Govt to ease tight monetary policy

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)