Kadin chairman calls for lower lending rate

JAKARTA (JP): Indonesian Chamber of Commerce and Industry chairman Aburizal Bakrie called on the central bank on Tuesday to push down lending rates in a bid to revitalize the ailing private sector.

Aburizal said current lending rates of over 30 percent were not affordable to most businesses.

"With an interest rate level of 25 percent, the real sector could regain some life," he said after discussing the issue with Coordinating Minister for Economy, Finance and Industry Ginandjar Kartasasmita.

He said the time was ripe for businesses to start making new investments because political jitters had subsided and the economy was showing encouraging signs of development.

Indonesia's business sector was damaged by the surge in domestic interest rates, which saw the benchmark interest rate on the central bank's one-month SBI promissory note soar to more than 70 percent in August last year at the height of the economic crisis.

The skyrocketing interest rates, coupled with the country's severe economic recession, led some 1,600 companies to owe more than Rp 155 trillion in nonperforming loans to domestic banks.

Interest rates on time deposit have dropped markedly over the past several months to around 23 percent. This decline has been made possible by an easing of inflationary pressure. The economy has enjoyed deflation since March.

However, lending rates offered by local banks are still over 30 percent despite the fall in interest rates on time deposits.

Aburizal also appealed to domestic banks, particularly those which had been recapitalized, to resume lending to the business sector.

He said banking authorities should "force" banks to lend to the business sector, particularly export-oriented and labor- intensive firms. "Banks must not simply keep their money in SBI notes."

The government controls those banks which have been recapitalized because 80 percent of the funding for recapitalization came from the government.

Aburizal said the central bank or the government had to "interfere" and encourage banks to begin lending to the business sector. He said many banks could be reluctant to resume lending because they were worried about breaching the legal lending limit or losing their money due to the poor condition of many businesses.

He said that although the country's debt-ridden business sector had to undergo a painful restructuring process, banks should start giving loans to businesses.

"A lower lending rate is not enough, there must an availability of credit. Bank Indonesia must come out with a special policy on this," he said.

Indonesia's 200 largest corporate debtors, which owe some Rp 70 trillion in nonperforming loans to domestic banks, are expected to begin restructuring their debts in August or face litigation.

A number of people have criticized the slow process of restructuring the debts of these companies, most of which are owned by well-connected businessmen.

Aburizal was optimistic, however, that real sector restructuring would gain steam on the back of declining political risks and encouraging economic indicators.

"Our main focus now is the economy because the political jitters have subsided," he said, pointing to the nonviolent general election and expectations of a smooth political transition.

Indonesia held a landmark general election on June 7, without the much-expected violence and unrest.

Many are now betting that the November presidential election will also be free from incident, particularly because major political parties have vowed to accept the results of the election.

Preliminary results show the Indonesian Democratic Party of Struggle (PDI Perjuangan) leading the general election.(rei)