Banks ready for infrastructure plans

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.