Tue, 05 Aug 2003

Govt urged to revive corporate sector

The Jakarta Post, Jakarta

The People's Consultative Assembly (MPR) has urged the government to speed up efforts to revive the corporate sector in the country in order to boost economic growth and generate more jobs.

This was a recommendation made on Monday by MPR Subcommission C during the fourth day of the MPR Annual Session.

Lawmakers have questioned why increasing stability in macroeconomic indicators has not been translated into a revival of the country's real sector.

Paskah Suzetta, a senior lawmaker with the subcommission, blamed the government's failure to eliminate obstacles seen as detrimental to investment in the sector, such as legal uncertainty, security stability, consistency in regulations and confusion in regional autonomy.

All that had resulted, Paskah said, in banks' reluctance to provide substantial loans to the corporate sector, still associated with a variety of risks.

"Banks are worried over the corporate sector on fear that their loans could be defaulted upon," he said following a hearing.

The subcommission is in charge of gathering input for the government, to be given later in the form of MPR recommendations.

The MPR's remarks were the latest concern to be voiced on the current state of the corporate sector, whose restructuring remains slow, despite rapid improvements in the country's macroeconomic fundamentals.

With such lingering obstacles, Paskah said banks would not resume lending to the corporate sector as the banking industry must also adopt tough, prudential principles.

The stable rupiah and benign inflation have led to massive cuts in Bank Indonesia's benchmark interest rate -- the indicator for banks to adjust their interest rates on loans -- with the main aim being to accelerate investment in the corporate sector.

However, it has been shown that commercial lending from the banking sector has not yet lived up to expectations, in what analysts attributed to the banks' slow pace in cutting their interest rates for lending.

However, Paskah insisted that apart from bank lending rates, problems also lay in rebuilding confidence in the corporate sector, whose restructuring progress had been slow, with most companies still hugely indebted -- a legacy from the devastating crisis in the late 1990s, which has left them with a reputation of being a high risk.

This state of affairs was previously been confirmed by central bank governor Burhanuddin Abdullah, who said that currently tens of trillions of rupiah in banking funds were allocated to the private sector, but they had yet to be disbursed due to low take- up from the sector.