BI urged to favor credit lines over market operations
BI urged to favor credit lines over market operations
JAKARTA (JP): Bank Indonesia (BI) should direct more liquidity
to productive sectors through credit lines to reduce inflation
and bank interest rates, economist Nyoman Moena said.
Moena, former BI director, said the central bank's current
policy of market operation through issuing Bank Indonesia
Certificates (SBIs) and buying commercial banks' money market
securities (SBPUs) had failed to revive the dying economy.
"By using SBIs and SBPUs, BI could not monitor where the money
goes. Once the money is disbursed, it may go to speculators,"
Moena said.
BI has pumped a huge amount of liquidity -- the total is
estimated to be more than Rp 30 trillion (US$3 billion) -- to
cash-strapped banks.
Moena said the market remained tight despite such a huge
supply of liquidity, indicating that the money had gone to the
wrong targets.
"Therefore it is high time for BI to channel the liquidity
through credit lines so that it can monitor where the money goes
and even direct where the money should go," he said.
BI could, for instance, direct more liquidity to export-
oriented businesses by providing more rediscount facilities to
banks which have extended credits to exporters.
BI could also direct liquidity to basic staple producers and
distributors by extending them special credits through commercial
banks.
"By channeling liquidity through credit lines, BI would not
just monitor or direct where the money goes, therefore avoiding
speculation, but also help to improve the country's economic
capacity," he said.
Moena, Chairman of the Domestic Private Bank Federation's
advisory board, warned that if the central bank adhered to its
market operations through the SBI and SBPU policies, it would not
be able to influence the market.
It would be almost impossible to bring down interest rates if
liquidity remains tight and inflation soars, he said.
"Therefore, the central bank should focus efforts in supplying
liquidity to the right targets and reducing inflationary
pressures. This way, interest rates would go down," he said.
Meanwhile, businessman Fahmi Idris said high interest rates
and the weak rupiah were the main culprits responsible for
corporate bankruptcies and massive layoffs.
Fahmi, a Chief Executive Officer at the Kodel business group,
warned that if interest rates rose further, due to the high
inflation rate expected this year, and if the rupiah weakened
further, there would be a "national collapse".
"If tight liquidity policy is maintained for too long and if
the rupiah does not recover, surely it would force even more
businesses to close. It could even lead to national collapse,"
Fahmi said.
The main task for the new cabinet would be to prevent such a
national collapse and revive business activities by reducing
interest rates and stabilizing the rupiah's exchange rate, he
said. (rid)