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Jakarta Post

Government guarantees $6.9b in working capital loans for labor-intensive businesses

  • Adrian Wail Akhlas

    The Jakarta Post

Jakarta   /   Wed, July 29, 2020   /   04:19 pm
Government guarantees $6.9b in working capital loans for labor-intensive businesses Rupiah banknotes ( Matlak)

The government has guaranteed working capital loans worth Rp 100 trillion (US$6.92 billion) for labor-intensive businesses to speed up business recovery and help businesses survive the coronavirus pandemic.

The loan guarantee program was expected to boost credit disbursement from banks to businesses, Finance Minister Sri Mulyani Indrawati said, adding that it would help spur economic activities and set the stage for economic recovery after three months of large-scale social restrictions.

“We are hoping that the credit guarantee scheme will restore the risk appetite from both banks and firms so that it will boost economic activities,” Sri Mulyani told reporters on Wednesday. “We will use all of our policy instruments to improve the supply and demand sides.”

To be eligible for the government program, labor-intensive firms are required to employ at least 300 individuals, prove that their activities have been affected by the pandemic and have a good track record in paying loans, according to the minister.

The government has struggled to keep the economic wheels turning since the virus outbreak forced businesses to close and banks to hold up their loans. The economy is expected to grow just 1 percent this year in a best-case scenario, or contract 0.4 percent at worst.

The government has allocated Rp 695.2 trillion toward strengthening the country’s pandemic response and boosting economic growth, including Rp 53.57 trillion for big business financing. The stimulus for big business includes a fund placement for labor-intensive debt restructuring and credit guarantee programs.

Indonesian Eximbank and state infrastructure guarantee fund PT Penjaminan Infrastruktur Indonesia (PII) would provide a sovereign guarantee for loans provided by banks to labor-intensive firms, Sri Mulyani said.

The government will pay 100 percent of credit insurance premiums for loans of up to Rp 300 billion and 50 percent of insurance premiums for loans between Rp 300 billion and Rp 1 trillion. The program is effective for one-year only and will use funds from the state budget.

The government will also guarantee 60 percent of working capital loans for non-priority sectors and 80 percent of working capital loans for priority sectors. Banks will guarantee 40 percent of loans for non-priority sectors and 20 percent of loans for priority sectors.

“This will make banks more responsible for the loans and avoid moral hazards going forward,” Sri Mulyani said, adding that the priority sectors for labor-intensive firms included tourism, the automotive industry, textiles and electronics.

Meanwhile, the Financial Services Authority (OJK) is planning to extend debt restructuring for businesses affected by the coronavirus pandemic, according to chairman Wimboh Santoso.

“We expect that corporations will need a longer time to recover and therefore we may need to extend [the debt moratorium] program,” Wimboh told reporters, adding that the OJK would decide by year-end over whether to extend the program to 2022.

Indonesian banks have restructured a total of Rp 776 trillion in loans as of Wednesday, according to OJK data, with the majority of debtors being micro, small and medium businesses.

Banks previously urged the OJK to extend its debt relief program by at least another year amid uncertainty regarding the end of the pandemic.