State banks, new govt firm to manage loans

JAKARTA (JP): State Bank Rakyat Indonesia (BRI), Bank Tabungan Negara (BTN) and PT Permodalan Madani will take over the task of channeling heavily subsidized loans from the central bank in November.

Bank Indonesia (BI) deputy governor Aulia Pohan said on Friday that based on the new central bank law, which became effective on May 17, the central bank could no longer provide the subsidized loans, and it had to hand over the role to government appointed institutions in six months time.

"BRI, BTN and Permodalan Madani, the newly established state finance company, are likely to take over the role," he said.

He said BRI would handle subsidized loans for farmers and cooperatives, BTN would manage mortgage facilities for inexpensive housing and Permodalan Madani would channel loans to small-scale businesses.

He said some Rp 7.4 trillion in subsidized loans had been allocated for the period between May 17 and November 16, 1999.

The subsidized loan program has drawn criticism from a number of quarters, including those concerned about the huge burden the program will place on the state budget.

The head of the credit division at BI, Abubakar Karim, said the subsidized loans had an average interest rate of around 9 percent, compared to the current lending rate of over 30 percent.

He said the government would have to provide a large amount of funding for the program.

"This will be a big headache for the government... but if we stop the program there could be fresh social and political unrest because this is related to the small people," he said.

He said that when rumors emerged last year that the central bank was considering canceling the program, many people protested.

He said the only way the government could finance the program was by issuing sovereign bonds.

The government earlier indicated it was considering Japan's offer to guarantee sovereign bonds issued by crisis-hit nations in the region.

Noted economist Anwar Nasution has also aired concern over the burden the program places on the state budget.

"It will surely be a heavy burden for whoever wins the general election," he said.

Indonesia held elections on Monday, with final results expected to be announced on June 21.

The country's devastating economic crisis has caused serious strains on the state budget. The government plans to issue more than Rp 350 trillion in bonds to help recapitalize the country's banking sector.

Meanwhile, economist Didik J. Rachbini warned the government of the moral hazards of the program.

He said, as an example, that small-scale businesses in rural areas which had been able to survive on loans at market rates would turn to the subsidized loans even if they were intended for small-scale farmers.

"They can always manage to get the subsidized loans and put them in time deposits," he said. (rei)