Kadin chairman calls for lower lending rate

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)