Government to Slice Subsidy for Small Business Credit

Tuesday, 20 September 2016 , 14:00:00 WIB - Economy

A street trader is seen selling his goods in Pasar 17 Agustus market, Pamekasan, East Java, Thursday (1/9). (ANTARA)

JAKARTA, GRES.NEWS – The government wants to trim down its subsidy for Small Business Credit (KUR), prompting criticism from small entrepreneurs who have been benefiting from the facility and people who are aware of the credit’s significant role. Indonesian Entrepreneurs Association (Hipmi) Central Executive Board Chairman, Bahlil Lahadalia, questions the idea.

"The credit facility plays a strategic role in curbing the national economic slowdown and unemployment rate. Furthermore, President Joko Widodo and Hipmi have agreed to cut the interest rate to 7 percent next year, Bahlil said, in a written statement sent to, Monday (19/9).

The announcement came from the Minister of Finance, Mardiasmo, who said that the subsidy would be cut by Rp1 trillion next year to Rp9.5 trillion.

Bahlil said Hipmi understands that the government is faced with a budget constraint and thus needs to make cuts here and there, especially for programs they deem unimportant and even and even a waste of money. However, Small Business Credit holds a highly strategic role in the national economy as it distributes the fund to the productive sector, so it supports the people’s economy and increases domestic demand.

"Our economy’s weak point lies in demand and Small Business Credit can help the government increase demand. It also creates jobs and entrepreneurs, Bahlil said.

The government has explained that the move would be a response to the budget’s low spending, which is estimated to only reach 50 percent, or Rp5 trillion, this year.’

Hipmi argues that the low spending is happening because banks have been sluggish in distributing the credit on the fact that Small Business Credit only comes with a single digit interest.

"Some are even offering normal or market rates," Bahlil said.
Small Business Credit distribution reached Rp120 trillion in the year ending September. The figure represents 65 percent to the targeted Rp120 trillion.

BI SUPPORTS POLICY – Not agreeing with Hipmi, Bank Indonesia supports the planned subsidy cut. The central bank’s governor Agus Martowardojo explained that banks have been forced to offer relatively low interest rate in distributing the credit.

According to him, the move would not cut demand for Small Business Credit as interest rates are already in a downtrend.

"In general, the interest rates of third party funds are already falling, he said. (dtc)