Central Bank governor warns of new economic overheating
JAKARTA (JP): Bank Indonesia (Central Bank) Governor Soedradjad Djiwandono warned banks here yesterday to slow down their lending growth to prevent another economic overheating.
Speaking at an annual congress of the Association of Real Estate Developers (REI), Soedradjad said that lending growth in the last eight months of this year surpassed the central bank's safe level.
Total bank lending increased by around 21.4 percent to Rp 170.84 trillion (US$81.35 billion) in the January-August period from Rp 140.71 trillion in the same period of 1993. The lending growth rate exceeded the government's loan expansion target of 18 percent.
The central bank governor attributed the higher-than-expected growth in bank loans to the sharp increase in lending to the housing sector, which totaled Rp 42.49 trillion in the first eight months, an increase of over 33.2 percent.
"Bank Indonesia and the Ministry of Finance are committed in not applying an ad hoc policy to stabilize the monetary system," he said, reminding that the drastic measures that were taken in the past to squeeze the money supply would not be repeated.
He said, however, that bankers and real estate developers should, in return, cooperate with the government in dealing with the too rapidly expanding loans by voluntarily reducing their lending positions.
Soedradjad said a cut in lending to the housing sector would be able to curb the strong inflationary pressure resulting from the increase in the overall business activities.
The inflation rate, which already reached 8.27 percent in the January-October period, was caused mainly by the sharp increase in food and housing prices, he said.
The central bank governor was optimistic that the slowing of the lending growth to around 18 percent per annum would still enable the economy to grow by between six to 6.7 percent a year.
Opposition
Marie Pangestu, an economist at the Center for Strategic and International Studies (CSIS), opposed the central bank governor's approach in preventing the economic overheating.
Marie said that the central bank has no reason to blame the residential property business for the high inflation rate and the too rapidly expanded credits.
The housing loans are not only less risky than those for other sectors but are also still very much needed to meet the strong demand for housing in the country, he said.
Speakers at the REI's annual congress also included Minister/State Secretary Moerdiono, State Minister for Agrarian Affairs Soni Harsono and State Minister for Investment Sanyoto Sastrowardoyo.
Sanyoto said that the real estate industry has rapidly developed in the last five years in line with the country's growing economic activities.
Cumulative domestic investment in the real estate industry since 1967 reached Rp 5.84 trillion ($2.78 million) as of last month, while foreign investment in the industry totaled $1.34 billion. (hen)