THE recent announcement by Indonesia’s Minister of Finance, Purbaya Yudhi Sadewa, and his decision to place IDR 200 trillion in commercial banks with a peculiar restriction, has sparked intense debate and criticism.
The move, touted as a stimulus package to boost economic growth, has been met with skepticism by economists and experts who question its efficacy, logic, and potential impact on the economy.
The most striking aspect of this policy is the restriction imposed on commercial banks of prohibiting them from using the deposited funds to purchase government securities: SBN or SBI.
This restriction defies logic, as government securities are considered one of the safest and most liquid investment options for banks. By barring banks from investing in these securities, the government is essentially forcing them to hold idle cash or explore riskier investment options.
This restriction may lead to several unintended consequences, including:
- Reduced lending to the private sector: With banks unable to invest in government securities, they may be less inclined to lend to the private sector, which could further exacerbate the economic slowdown.
- Increased risk-taking: Banks may be forced to invest in riskier assets, such as stocks or corporate bonds, which could increase the risk of default and instability in the financial system.
- Inefficient allocation of resources: By restricting banks’ investment options, the government may inadvertently lead to an inefficient allocation of resources, as banks may be forced to hold onto cash that could be better utilized in the economy.
Critics argue that this policy will create idle money, which can lead to inflation if not managed properly. With banks holding excess liquidity, they may be tempted to lend more, potentially fueling inflationary pressures.
Moreover, the restriction on investing in government securities may lead to a misallocation of resources, as banks may be forced to hold onto cash that could be better utilized in the economy.
The potential risks associated with this policy may include:
a. Inflationary pressures: Excess liquidity in the banking industry could lead to increased lending and spending, potentially fueling inflationary pressures.
b. Asset bubbles: The restriction on investing in government securities may lead to a surge in asset prices, as investors seek alternative investment options, potentially creating asset bubbles.
It may seem like a misguided approach to economic revitalization.
This government’s approach to economic revitalization has been criticized for being misguided and ineffective. Rather than addressing the root causes of the economic slowdown, such as weak demand and supply-side constraints, the government is relying on a simplistic solution that may not yield the desired results.
The policy’s focus on injecting liquidity into the banking industry without addressing the underlying structural issues only provide temporary relief, rather than a sustainable solution.
