BI Rate Hike Decelerates Economic Growth

TEMPO.CO, Jakarta - Business folks and industrialists lamented Bank Indonesia's decision to raise its benchmark interest rate (BI Rate), saying that it hampers the industry and slows the rate of economic growth.

Suryo Bambang Sulisto, Chairman of the Indonesian Chamber of Commerce and Industry, said that the hike will create difficulties in infrastructure funding and cost the domestic industry's competitiveness.

"It could hamper Acceleration and Expansion of Indonesia's Economic Development Master Plan (MP3EI)," Suryo said in Jakarta last weekend.

He requested that the central bank does not simply look at the monetary aspect when raising the BI Rate, for example, having a conservative view to maintain economic stability and inflation. Suryo hopes the government can ensure that the rate will not keep increasing as a raised interest rate will curb economic growth; making it less expansive.

A similar view was expressed by Sofyan Wanandi, Chairman of the Indonesian Employers Association. Sofyan said that the fact that the central bank raised benchmark interest rate is evidence that the government cannot control oil imports.

"If oil import is under control, the economic growth does not need to be sacrificed like this," he told Tempo.

According to Sofyan, about 70-80 percent of industrial development in Indonesia is still backed by bank loans. To that end, the rise in mortgage interest rates that followed the BI Rate hike will lower credit expansion and eventually hinder industry and decelerate of economic growth.

Businessman, said Sofyan, will automatically adjust their next year's work plans with the new BI Rate. "Automatically, any expansion plan will be more difficult."

Adhi Lukman, Chairman of the Indonesian Food and Beverages Association, said the BI Rate increase will lower imports margins. The F&B industry, he said, imports plenty of raw materials, especially for product packaging.

If the credit rates go up and the growth rate slows, the import of raw materials and capital goods--including industrial machinery--will decline. "If our industry shrinks, labor can be reduced as well," he said.

Throughout June to November 2013, the central bank has raised the BI rate by 1.75 percent. BI spokesman Difi Johansyah had said that the hike is intended to curb the increasing domestic demand.

"The demand is still high, as reflected by high credits," he said.

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