Some businesses have no appetite for new loans

Evi Mariani, The Jakarta Post, Jakarta

The aggressive campaign by Bank Indonesia to persuade banks to cut their rates and make bank loans cheaper, may not necessarily prompt businesses to prepare proposals for new loans.

Businessmen interviewed by The Jakarta Post on Thursday said they had no reason to borrow money from the banks, even if rates were significantly lower, because of the limited opportunities for business expansion amid the weak purchasing power of the people and other uncertainties affecting the business climate.

"If I borrow money from a bank to start a new business, there's no guarantee my business will generate profit in this kind of (investment) climate," said Adhi Sukmono, secretary general of the Indonesian Electronic Industries Association, who also runs a dealership for Japan's Toshiba electronic products.

He said that the weak purchasing power of consumers was affecting sales in the electronic industry.

"If the demand growth for (electronic products) this year reaches, say, 10 percent, my company can still meet the (financing) demand without having to borrow money."

For the past year, Bank Indonesia has been driving down its benchmark interest rate, from over 13 percent earlier this year to 9.23 percent, in a bid to encourage other banks to reduce their lending rates, and allow the corporate sector to borrow more money and expand their businesses. This was hoped to accelerate economic growth and create new jobs.

But despite the strong pressure from Bank Indonesia's central bank, during the past month, lending rates remained stubbornly high at around 18 percent, although a couple of banks have recently started to lower rates to 17-16 percent, and said that the rates could drop to 14 percent by the year-end.

Some banks said that the ideal lending rate should be around 13-14 percent.

On Thursday, Bank Indonesia Governor Burhanuddin Abdullah said that the central bank would soon introduce new measures to help banks lower their lending rates. The new policy would be directed at further lowering the interest rate for time deposit and savings, which would make the cost of funds cheaper and allow banks to lower lending rates.

Anton J. Supit, who runs a shoe manufacturing and poultry businesses said the current favorable macroeconomic condition and the prospect of lower lending rates were no reason for his company to quickly seek a bank loan.

"I see that consumer confidence is still low, so if I borrow money and produce more shoes, who will buy them?" he said, adding that shoes sales had been declining recently.

He acknowledged that the poultry business was experiencing a healthier outlook than that of shoes but did not plan to expand the food business either.

"I use everything I have right now to keep the poultry business going," he said.

He said that lower lending rates were necessary, but not a sufficient reason for companies to make new investments because of various uncertainties created by a weak legal system, labor conflicts, and poor implementation of the regional autonomy law.

"The government should upgrade the investment climate," Anton said.

Businessmen also said that the upcoming 2004 general election and the poor handling of affairs in Aceh were factors deterring them from committing to new investments.

But small and medium-sized enterprises (SMEs) seem to be hungry for cheaper bank loans.

"The banking industry should help the SMEs. We need fresh money" said entrepreneur Arfan Sofan.