Stifling interest rates

Bank Indonesia has increased its interest rate for Bank Indonesia promissory notes (SBI) to 45 percent a month. One consequence is an increase of commercial banks' interest rates to 47.5 percent for one-month time deposits and 19 percent for one year. The central bank's purpose for increasing its SBI interest rate is to attract the people to deposit their money in banks, with the expectation that the rupiah exchange rate will be strengthened. This objective has not been attained because the exchange rate remains relatively high, that is Rp 8,500 for one U.S. dollar.

Apparently, the bad effect on domestic businesspeople was hardly taken into account. They have borrowed money from banks for their operations and now, the interest rate on loans has been raised to about 60 percent per annum. This is a heavy burden for them.

They are experiencing major difficulties because of the monetary crisis. Imported raw material and spare parts have increased by 200 percent to 400 percent. If this condition continues for a long time, it will result in bankruptcy for many businesses. There will be huge lay offs. The economy will stagnate or go into recess. It will worsen the economic crisis, which will bring destruction to the country.

If the association of banks has fixed the time-deposit interest rate at a maximum of 47.5 percent for one-month deposits and 19 percent for one-year deposits, businesspeople also want to see a reasonable level of interest for their loans. In my opinion, that level would be a maximum of 30 percent.

It is hoped that Bank Indonesia will lower its SBI interest rate to a reasonable level.

SUHARSONO HADIKUSUMO

Jakarta