The funds are typically kept for the government’s liquidity needs, including urgent spending and budget deficit financing
[JAKARTA] Indonesia will pull back 75 trillion rupiah (S$5.8 billion) of government cash it had planned to park in state-owned banks, citing the initiative’s limited impact on boosting lending in South-east Asia’s largest economy.
The finance ministry will reallocate the funds for central government spending and transfers to regional administrations, Finance Minister Purbaya Yudhi Sadewa said on the sidelines of a market reopening event in Jakarta on Friday (Jan 2).
“I will withdraw it from the system, but immediately spend it, straight back into the economy,” he told reporters. “So it won’t disturb the amount of money in circulation and, in fact, will have a positive multiplier effect through government spending.”
Purbaya, who took office four months ago, had placed 276 trillion rupiah of government cash reserves in six state-owned banks, including Bank Mandiri, Bank Rakyat Indonesia and Bank Negara Indonesia, in a bid to encourage banks to extend more credit and support faster economic growth.
The funds are typically kept for the government’s liquidity needs, including urgent spending and budget deficit financing.
The minister said on Wednesday that he planned to claw back part of the deposits, describing the initiative’s impact on lending as “not as optimal as expected due to lack of policy synergy with the central bank”.
Bank Indonesia has said that weak lending last year reflected demand-side constraints rather than banks’ capacity to lend, and has forecast full-year loan growth ending the year towards the lower bound of its 2025 target of 8 to 11 per cent. Loan growth was 7.74 per cent year on year in November.
The central bank said last month that companies remained in wait-and-see mode, preferring to rely on internal funding amid persistently high borrowing costs.
“Redirecting this from state-bank placements into fiscal spending should be growth-supportive” as government outlays typically have a larger economic multiplier than idle liquidity in the banking system, said Mohit Mirpuri, a senior partner at SGMC Capital.
Shares of Bank Rakyat fell as much as 1.1 per cent on Friday morning, while Bank Negara slid 2.5 per cent and Bank Mandiri shed 1.5 per cent. Indonesia’s stock exchange was closed on Wednesday and Thursday. BLOOMBERG
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