Woes of living on credit
We all know the government has huge debts, and so do the tycoons. But many people also have credit, whether to buy a house, a car or a mobile phone, waiting to be paid off. The Jakarta Post's Emmy F. Hastuti, V. Anjaiah, Rita A. Widiadana and T. Sima Gunawan report on the ways people try to deal with their debts.
JAKARTA (JP): "Ali" is always broke, even on payday.
"I spend most of my salary to pay my debts," he said.
The employee of a hospital in Central Jakarta, for 15 years has a monthly salary of Rp 850,000, but he receives less than Rp 200,000. The rest goes to his creditors: state savings bank BTN, GE Finance and the cooperative at the hospital.
"I don't remember the amount of my debts. What I do remember is that in the past 10 months I bought from the cooperative many items, such as a mobile phone, a TV set, a VCD player and some car spare parts."
In an arrangement spanning from 1992 to 2006, BTN Bank deducts Rp 200,000 from his salary for a housing loan.
As a GE Finance MasterCard holder, he also has to pay for the items he bought using the card. Surprisingly, even though his credit limit is Rp 2 million, he manages to keep expenditures down to an average of Rp 300,000 a month.
He said he earned additional income, including from the tips he receives from hospital patients, and by moonlighting at other jobs.
If he is in need of money, he goes to the cooperative or his friends.
"We only live once, we should enjoy it," he said, but he admitted that his carefree "philosophy" often created problems with his wife.
It's not only low-income people like Ali who are trapped in a cycle of debt; his problems are nothing compared to those of many of the country's prominent businesspeople and their enterprises.
Take controversial tycoon Marimutu Sinivasan, whose Texmaco Group is in the red to the tune of Rp 19 trillion (US$2.1 billion).
Debt is a part of doing business for most of the country's companies, big and small. There is a saying that the bigger the company is, the bigger its debt.
The government is also saddled in debt. Every year it borrows from international creditors through the Consultative Group on Indonesia (CGI), but most of it is eaten up plugging the budget deficit and to pay off old debts and interest. It is said that every Indonesian baby born today is already burdened with the huge debt of their elders, with each of the country's more than 200 million citizens "owing" US$700 toward's the staggering $140 billion national debt.
Psychologist Sartono Mukadis said that being in debt was a part of our lifestyle and billions of others around the world.
"There is no country in this world which is free from debt. What makes it different is the system. If you have a good debt system, the economy will be good, but if the system is bad, the economy will also be bad."
And living with debt is nothing new. Long before the banks introduced credit cards, people in big cities and small towns were accustomed to buying on credit or borrowing money from individual creditors.
The latter continue to operate in traditional markets or offer door-to-door service. For some, they are like a guardian angel who is ready to help out in emergencies, without any complicated procedures.
Yet some charge high interest for their assistance.
Housemaid Sidup said she once borrowed Rp 1 million from an individual creditor and agreed to pay the debt within a month at Rp 200,000 interest. When she failed to make the payment on the due date, the creditor insisted that she pay the interest.
Unfortunately, she did not have enough money.
"Two years ago, the creditor said my debt had swelled to Rp 36 million, and my house was seized," said the middle-aged woman.
Ali and Sidup may be considered extreme cases of debt woes, but people living with credit are all around us.
How about yourself? If you have a credit card, you are likely to be in debt. Maybe it is only for a short period of time, and you will probably make the next installment payment when it's due.
Others may not be so prudent because they find themselves using their credit cards to the maximum to cover their expenditures.
Some blame the banks, which were generous in handing out credit in the boom years of the early 1990s but found their hands were tied when bad debts spiraled during the crisis.
The public relations manager of Standard Chartered Bank, Halim Mahfudz, said his bank offered not only car and housing loans, but also credit to purchase a house, car or for deposits, with collateral or without. The service, which was stopped in October 1997 during the economic turmoil, was relaunched in January 1999.
Its latest product, called Car Invest, allows customers to obtain credit between Rp 30 million and Rp 750 million, with private cars as the guarantee.
Those who want credit without any collateral can borrow a maximum of twice their monthly salary, with a minimum salary of Rp 2.5 million for those living in Greater Jakarta, or Rp 2 million for others.
The interest rate is 30 percent per annum.
Halim said that if customers failed to pay the installments, the bank would help them find a way to settle the credit, such as offering credit restructuring or selling the collateral.
For some, taking a bank loan is not a problem.
Henny, 38, an executive secretary at a foreign company, recounted how she took a loan from a leasing and financing company. It offered two-year loans for various purposes, such as wedding packages, education, housing and car purchases.
She and her future husband received Rp 25 million in 1995.
They paid it off monthly at between Rp 1.5 million and Rp 2 million, which was feasible for the couple who jointly earned at least Rp 10 million per month. "But we also had to pay off a housing loan. We were not rich enough to buy anything with cash."
Henny believed it was fine for someone with a regular fixed income to take a loan from a leasing company or a bank offering a good interest rate -- as long as the money was used for important purposes.
Consumerism
Sartono said it was up to the individual to make sensible decisions about taking credit. "They have the freedom to make a choice. They have to be able to think about it."
He criticized banks which provided tempting offers of credit that could encourage consumerism and draw more people into debt troubles.
"Banks should educate the clients to be 'cool-headed', to think rationally. They should remind them that they have the obligation to pay."
Executive of the Indonesian Consumer Foundation Agus Pambagio frowns upon bank loans which could encourage people to dig themselves into a deeper hole financially.
"Our people tend to have a snobbish culture, especially the middle-income class. They don't really understand about how the banks work and they can be easily lured by the easy way to get loans ... In the end, they are left tearing their hair out to pay the installments ... "
Although Agus partly blamed the clients for not being responsible about their expenses and failing to make discerning decisions, he said banks must not mislead people with their marketing ploys.
He also called on them to be more selective in screening loan applicants and to provide them with comprehensive information on the advantages and disadvantages of the scheme.
Agus gave a few words of warning to the public.
"Please calculate your expenses first. Do not ask for credit if you are not really in need of it. You have to consider whether you'll have the same income tomorrow to pay the debt."