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)