Govt urged not to maintain high rates for too long
Govt urged not to maintain high rates for too long
JAKARTA (JP): The government should not maintain interest
rates at the current high level for too long so that the business
sector can expand and create employment, the Indonesian Chamber
of Commerce and Industry (Kadin) said yesterday.
Aburizal Bakrie, chairman of the organization, said that Kadin
cautiously welcomed Bank Indonesia's decision to raise benchmark
interest rates by between 3 and 5 percentage points.
He said the chamber agreed with the central bank's argument
that high rates were necessary to shore up the rupiah because the
business sector could not function under the current volatile
exchange rate environment.
"However, such a policy should only be temporary because the
corporate sector can only thrive within a competitive interest
rate environment," Aburizal added.
He called on the government to continue subsidizing credits
for sound cooperatives and small business ventures to provide
badly needed employment opportunities.
Bank Indonesia increased promissory note (SBI) rates by an
average of 4 percent yesterday.
The one-month SBI rate rose to 50 percent, up from 45 percent.
Overnight SBI rates rose to 44 percent from 40 percent, seven-day
SBI rates to 48 percent from 43 percent, and 14-day rates to 49
percent from 44 percent.
The two-month SBI rate rose to 44 percent from 40 percent, the
three-month rate to 34 percent from 30 percent, the six-month
rate to 23 percent from 20 percent and the 12-month rate to 21
percent, up from 18 percent.
Both state and domestic private bank associations pledged
yesterday that they would maintain their agreement under which
member banks maintain deposit rates at no more than 5 percent
higher than the benchmark SBI rates.
Publicly-listed Bank Bali was offering interest rates of 52.5
percent on one month deposits yesterday, 42 percent on three-
month deposits, 28 percent on six month deposits, and 26 percent
on one year deposits.
Banking expert I Nyoman Moena said the current high interest
rates would definitely weaken the business sector and exacerbate
the recession.
"The rate increase is yet another heavy blow to businesses and
economic growth, but the step has been taken to boost the value
of the rupiah," Moena said.
"When the situation allows, the authorities must reduce the
rates to an acceptable level for business," he added.
He suggested that the government begin cutting rates when the
second US$3 billion tranche of the $43 billion bailout package
arranged by the International Monetary Fund for Indonesia is
disbursed.
Aburizal said business in the real sectors would suffer from
the high rates. Banks too, he said, would be unable to function
as intermediary institutions.
"Excessively high rates make it impossible for banks to lend.
Banks are therefore placed in a defensive position and are unable
to generate profit," Aburizal said.
"Kadin hopes the government takes immediate action to restore
banks' intermediary functions," he added. (rid)