Banks ready for infrastructure plans

The Jakarta Post, Jakarta

Bank Indonesia was confident that the country's banking sector would respond positively to government's plans to develop massive infrastructure projects across the country over the next five years.

"I am quite confident that banks will respond to future infrastructure investment in a positive fashion," said Miranda Goeltom, the central bank senior deputy governor, during the CNBC Strategic Forum on "The New Indonesia 2005: Policy and Action" on Monday.

There had been significant improvements in the country's overall situation, especially in terms of political certainty and consistency, she said, adding that the banking system would experience higher lending growth this year and in the future compared to previous years due to the more stable environment.

In regard to foreign commitments to Indonesia's infrastructure projects, Miranda said foreign investors would usually convert their capital into rupiah. But in order to retain the funds in rupiah, there should be a mechanism that allows a longer maturity period for currency swaps and hedge transactions.

"There should be swap and hedge markets with periods of one, two or three years instead of the current three months," she said.

She added that the central bank put no limitation on the inflow of foreign currency, as long as the money was used for the real sector.

"But if the currency is traded in foreign exchange markets, we will certainly limit the volume," she said.

The government offered 91 projects worth about $22.5 billion at the infrastructure summit last week. Indonesia needs $150 billion in investment for roads, power plants and other infrastructure over the next five years.

During the summit, there were suggestions that Indonesia should use long term rupiah financing instead of U.S. dollars.

Experts commented that naturally, Indonesia would dramatically rebalance the proportion of foreign currencies against the rupiah in the financing scheme, having learned lessons during the financial crisis of the late 1990s, where foreign debts ballooned because of the dramatic fall in the value of the rupiah.