Credit policy won't slow RI economy

Credit policy won't slow RI economy

JAKARTA (JP): The government's plan to slow down credit
expansion to 19 percent in the 1995-1996 fiscal year from 22
percent in 1994-1995 will not stagnate the country's economy,
economists predict.

Djisman Simandjuntak, the executive director of the Prasetya
Mulya post-graduate management institute, said yesterday that the
lower credit expansion would not affect the country's economic
growth projection of between 6.5 percent and 7 percent this year.

The impact of the slower credit growth will be small because
businessmen and investors still have a number of other
alternatives to finance their investments, he said of possible
consequences of the government's tight monetary move.

He said that entering the stock market could be a good choice
for the business world in raising funds for new investments or
expansion activities.

Djisman said that unlike bank credit, raising investment funds
through the capital market will create less inflationary
pressure.

"The central bank's plan to slow the credit growth in the
banking system is timely. So that we don't have to worry about
the economy overheating," he said.

There is no official indicator to identify when the country's
economy is overheating but experts believe that the inflation
rate can be still checked at around 10 percent even if the
economy were to grow by between 7 percent and 7.5 percent.

The inflation rate reached 9.24 percent last year, as compared
to 9.77 percent in 1993. The 1994 economy is estimated to grow by
6.7 percent.

Bangun Sarwito Kusmuljono, the president of Nusa Bank, shared
the view that the slower growth in credit expansion would not
cause stagnation of the economy.

"In fact an increase of 100 percent will cause no problem at
all as long as all credit is used for productive activities," he
said.

The high supply of bank loans to the business sector has often
had an inflationary impact over the past several years as many
borrowers used some of the investment loans for non-productive
activities, he said.

Overseas

Besides trimming the credit supply, the government also plans
to strengthen control over overseas borrowing by the private
sector in a bid to curb the widening current account deficit.

Economists estimate that the expected sharp increase in the
inflow of direct investments will be able to compensate for the
drop in the credit supply from domestic financial sources and the
possible reduction of foreign commercial loans coming into the
country.

Approved foreign investments almost tripled to US$23.7 billion
last year from $8.1 billion in 1993.

Businessmen are reacting cautiously over the government's
tight monetary measures.

Fadel Muhammad, the president of the Bukaka Group, said that
small-sized and medium-scale companies should be given the
privilege of getting bank loans in the next fiscal year so that
their operations will not be hurt severely by the credit crunch.

"Giving a privilege to small-scale and medium-scale borrowers
is necessary as, unlike big corporations, they are still too
dependent on bank loans," he said.

Concerning the stricter control of offshore loans, Fadel said
that the measure was good and that approvals to obtain offshore
loans should be given under a "first come first served" basis.

"We don't want approvals to be given merely to a certain group
of companies, but to those which are already on the waiting
list," he said.(hen)