Proposal on guarantee fund sparks debate

Proposal on guarantee fund sparks debate

By Imanuddin

JAKARTA (JP): The proposal for establishing a guarantee fund
(GF), a kind of credit insurance firm, has drawn different
responses from banking experts and policy makers.

The idea was put forward by entrepreneur of Golkar, the ruling
party in Indonesia, in a technical meeting of the Ministry of
Cooperatives in Cipayung on May 11.

The idea received the support of the Indonesian Chamber of
Commerce and Industry (Kadin) in a meeting between Golkar members
and the Kadin's board of directors on May 19. It also got a
favorable review by the Governor of Bank Indonesia, the central
bank, Soedradjad Djiwandono on May 25.

Fahmi Idris, chairman of Golkar's department of cooperatives
and entrepreneurs, said the GF is aimed to help small scale
businessmen in getting loans from banks since most of them are
not bankable.

He said such businessmen do not have a taxpayer registration
number (NPWP), balance sheets or feasibility studies, all of
which are required when they propose a credit from a bank.

"The proposed guarantee fund is expected to be a bridging
agency between small scale businessmen and banks." Fahmi said.

He said the proposed financial institution will get donations
from the profits of state-owned companies, conglomerates and
international institutions through two-step-loans.

Fahmi said Golkar has not yet decided whether the status of
the GF will be a government company or Perum.

He said the Perum status will not prevent donations from
private sectors to the GF. It will also dispel the idea that
Golkar will individually manage the collected funds for party
purposes.

Disagreement

Minister of Cooperatives and Small Enterprises Subiakto
Tjakrawerdaya disagreed on the establishment of new creditor
institution for small scale businessmen.

He said it would be better to maximize the function of the
existing state-owned Indonesian Credit Insurer (Askrindo) and
Perum PKK, the state-owned company for the development of
cooperative finance.

Legislator Thomas Suyatno of the Golkar faction at the House
of Representatives (DPR) said he agrees with Golkar's proposal,
with conditions.

"As a member of DPR's Commission VII, I will support the
proposal as long as it actually promotes small and medium scale
businesses," Thomas said.

Christianto Wibisono, director of the Indonesian Business Data
Center (PDBI), said Golkar's proposal proves there is functional
confusion between the political party and the government.

"It will be apparent that Golkar will be able to use the
state's money for its own political interests if the guarantee
fund is approved." Christianto said.

Kwik Kian Gie, a businessman and a former member of the
People's Consultative Assembly (MPR) from the Indonesia
Democratic Party (PDI), seems skeptical about the proposed
guarantee fund.

Kwik said the GF is nothing else than a credit insurance firm
which has been acknowledged here long before.

"It is not a new concept -- we have had Askrindo before," Kwik
told The Jakarta Post. He added that in the guarantee fund
concept, the management does not get funds from premiums but
funds that will be donated from the profits of state-owned firms.

Kwik said a GF can have an acceleration ratio 1:10. That means
that it can extend a credit of Rp 100 billion (US$46.40 million)
if the guarantee fund is Rp 10 billion ($4.64 million).

He said there will not be a problem for the GF if the bad
loans are not greater than 10 percent. However, if bad loans do
account for more than 10 percent, the GF will go bankrupt.

Kwik said Askrindo went bankrupt last year when its bad
credits exceeded what had been previously estimated.

He said the most crucial factor in helping small scale
businessmen is not merely by making loans easier to get, but by
teaching them to manage their firms more professionally.

He said the GF will not help small scale businessmen if it
only extends no-risk credit without giving them guidance on how
to do business correctly.

Kwik said it will not educate them because the GF itself will
bear the risk and pay the credit, not the businessmen.

Legislator Sugoto of the Armed Forces faction at the DPR
mentioned a similar point about extending credit to small scale
businessmen.

Sugoto said the GF had to thoroughly evaluate businessmen's
viability before it gives a credit recommendation to banks,
because careless evaluation will hurt the credibility of the GF.

Commenting about the source of the GF's funds, which is be
obtained from state firms' profits, Thomas said there is no need
to argue about it because it is not a new government policy.

Violation

Kwik said that the utilization of one to five percent of state
firms' profits was tantamount to taxation, and that the
utilization of those profits in the GF's capital structure would
violate constitutional procedures.

"I consider the utilization of state firms' profits as
taxation and against the Constitution of 1945 because it will be
subject to approval by DPR." Kwik said.

In contrast to Kwik, Christianto questioned the transparency
in the management of conglomerates' donations to political
parties, especially prior to general elections.

"Transparency in the management of conglomerates' donations to
certain political parties prior to general elections is important
in order to avoid collusion or indebted impact later."
Christianto was quoted by Kompas daily as saying.

With regards the form of the guarantee fund, if it is
approved, Thomas Suyatno said he disagrees with the idea of
making the guarantee fund a Perum. This is because these
companies have, so far, shown dependency on the government in
policy making.

Thomas said a limited company (PT) will be more appropriate to
the GF since the management can rapidly formulate the policies
and take operational steps directly.

Aburizal Bakrie, chairman of the Indonesian Chamber of
Commerce and Industry (Kadin) and chairman of the Bakrie Group,
agrees with Thomas.

Aburizal said a PT will be more generous in managing the fund
to help increase the capacity of the small scale businessman.

However, Kwik is more moderate on the issue. He said either
form, the Perum or the PT, would be suitable for the GF.