Indonesia reclaims billions as global volatility reshapes economic strategy

JAKARTA: Indonesia is taking a big step to put government money back to work. The Finance Ministry announced it will pull back 75 trillion rupiah (about RM18.2 billion or $5.2 billion) that had been parked in state-owned banks, saying the program hadn’t done much to get banks’ lending more.

Finance Minister Purbaya Yudhi Sadewa explained the plan during Jakarta’s market reopening on Friday. Rather than letting the cash sit idle in banks, he said, it will be redirected to central government spending and local transfers.

“I’ll withdraw it from the system, but immediately spend it, straight back into the economy,” Purbaya 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.”

The minister, who only took office four months ago, had previously placed 276 trillion rupiah of government reserves in six state-owned banks, including Bank Mandiri, Bank Rakyat Indonesia, and Bank Negara Indonesia, hoping to boost lending and accelerate economic growth.

“These funds are usually set aside for urgent spending or to cover budget gaps,” Purbaya said. “But we’ve seen that their effect on lending hasn’t been as strong as we hoped, partly because the policy wasn’t fully in sync with the central bank.”

Bank Indonesia has noted that last year’s slow lending wasn’t about banks’ ability to lend, but rather low demand from businesses. Companies have been cautious, relying on their own funds because borrowing costs remain high. Loan growth for the year is expected to hit the lower end of the central bank’s target of 8% to 11%, after rising 7.74% in November.

Analysts say putting the money into government spending could make a bigger impact than leaving it in banks. “Redirecting this from state-bank placements into fiscal spending should be growth-supportive,” said Mohit Mirpuri, senior partner at SGMC Capital Pte Ltd. “Government spending usually has a larger effect on the economy than idle bank deposits.”

The news shook state bank stocks: Bank Rakyat fell as much as 1.1%, Bank Negara dropped 2.5%, and Bank Mandiri slid 1.5%. Indonesia’s stock exchange had been closed on Wednesday and Thursday.