Indonesia aims to cancel US$550 million in small businesses’ debts

INDONESIA may cancel as much as US$550 million of small businesses’ bad debt in a bid to boost lending and growth in South-east Asia’s largest economy, according to a top official.

The government aims to pass a regulation this month letting state-owned lenders such as Bank Mandiri and Bank Rakyat Indonesia forgive as much as 8.7 trillion rupiah (S$728 million) of troubled loans, State-Owned Enterprises Minister Erick Thohir said in a statement late on Monday (Nov 4). Policymakers are still discussing what types of loans could be forgiven, which would affect the final figure, he added.

Indonesia’s new government has set the debt cancellation plan as one of its immediate policy goals as it seeks to drive gross domestic product growth to 8 per cent, far higher than the average 5 per cent over the last decade. Growth clocked in at 4.95 per cent in the third-quarter, below economist estimates and its slowest pace in a year.

Yet millions of small businesses cannot get the loans needed to grow their enterprise because existing regulations complicate the process for state lenders to forgive their troubled borrowings. Non-government lenders such as Bank Central Asia do not have the same problem.

“This policy that lets state lenders cancel debt is something that we’ve been waiting for,” Bank Rakyat president director Sunarso said. “We haven’t dared to do it because some regulations may categorise that as state losses.”