JAKARTA — Indonesia's new Finance Minister Purbaya Yudhi Sadewa plans to move 200 trillion rupiah (RM51.26 billion) of government money to commercial banks to alleviate tight liquidity in the banking system.
Purbaya, who was appointed on Monday (September 10), told a Parliamentary hearing today that slow government spending meant that the state's cash balance at Bank Indonesia, the country's central bank, had risen to 430 trillion rupiah (RM110 billion).
He said 200 trillion rupiah of that would be moved to the banking system to encourage more lending, and that the central bank had kept liquidity too tight.
"I have reported to the President, I will put money into the economic system," Purbaya said, adding that he has told the central bank not to reabsorb the funds through its monetary operations.
After the hearing, he told the press that policy mistakes had been made.
"I have seen that our financial system is dry. That is why the economy is slowing, and for the past year, it is hard for people to find jobs.
"It is because there were mistakes in monetary and fiscal policies," Purbaya said.
Bank Indonesia has cut interest rates by 125 basis points since September last year.
Its spokesperson Ramdan Denny Prakoso told the press today that the bank was adding liquidity by purchasing government bonds in the secondary market and flagged its new "burden sharing" agreement with the government, raising the interest rate it pays on government deposits.
DBS economist Radhika Rao noted several measures to jumpstart economic activity by fiscal and monetary authorities, but said that household and corporate demand for credit needs to hold up for these to work.
Meanwhile, SMBC economist Ryota Abe warned that non-performing asset ratios could rise if banks are forced to lend.
"My sense is that the government should create more demand by increasing public spending, such as expenditure for infrastructure, which will help the economy recover with autonomy and not increase the likelihood of damaging banks' profitability," he said.
Indonesian bank lending was up seven per cent year-on-year in July, the weakest growth since March 2022.
