Govt credit scheme repeats past mistakes, say analysts

Govt credit scheme repeats past mistakes, say analysts

JAKARTA (JP): Analysts again criticized the government's
policy to provide heavily subsidized loans to small- and medium-
sized companies and cooperatives.

They said the government's program to provide Rp 10.8 trillion
(US$1.27 billion) in heavily subsidized loans was merely
repeating past mistakes.

Economist Faisal H. Basri said the program, launched by
Minister of Cooperatives and Small Enterprises Adi Sasono, would
fail just like the previous schemes.

"The program is highly vulnerable to corruption and failure if
adequate institutional capacity as well as competent and highly
dedicated personnel are not in place to manage and oversee the
program.

"And we all know, given past experiences with similar
programs, that it takes some time to create such preconditions,"
he said in a discussion on the monetary and banking system for
small-scale businesses held by the Institute for Development of
Economics and Finance (INDEF).

The government has promised to allocate Rp 10.8 trillion
(about US$1.2 billion) in heavily subsidized loans for small
businesses and cooperatives.

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

The government has so far disbursed around Rp 4 trillion of
the loans.

Former president of the state Bank Rakyat Indonesia (BRI)
Kamardy Arief, said the biggest challenge for the program lies in
the assessment of the business viability of those who will be
given the subsidized loans.

"Learning from BRI's experience in providing rural credit,
this is not a simple process, given the different characteristics
of the many business areas in which small and medium enterprises
(SMEs) operate and the scattered locations of the target
beneficiaries."

Kamardy said the government should undertake comprehensive
surveys and research before launching new microcredit schemes.

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.

Faisal believed the huge funds disbursed by the government to
help people in the informal sector would hamper the country's
economic growth, given the low productivity of the sector.

"No country in the world can have sustainable economic growth
with the majority of the population working in the informal
sector," he warned.

Faisal said the number of people working in the informal
sector in a country should decrease following an improvement in
the country's economy.

"So don't be proud to say that the number of small scale
enterprises is increasing due to the disbursement of the loans.
This move (to boost the number of people working in the informal
sector) may be useful for the short term, but for sure it could
not become a system we could rely on in the future."

INDEF's director Didik J. Rachbini, said Adi's plan to rely on
cooperatives as a locomotive to lift the country's economy was
unviable.

"There is no place in the world where cooperatives have
succeeded in becoming a locomotive in a nation's economy.
Cooperatives can only become a leading sector in improving the
rural economy."

Economist Tony Prasetiantono cited the improvement of poor
people's access to credit as more important in Indonesia than
providing heavily subsidized loans.

"No matter how good the scheme is, if it is managed without
any business sense, for sure it will fail," he said.

Kamardy said Adi's program was not an entirely new concept
within the government's economic development program. Former
president Soeharto launched several programs in the late 1980s
and 1990s designed specifically to bolster the role of
cooperatives and SMEs.

However, these programs, similar to previous schemes, faltered
after a short while, as a result of collusive and corrupt
interventions. Due to a lack of transparency and accountability
(as well as institutional capacity), the funds allocated for
these programs flowed largely to officials, middlemen and big
companies, abandoning the target beneficiaries.

Faisal warned that pushing ahead with the program, despite the
complete lack of vital preconditions cited above, would succeed
only in temporarily dissipating funds, then the program would die
out, just like previous schemes, leaving behind new trails of bad
credits. (gis)