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ollowing stable growth last year, the economic situation in Bali is predicted to remain robust throughout this year, according to the Denpasar chapter of Bank Indonesia.

Dominated by small and medium enterprises (SMEs) in the tourism sector, the island's economy will continue to improve steadily, Denpasar chapter's Jeffrey Kairupan said Monday.

"We are optimistic Bali's economy for 2010 will remain strong following solid performance during 2009," Jeffrey said. "Since the third quarter last year, the growth reached 4.17 percent." He added that SMEs had provided positive multiplying effects on the economy.

"The SMEs also dominate bank loans, with 80 percent of total loans disbursed to the sector. They have proven to be resilient in facing crises."

Since the third quarter last year, bank loans have reached Rp 18 trillion (US$2 million), increased by 20 percent compared to the same period in 2008. This percentage is far higher than the lending growth at the national level, at 6 percent.

Bank loans disbursed during 2008 amounted to Rp 25 trillion, a decrease from Rp 30 trillion the previous year. "The decrease was due to the crisis at the end of 2008. But in 2009, the loans significantly increased, and we are optimistic it will grow stronger this year," Jeffrey said.

Besides disbursement from 43 general banks and 152 other banks focusing on credit (BPR), the loans were also provided by LPD, a financial institution managed by customary villages.

Although being managed on a smaller scope, the LPD has disbursed more loans, totaling Rp 2 trillion on average per year. This amount is higher compared to the total loans disbursed by BPR throughout Bali, which amounted to Rp 1.5 trillion.

The overall loan structure in Bali is dominated by consumption and capital expenditure. "Most of the loans are spent for consumption and capital expenditure. Only small parts are channeled for investment," Jeffrey said.

The SMEs' resilience to crisis has also salvaged the island's economy. They performed better than bigger businesses in terms of non-performing loans (NPL). "The SMEs have contributed to lowering NPL levels," Jeffrey said.

He said the NPL rate in Bali stood at 2 percent. This percentage is lower than the NPL rate of bigger businesses, at 3 percent. The amount of credit channeled for bigger businesses accounted for 20 percent of total loans.

The Loan to Deposit (LDR) ratio in Bali reached 58 percent, Jeffrey said, adding that the modest rate was due to a high amount of third-party funds received by banks, which reached Rp 35 trillion.

"With the island's 3.5 million people, we can assume that each person saves an average of Rp 10 million at banks," he said, adding that this amount was higher compared to other provinces. He cited North Sulawesi, whose third-party funds were less than Rp 5 million.

The island's economic growth was mainly spurred by hotels and restaurants, as they are predicted to contribute to 80 percent of growth.

The agriculture sector, meanwhile, only contributes around 10 percent. This low percentage was because Bali has not made the most of its agriculture potential and highly depends on agricultural products from outside the island.

According to Jeffrey, around 60 to 70 percent of agricultural products in Bali originated from Java, West Nusa Tenggara and overseas.

"This dependence could negatively affect the inflation rate because the shipment of products could face various problems, including bad weather."

He highlighted the importance of improving the agriculture sector in Bali this year, considering the high number of tourists visiting the resort island, leading to a higher consumption of farming products.

Dewa Ngurah Suprapta, agriculture expert from Udayana University, said the development of the sector should be supported by better policies from the local government, including providing incentives for farmers and investors.

He added that the number of farmers in Bali, currently around 600,000, had decreased. Most had shifted to the tourism sector working in hotels, restaurants and other tourism-related businesses.