(Bloomberg) -- Indonesia will guarantee working capital loans for labor-intensive private companies to revive business activity and prevent unemployment from rising further amid the pandemic.
The guarantees are expected to generate bank lending worth 100 trillion rupiah ($6.9 billion) in sectors such as tourism, textile, footwear and electronics through the end of 2021, Coordinating Minister for the Economy Airlangga Hartarto said Wednesday. PT Penjaminan Infrastruktur Indonesia and the Indonesia Export Financing Agency have been assigned to provide guarantees for 15 state-owned and private banks that channel credit to companies in loans of 10 billion to 1 trillion rupiah.
“This program is really important to support companies in reviving their business activities by increasing their working capital loans,” Airlangga said at the program launch, adding such companies are expected to drive an economic recovery from the third or fourth quarter of this year. Indonesian officials are determined to reverse the economy's trajectory, from an estimated 4.3% contraction in the second quarter to positive growth in the second half of this year.
Under the guarantee program, the government will bear the full insurance premium for working-capital loans with a ceiling of 300 billion rupiah, and half for loans of as much as 1 trillion rupiah, Finance Minister Sri Mulyani Indrawati said. The guarantees are part of a pandemic relief package of 695.2 trillion rupiah to support the health sector and boost the economy.
Jump Start
The program also aims to encourage banks to disburse more loans and give them space to operate, said Wimboh Santoso, chairman of the country's Financial Services Agency.
“Banks, given this guarantee program and ample liquidity, should reflect this into lending disbursement,” he said, adding the incentives should both help boost lending and lower the interest rate on loans. Loan disbursements by Indonesian banks rose just 3.04% in May from a year earlier, down from 5.73% in April.
The Indonesian Chamber of Commerce and Industry estimates the sectors targeted by the lending program will need as much as 303 trillion rupiah in working capital over the next six months.
The program “will be really helpful” for businesses to jump start activity, as most of the credit risk will now be covered by the government, association chairman Rosan Roeslani said in texted comments.
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