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Aggressive economic policies could drain bank liquidity
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Tax campaign: Shoppers pass a banner promoting the tax amnesty at Tanah Abang textile market in Jakarta. (Antara Photo/Wahyu Putro A)
D
espite their potential to stoke growth, major economic policies, including the tax amnesty and aggressive infrastructure spending, have contributed to reducing bank liquidity, an economist says.
Credit-rating agency Pemeringkat Efek Indonesia (Pefindo) economist Ahmad Mikail said that taxpayers participating in the ongoing tax amnesty would withdraw money from their bank accounts to pay the penalties. As a result, the growth of third-party funds in October stood at only 6.5 percent year-on-year (yoy) compared to 9 percent yoy in the same period last year.
"The money will no doubt return to circulation, but not until next year," Mikail said on Tuesday.
(Read also: Government to play safe with 2017 state budget)
Aggressive infrastructure spending, meanwhile, has forced the government to issue more bonds. As more sovereign bonds are available on the market, many investors have chosen to withdraw their money and invest in them.
"The bonds offer a higher return compared to bank deposits," he said.
Mikail added that low bank liquidity would impede loan disbursement. In the end, it might lower household consumption, which contributes the most to gross domestic product.
In its 2017 budget, the government expects the economy to grow 5.1 percent, lower than its initial target of 5.3 percent.
The country is gradually recovering from a six-year low economic growth rate of 4.79 percent last year, with an earlier expectation of boosting growth to 5.3 percent in the 2016 state budget. However, after two budget cuts, the government has settled for between a 5 and 5.1 percent growth target for this year as a result of reduced government spending that could hinder its multiplier effect on the overall economy. (hwa)
