The Indonesian government is poised to cancel up to $550 million in bad debt owed by small businesses in a bid to stimulate lending and propel economic growth, Bloomberg reports.
This move, announced by State-Owned Enterprises Minister Erick Thohir, is part of the new administration’s plan to achieve an ambitious 8% GDP growth target, significantly higher than the average 5% growth experienced over the past decade.
The government is aiming to pass regulations this month that would allow state-owned lenders like PT Bank Mandiri and PT Bank Rakyat Indonesia (BRI) to forgive up to 8.7 trillion rupiah ($585 million) in troubled loans. While the exact types of loans eligible for forgiveness are still being discussed, the move is expected to provide much-needed relief to struggling small businesses.
The policy aims to address a critical bottleneck in the Indonesian economy: the difficulty for small businesses to access loans. Existing regulations have made it challenging for state-owned lenders to forgive bad debt, hindering their ability to extend credit to small businesses. This has created an uneven playing field, where non-government lenders like PT Bank Central Asia have been able to extend credit more freely.
“This policy that lets state lenders cancel debt is something that we’ve been waiting for,” said Bank Rakyat President Director Sunarso. “We haven’t dared to do it because some regulations may categorize that as state losses.”
The move is seen as a positive step towards achieving the government’s ambitious growth targets. The Indonesian economy grew by 4.95% in the third quarter of 2024, below economist estimates and the slowest pace in a year.
