'Fall in SBI rate good for budget, economy'

'Fall in SBI rate good for budget, economy'

The Jakarta Post, Jakarta

Minister of Finance Boediono said on Friday that the current drop
in the central bank benchmark interest rate would have a positive
impact on the state budget and the overall economy.

"This will certainly have a good effect on the overall
economy, the banking industry, the private sector and the
government," he said.

The interest rate on Bank Indonesia one-month SBI promissory
notes is now at a historic low of 9.71 percent as the central
bank aggressively cut the rate during the past year amid a benign
inflationary environment and the stronger exchange rate of the
rupiah against the U.S. dollar. The rate was more than 13 percent
earlier this year.

There is still a chance that the SBI rate could drop further,
as stated by Bank Indonesia Governor Burhanuddin Abdullah earlier
this week, as long as inflation remains low.

Boediono said that the lower rate would help reduce the
government's burden in servicing its huge domestic debts, mostly
in the form of bonds worth around Rp 435 trillion issued in the
late 1990s to bail out ailing banks. The interest rate of a large
part of the bonds is linked to the SBI rate.

The lower the rate, the less money the government has to
allocate for such payments. One estimate says that a 1 percent
decrease in the SBI rate means that the government could save up
to more than Rp 2 trillion.

Some Rp 55.1 trillion of the 2003 state budget has been
earmarked for servicing the interest of domestic debts.

But it now seems very likely that the amount needed will be
much lower, providing grounds for Boediono to remain optimistic
about achieving this year's deficit target of 1.8 percent of the
GDP, or some Rp 34.4 trillion.

There were worries earlier that the deficit could be higher as
revenue, particularly from privatization proceeds, would likely
be lower than the target due to problems in carrying out the
program.

Maintaining a state budget deficit at a safe level is key to
ensuring macroeconomic stability.

Boediono also said that the lower SBI rate should push lending
rates lower and make bank loans cheaper for the corporate sector.

This would also force banks to resume an intermediary role,
instead of remaining reluctant to channel their money to the
corporate sector.