the expansion of its out of budget
\nexpenditure and improves the efficiency of commercial banks,
\nanalysts said yesterday.<\/p>\n
At a seminar on the 1997\/1998 state budget, Anwar Nasution
\npredicted that non-budgetary spending would increase next fiscal
\nyear.<\/p>\n
\"There are many government programs that will be financed by
\nnon-budgetary spending,\" he told the seminar organized by the
\nUniversity of Indonesia. \"This spending will include funds to
\nfinance poverty alleviation and reforestation programs.\"<\/p>\n
He said this expansion would cause more inflationary pressure
\nwhich would automatically lead to higher interest rates.<\/p>\n
Anwar said the unhealthy condition of commercial banks meant
\nthat the central bank's monetary policy was no longer effective.<\/p>\n
He said that monetary expansion or a fall in international
\ninterest rates should reduce interest rates. But in Indonesia,
\nthese conditions would not have an immediate impact on interest
\nrates because most local banks were inefficient, he said.<\/p>\n
Indonesia's lending rates now average 20 percent a year,
\ncompared to Singapore's 7 percent, the Philippines' 12 percent,
\nThailand's 13 percent and Malaysia's 8 percent.<\/p>\n
Anwar said the government had not tried seriously to improve
\ncommercial banks, which dominate Indonesia's financial system.<\/p>\n
Consequently, he said, its tighter prudential policy and the
\nseverer penalties applied by the central bank, Bank Indonesia,
\nwere ineffective.<\/p>\n
Dependent<\/p>\n
He said the central bank was entirely dependent on its Bank
\nIndonesia Certificates, short-term promissory notes, for its open
\nmarket operations.<\/p>\n
The sale of commercial paper in the money market could
\nstrengthen open market operations but the lack of regulations
\nmade the papers unpopular, he said.<\/p>\n
\"Bank Indonesia must make higher interest payments if it sells
\nthe certificates at higher rates,\" he said.<\/p>\n
On the country's monetary outlook for the next fiscal year, he
\nsaid the central bank was unlikely to change its policy.<\/p>\n
He said that two monetary policies, announced last year, would
\nsoon be effective. They are the legal lending limit and the
\nincrease of banks' reserve requirement from 3 percent to 5
\npercent.<\/p>\n
The two policies will result in higher interest rates because
\nthe policies will limit the expansion of bank credit.<\/p>\n
Moh. Arsjad Anwar of University of Indonesia shared Anwar's
\nview at the seminar, saying that problem loans were also keeping
\ninterest rates high.<\/p>\n
He said the increase in government spending, particularly
\ndevelopment spending, would raise inflation pressure in 1997\/1998
\nand keep interest rates at their current level.<\/p>\n
According to a study by the university's Economic and Society
\nResearch Institution, presented by Sri Mulyani at the seminar,
\nthree factors are expected to influence interest rates this year.<\/p>\n
Last year's lower inflation rate of 6.6 percent will tend to
\nlower interest rates.<\/p>\n
The increase in the reserve requirement in April could push up
\ninterest rates.<\/p>\n
And interest rates in the U.S., which are expected to rise
\nthis year, are expected to push up domestic interest rates.<\/p>\n
She said inflation this year would be about 7 percent because
\nof monetary contraction and rising production and distribution
\ncosts.<\/p>\n
She said the central bank should focus its attention on its
\nbasic job of controlling the money supply to check inflation,
\nwhile pursuing its economic growth target.<\/p>\n
According to the study, the Indonesian economy will grow 7.52
\npercent this year, down slightly from the 7.76 percent growth
\nrate last year.<\/p>\n
\"But the growth is still higher than the government's target
\nof 7.1 percent,\" she said, adding that investment growth this
\nyear would decrease to 8.1 percent from 10.01 percent last year.
\n(bnt)<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/interest-rates-will-remain-high-this-year-say-analysts-1447893297",
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