Indonesia launches $7 billion loan guarantee scheme for 'priority' companies

Indonesia has launched a 100 trillion rupiah ($6.92 billion) loan guarantee scheme targeting businesses in priority sectors as part of efforts to help companies stay afloat during the coronavirus pandemic, the finance minister said.

The programme will offer guarantee for working capital loans of between 10 billion rupiah to 1 trillion rupiah for a period of up to a year to help businesses with their cashflow.

"We hope the risk appetite from banks as well as companies can be restored and thus result in optimism to conduct activities," Finance Minister Sri Mulyani Indrawati told a streamed press conference on Wednesday, noting banks had been cautious giving out loans despite having ample liquidity.

The government is offering a guarantee for up to 80 percent of loans for companies in priority sectors such as tourism, automotive, textile and garment, and electronics.

The loan guarantee scheme is an expansion of a previously announced initiative to help small businesses recover from the impact of the pandemic.

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Businesses eligible for the latest programme are those affected by the pandemic employing at least 300 people and seen as having the potential to support the country's economic growth.

Businesses in the priority sectors needed as much as 303.76 trillion in working capital over the next six month to meet operational costs after cash flows had dried up due to social restrictions to curb the virus, Rosan Roeslani, chairman of Indonesia’s chamber of commerce and industry (Kadin), said on Tuesday.

Southeast Asia's largest economy has been trying to boost loan disbursement by channelling liquidity to state-owned banks and regional banks.

The financial regulator has also relaxed restructuring rules to help banks manage their capital.

Indonesia's loan growth in May expanded just 3.04 percent on-year, the weakest pace since at least December 2002, as the pandemic took its toll on the economy.