TEMPO.CO, Jakarta- Muliaman Hadad, chief of the Financial Services Authority (OJK) urged the government to encourage sourcing infrastructure funding from capital market instruments such as stocks and bonds. This method is considered more suitable than seeking bank loans.

"We are aware that banks basically have a short-term loan structure that's very exposed to the risk of mismatch," he said in the Bank Indonesian-IMF conference on Tuesday, September 1. The mismatch he meant is the mismatch between loan terms and the time of a project's operation.

Hadad admitted that borrowing financing infrastructure development using bank loans is a phenomenon in developing markets. The banking sector has a very large portion in infrastructure financing.

"From 2010 to 2014, infrastructure financing from the financial sector reached US$43.6 billion, of which the banking sector accounted for 75 percent," he said.

In the medium-term national development plan for 2015-2019, the financial sector is expected to account for 30 percent of (US$0.57 billion) of the total financing requirement of US$1.9 billion. Hadad said the target is fairly high, so the government should empower all sources.

One solution offered is a long-term financing from the capital market. "We want to see capital markets play a significant role in funding the growth of our economy," Hadad said.

He said the government must develop capital markets by strengthening supplies, demand, infrastructure, and supervision, among others. From the supply side, the government could push financial institutions to accumulate funds through the capital market and provide a wide range of instruments for investors to choose from.

In terms of demand, the governments can reinforce the role of insurers and and pension fund managers. "The expansion of distribution channels for financial products and promoting public awareness are equally important," he said.

URSULA FLORENE