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Government places $2.12b in state-owned banks to accelerate economic recovery

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Jakarta Post - June 24, 2020

Adrian Wail Akhlas, Jakarta – The government announced on Wednesday that it would place Rp 30 trillion (US$2.12 billion) in state-owned banks, associated under the auspices of Himbara, to be channeled as loans to businesses to help support economic recovery amid the COVID-19 pandemic.

Finance Minister Sri Mulyani Indrawati said the government would pump state funds currently deposited at Bank Indonesia (BI) into Himbara, adding that the money should not be used by the banks to buy government bonds or pile up foreign exchange. The funds will be kept in deposit accounts with interest rates of 80 percent of the central bank's benchmark interest rate of 4.25 percent.

"We are hoping this effort can encourage banks to take measures to boost the real sector by extending loans to businesspeople at low interest rates," she said in a livestreamed news conference.

The government is following through on its promise to allocate fund placements in banks worth Rp 82.2 trillion to help their liquidity as they conduct credit restructuring for micro, small and medium enterprises (MSMEs) and labor-intensive businesses affected by the pandemic. It is part of the government's Rp 695.2 trillion budget to fight the health and economic impacts of the pandemic.

The funds will initially be deposited in all state-owned banks namely Bank Mandiri, Bank Rakyat Indonesia (BRI), Bank Negara Indonesia (BNI) and Bank Tabungan Negara (BTN). Sri Mulyani expressed the hope that later the government could also place its funds in healthy privately owned banks if the first placement proved successful.

She added that the government would make agreements with the banks and would monitor the use of the funds together with State-Owned Enterprises (SOEs) Minister Erick Thohir.

"We all know that the SOEs run a third of the national economy," Erick said in a statement. "We will continue what we have been doing, which is ensuring MSMEs in villages and cities get back to business."

The Cooperatives and SMEs Ministry reported in late April that small businesses had booked a 57 percent decline in sales since the COVID-19 pandemic hit Indonesia. Small businesses account for around 60 percent of the country's gross domestic product (GDP), according the ministry.

The coronavirus pandemic has ravaged the country's economy as government officials expect an economic contraction of 0.4 percent this year under the worst-case scenario or growth of 1 percent under the baseline scenario. Indonesia's economy grew by 2.97 percent in the first quarter, the weakest since 2001.

Speaking during the same briefing with Sri Mulyani, BRI president-director Sunarso said the facility would strengthen the bank's liquidity, adding that the bank planned to expand its credit disbursement by three times the funding allocated to fuel the economy.

"We have plans for the next three months. Let's say we get Rp 10 trillion, we will have to expand [our loan disbursement] to Rp 30 trillion," he said, adding that the bank aimed to channel 50 percent of the money for businesses in rural areas.

"Our target market is MSMEs, particularly those in the food and agriculture sectors," Sunarso went on to say, expressing interest in providing loans for healthcare facility distribution.

Shares in banks rose significantly on Wednesday following the government's announcement. BNI jumped by 8.22 percent, Bank Mandiri increased by 7.52 percent, BRI rose by 3.65 percent, while BTN soared by nearly 12 percent. The main gauge, the Jakarta Composite Index (JCI) climbed 1.75 percent on the day.

"We are ready to expand particularly in regions with tourist destinations that will reopen soon, as well as trading and other sectors, with the aim of allowing MSMEs to recover," Bank Mandiri president-director Royke Tumilaar said during the briefing.

According to data provided by the Financial Services Authority (OJK), Indonesian banks had provided 6.27 million borrowers with credit restructuring worth Rp 655.8 trillion as of June 15, following the issuance of OJK Regulation No. 11/2020, which instructs financial institutions to provide relief for borrowers affected by the COVID-19 pandemic.

OJK chairman Wimboh Santoso told lawmakers during a hearing on Monday that banks still had ample liquidity, citing central bank data that banks had deposited Rp 440 trillion with BI and another Rp 940 trillion in sovereign debt papers.

BI Governor Perry Warjiyo, meanwhile, renewed the commitment to supporting bank liquidity last week after the central bank's board of governors meeting, saying that BI would provide additional liquidity for banks through repurchase agreements using sovereign debt papers as underlying transactions.

The central bank cut its benchmark interest rate to 4.25 percent last week, the third cut this year, to bolster economic growth. BI has cut its benchmark interest rate by 175 basis points (bps) in the current easing cycle starting in the second half last year.

Source: https://www.thejakartapost.com/news/2020/06/24/government-places-2-12b-in-state-owned-banks-to-accelerate-economic-recovery.html

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