BI to handle credit supply to small firms

JAKARTA (JP): Bank Indonesia will take over the overall supply of subsidized credit to small and medium-scale businesses because the country's commercial banks can no longer make any contribution, a top official of the central bank said.

BI director Miranda Gultom said yesterday that the central bank would boost its contribution of total supply of subsidized credit to 100 percent from 65 percent last year.

The remaining 35 percent of last year's subsidized credit was previously contributed by the country's commercial banks, which were required to allocate at least 20 percent of their total credit through the credit for small enterprises scheme.

"The proposal has been approved by the central bank's board of directors," Miranda said at a discussion on how to strengthen small-scale businesses, in which Minister of Trade and Industry Rahardi Ramelan and Minister of Cooperatives and Small Enterprises Adi Sasono were also speakers.

She said the subsidized credit would amount to several trillion rupiah, channeled to the recipients by intermediaries at an interest rate of 9 percent.

She explained that it was impossible for commercial banks to provide subsidized credit at an interest rate of 16 percent, while they had to raise funds with an interest rate of 50 percent.

Under the government's January 1990 deregulation package, the central bank's role in providing subsidized credit to small and medium-scale businesses was to be reduced gradually and replaced by the increasing role of commercial banks.

"But it is unrealistic to expect such a thing at the moment," she said.

Lowest

The country's banking system is currently at its lowest point, battered by the monetary crisis, mounting bad debt and poor management.

Miranda, however, said many small businesses had failed to benefit from the subsidized credit facility because the channeling banks had imposed corporate financing criteria.

"Such a scheme is only applicable during normal times, which is not now," she said, referring to the current economic crisis.

She said the failure was both caused by the inefficient intermediary role of the banking system as well as a lack of productivity in the real sector.

To improve the absorption of subsidized credit by small-scale businesses, BI has designed a new scheme which initially will be implemented through several pilot projects, she said.

She explained that the new scheme would include providing technology and marketing skills improvement in addition to credit facility in one package.

"Because the facility is credit, not a grant, then there must be feasibility to assure that it can be returned," she said.

Rahardi Ramelan said a key factor to strengthen the country's small-scale businesses was to introduce an antimonopoly law.

He said the law was being prepared by his ministry and was expected to be delivered to the House of Representatives (DPR) by December.

He added that the law would include three aspects: antimonopoly, anticartel, and healthy business competition.

Adi Sasono said the government must also eliminate other distortions in the economy, including restructuring the country's distribution industry by adding new players. (rei)