The Jakarta Post, Jakarta
Total spending by all sectors in the Indonesian economy will need to amount to some Rp 808 trillion (US$89 billion) if the government's growth target of between 5.7 percent and 6.3 percent for this year is to be met, the governor of Bank Indonesia says.
""Of that figure of Rp 808 trillion, Rp 150 trillion can be sourced from the banking sector,"" Burhanuddin Abdullah told a seminar on the country's banking outlook held in Semarang on Friday.
However, he stressed that there was much that remained to be done, including improving the country's infrastructure and ensuring higher lending to the real sector.
He said that the central bank had made significant cuts to its key rate since last May, which should have allowed the banks to lower their lending rates.
However, even though the central bank had cut its benchmark rate to 9.5 percent, commercial bank lending rates were still hovering at between 14 and 15 percent, a level that was still too high to encourage meaningful growth in the real sector.
Burhanuddin said that with single-digit inflation and interest rates since the end of last year, the central bank had managed to lay strong macroeconomic foundations for higher growth.
By contrast, lending growth in Indonesia's banking sector had been disappointing at only 12.5 percent last year, compared to the forecast of about 18 percent. This was despite the fall in the central bank's key rate.
Burhanuddin stressed that lower lending rates would not be enough on their own to spur higher growth. In addition, higher investment in infrastructure, and changes to the country's tax and manpower regimes would also be needed to energize the economy.
At present, the House of Representatives is deliberating the amendment of a number of laws, including the current tax, investment and manpower legislation, so as to create a more conducive business climate. However, there is no guarantee that the amendments, which were first proposed more than two years ago, will actually be passed this year.
Separately, BI Deputy Governor Hartadi Sarwono said Friday that the central bank saw more room to further reduce its benchmark interest rate as inflation may have eased in January.
Indonesia's consumer prices in December rose 6.6 percent from a year earlier, accelerating for the first time in seven months due to higher rice prices, the Central Statistics Bureau reported on Jan. 2. On a month-to-month basis, prices rose 1.2 percent from November.
In January, consumer prices probably rose 1 percent from December due to ""seasonal factors,"" Sarwono said. ""There was inflationary pressure at the beginning of the month, but I haven't seen any significant pressures lately.""
The country's economy, worth some $276 billion, is expected to expand by between 5.7 and 6.3 percent this year, after growing 5.5 percent in 2006, Finance Minister Sri Mulyani Indrawati predicted last month.
