Woes of living on credit

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."