Govt wants to utilize non-bank funds

Urip Hudiono, The Jakarta Post, Jakarta

The government wants to tap into the more than Rp 200 trillion (US$21.5 billion) worth of resources that non-banking financial institutions (NBFI) in the country manage, to help finance long- term investments, including major infrastructure projects.

"There is currently some Rp 40 trillion in directly available funds that pension fund managers, life insurance firms and mutual fund managers can use for investments," Coordinating Minister for the Economy Aburizal Bakrie said on Monday, during a two-day workshop on the development of the country's NBFIs.

"This has huge potential that should be developed and optimized for the country."

This potential, Aburizal said, had been largely untapped, with the country's banking sector still accounting for more than 95 percent of financing activity in the country.

"More than 98 percent of this is used for short-term investments that have a maturity term of less than one year," he said.

Aburizal said NBFIs would be encouraged to participate in the financing of long-term investment projects, including the government's plans to develop the country's infrastructure during the next five years.

"Such long-term investment projects are also in line with their capital portfolios," he said.

The government held an Infrastructure Summit in January, offering 91 major infrastructure projects worth US$22.5 billion, with another batch of projects worth $57.5 billion to be offered later this year.

Of the total $150 billion in financing needs for the projects, one-third will be funded by domestic sources including the state budget, while multilateral lenders are expected to contribute some $10 billion, leaving global private investors to provide the remaining $90 billion.

World Bank finance and private sector development coordinator P.S. Srinavas said that pension fund managers and life insurance firms in the country were estimated to have assets of more than Rp 130 trillion, while mutual funds were worth another Rp 100 trillion, money which could be used to fund a more diverse and sound financial sector in the country.

To encourage NBFI investments, Aburizal said the government would provide NBFIs with tax breaks and policy incentives.

"We will, for example, no longer limit NBFI participation in investment projects to a maximum of 10 percent, but will allow them to participate more than that," he said.

Commenting on the changes, Indonesian Pension Funds Association chairman Satino said he hoped the government would guarantee NBFI investments in infrastructure projects.

"Many pension fund managers prefer to invest in bonds, rather than the more risky stocks in companies conducting projects, because we are responsible over our customers' funds," he said.

"If the government wants to encourage more investment from us, they should at least give some sort of assurance over our investments, particularly if the projects are conducted by state- owned enterprises."