Bank Lending Rate Should be Lowered to Stimulate Investment: VP

TEMPO.CO, Jakarta - The bank lending rate, which currently stands above 10 percent, should be lowered as part of the efforts to stimulate the realization of investment in Indonesia, Vice President Jusuf Kalla said.

"One of the problems faced by Indonesia is the high lending rate. The lending rate should be lowered to stimulate investment in Indonesia," Kalla said on Tuesday.

The vice president expected that the interest rate could be reduced to five percent. "We hope that the rate can be 5 percent for purposes of bank lending. In developed countries, the interest rate is low," he said.

The vice president discussed with Finance Minister Bambang Brodjonegoro and Governor of Bank Indonesia, Agus Martowardojo, the issue of a lower interest rate.

"We have talked about a lower interest rate and we will evaluate it. When investors would look at the prospects of investing in Indonesia, they will compare Indonesias interest rate to that of Vietnam or other countries," he said.

The investors feel that the cost of investing in Indonesia is higher than in other countries.

"Other countries can even offer 1 percent rate, while we offer 12 percent. It is difficult to compete," he said.

With regard to small and medium enterprises (SMEs), the vice president noted that the government has issued a policy to slash the interest rate for Peoples Business Loans (KUR) from 22 percent to 12 percent this year.

"The interest rate is targeted to be brought down to 9 percent next year," he said.

Earlier, Bank Indonesia (BI) said it has maintained its benchmark interest rate (BI rate) at 7.5 percent this year to prevent capital outflow.

BI Senior Deputy Governor Mirza Adityaswara said the central bank could not yet cut the BI rate to pace with the U.S. and the European Central Banks in order to boost economic growth.

"What we need is the availability of foreign exchange. Around 37 percent of the state bonds are in foreign exchange. It is important to keep foreign exchange to finance the state budget. We have to see to it that there is no capital outflow," Mirza said at a seminar here on Thursday.

Mirza said currently it is impossible for the nation to grow without foreign assistance in the form of capital. Therefore, the policy should be directed towards freeing Indonesia from its dependence on foreign capital.

"Concerning portfolio investment, we have to increase pension funds, insurance and mutual funds," he added.

He also said equity and loans should be proportional in foreign investment (PMA) entering the country, adding that many PMA companies pay high interest rate to banks abroad.

"We should invite only PMA with equity and balanced borrowing. Therefore, capital structure of the PMA also needs improvement. The policies have to be directed that way," he said.

The monthly meeting of the BI board of governors on Tuesday decided to maintain the BI rate at 7.5 percent with deposit interest rate at 5.5 percent and landing rate at 8 percent.

ANTARA