Fri, 05 Mar 1999

Government introduces new lending agency to help SMEs

JAKARTA (JP): State Minister of the Empowerment of State Enterprises Tanri Abeng announced on Thursday the establishment of a finance institution designed to provide cheap financing to small and medium-sized enterprises (SMEs).

He said that the institution would begin operating immediately with a paid-up capital of Rp 1.5 trillion (some US$176.5 million), of which Rp 300 billion would be covered by the 1999/2000 State Budget.

"We have been helping big companies in the past, and now its the turn for small companies," he said at a press conference.

He added that the institution, called PT Permodalan Madani, would likely to focus on equity investment rather than credit extension.

He said that the financing institution would provide its facility to SMEs which needed capital of between Rp 500 million and Rp 5 billion.

The company would also operate as a mutual fund in the future, with the World Bank and the Asian Development Bank to provide technical assistance, Tanri said.

Opposition leaders have accused the government of practicing money politics with this kind of heavily subsidized program ahead of the June 7 general election.

The government earlier said that it would extend the multibillion dollar social safety net program into June if the Rp 18 trillion allocated for the program in the 1998/1999 fiscal year ending in March could not be disbursed by the end of the fiscal year.

The government reported that only around half of the Rp 12.60 trillion released between October and January had been distributed due to technical difficulties in the disbursement process.

Some people have voiced suspicions that the fund has been corrupted by government officials.

The social safety net program, which is partly financed by the international community, is designed to help the poor survive the 19-month old economic crisis.

The government also introduced a Rp 10.8 trillion microcredit program in October to help cooperatives and SMEs survive the crisis.

Minister of Cooperatives and Small Enterprises Adi Sasono reported on Monday that some Rp 4 trillion of the heavily subsidized loans had been disbursed to cooperatives in various sectors of the economy.

These government subsidized loans aim to finance 17 credit schemes with interest rates ranging from 6 percent to 16 percent, compared to the current commercial interest rates of more than 40 percent.

Adi hoped that all the funds could be disbursed by the end of this year.

He denied allegations that the credit program was a political maneuver by the government ahead of the general election.

He pointed out that the program was launched to boost the number of small and medium-sized enterprises by 3.1 percent and 3.9 percent respectively, to 43,999 small-sized firms and 46,353 medium-sized firms by 2000, compared to the current 42,678 and 44,854 firms.(rei)