Some businesses have no appetite for new loans

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.