JAKARTA (Reuters) -Indonesia’s new finance minister said on Wednesday he would move 200 trillion rupiah ($12.15 billion) of government money held at the central bank to commercial banks to alleviate tight liquidity in the banking system.
Purbaya Yudhi Sadewa, who was appointed finance minister on Monday, told a parliamentary hearing that because of slow government spending, the state’s cash balance at Bank Indonesia had risen to 430 trillion rupiah.
He said 200 trillion rupiah of that would be moved to the banking system to encourage banks to increase lending, saying that the central bank had kept liquidity too tight.
“I have reported to the president, I will put money into the economic system,” Purbaya said, adding that he has told BI not to reabsorb the fund through its monetary operations.
After the hearing, the minister told reporters that policy mistakes had been made.
“I have seen that our financial system is dry, that’s why the economy is slowing and for the past year it is hard for people to find jobs. It’s because there were mistakes in the monetary and fiscal policies,” Purbaya told reporters.
BI began an easing cycle in September last year that has so far seen interest rates cut by 125 basis points. It has also loosened liquidity by cutting back its sales of short-term notes, which were in part intended to attract capital to support the rupiah currency.
On Wednesday, BI spokesperson Ramdan Denny Prakoso told reporters the central bank was also adding liquidity by purchasing government bonds in the secondary market, as well as its new “burden sharing” agreement with the government where it will raise the interest rate it pays on government deposits.
($1 = 16,460 rupiah)
(Reporting by Stefanno Sulaiman; Writing by Gayatri Suroyo; Editing by John Mair)
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