Govt to ease tight monetary policy
JAKARTA (JP): Minister of Finance Mar'ie Muhammad has pledged that the government would further ease the tight money policy to revitalize economic activities.
Mar'ie told a hearing with the House of Representatives Commission VIII for state budget and finance that the government would continue efforts to reduce interest rates.
"If people are still complaining about a lack of liquidity, it should be a matter of the spread of the liquidity because following the closure of the 16 banks people tend to keep their money in state banks or foreign banks," Mar'ie said at the hearing Wednesday.
The 16 banks were closed as part of an effort to clean up the financial sector under an International Monetary Fund-supervised program of economic reforms.
Mar'ie said the government had gradually eased liquidity by cutting the rates of Bank Indonesia Certificates (SBIs) four times, disbursing funds placed in SBIs and resuming trading in money market certificates (SBPUs).
"We have disbursed all funds placed in SBIs a few months ago following the hikes of SBI rates and even state-owned funds placed in SBIs several years ago," Mar'ie said.
Bank Indonesia, the central bank, had also supplied more liquidity to commercial banks by buying more SBPUs.
Mar'ie said any commercial bank could now sell SBPUs worth 7.5 percent of its third party funds to Bank Indonesia.
"Before the crisis, banks could only sell SBPUs worth 5 percent of their third party funds," Mar'ie said.
The minister said that overall broad money or domestic liquidity supply (M2) was also increasing from time to time, serving no indication of a tight monetary policy.
Broad money supply had grown from Rp 290.85 trillion (US$84.3 billion) in January, to Rp 303 trillion in May, Rp 317 trillion in July, Rp 325 trillion in August and Rp 329 trillion in September.
"Is that true that we pursue a tight money policy? In the beginning of the crisis, maybe yes, but not now. Those figures speak for themselves," Mar'ie said.
He said broad money supply grew by 14 percent in the first nine months of this year, compared to 16.5 percent recorded in the same period of last year.
The current 1997/1998 state budget targets the growth of broad money supply at 18 percent.
"We expect that the growth of broad money supply both for this calender year and this fiscal year would reach about 18 percent or lower," Mar'ie said.
The minister also said that the government had told state banks to initiate lowering banking interest rates by cutting their deposit rates.
"Bank Indonesia has cut SBI rates four times, but market lending rates remain high. So, cutting SBI rates alone would not bring down overall rates.
"That's why we told state banks to take the initiative, by cutting their deposit rates. Why state banks? Because they are enjoying over liquidity now, especially after the closure of 16 banks," Mar'ie said.
Following the closure of 16 banks, Mar'ie said, many depositors withdrew their funds from private domestic banks, especially the small ones, and placed them in state or foreign banks.
After state banks reduced their deposit rates, it was expected that depositors would return their funds to private banks, including small private banks because "they are offering more competitive rates now," Mar'ie said.
He said Bank Indonesia would continue supplying small private banks with liquidity credits to keep them afloat until their depositors returned to them. (rid)