CREDIT EXPANSION BOOSTS ECONOMIC GROWTH

By Andi Abdussalam

Jakarta, Aug 5 (ANTARA) - The expansion of bank credits which grew at an average of 19.6 percent to Rp140 trillion has been able to fuel economic growth to 5.9 percent in the first half of this year.          Economic observer Tony Prasetiantono  of the Gajah Mada University (UGM) said Indonesia's economic growth  reached 5.9 percent in the first semester of this year on the back of a bank credit expansion.          "The economic growth was fueled by an expansion of bank credits," Tony said  in response to the Central Bureau of Statistics (BPS) data which indicated on Thursday that Indonesia's economic growth in the first semester of 2010 had reached 5.9 percent.          He said bank credit expansion would increase in the second semester of this year, followed by a hike in government fiscal spending that would in the end drive up economic growth to over the 5.8 percent target.          "Credit expansion in the second semester is expected to reach an even higher rate, namely about 20 percent, thus boosting further economic growth," the economist said.          Bank Indonesia director of research and banking regulations Wimboh Santoso said last week the value of credits distributed by banks per June 2010 reached Rp140 trillion.          "Credits keep growing and are under normal conditions," he said. Right now Bank Indonesia is still preparing a regulation linking reserve requirement (GWM) and Loan to Deposit Ratio (LDR) to push banks to extend loans.          The regulation will require banks to keep their LDR at 75 to 105 percent and those who fail to meet it will get a penalty and have to add more GWM contributions to Bank Indonesia.          "If a bank has a LDR of below 75 percent it will just increase its credits and if its third-party fund is large it may just lower its rate to let the funds to flow out," he said.          And this would further drive up the economic growth.          Tony Prasetiantono said that economic growth in the second semester was expected to be the same as that  in the first semester but the government should pay attention to the impact of the basic electricity tariff hikes  and the inflation rate.          "Economic growth in the second semester will reach at least the same level as that in the first semester. Actually it could be higher but it is most likely to be corrected by the power rate hikes and inflation," Tony, who is also an independent commissioner of Pemata Bank, said.           Therefore,  he predicted  overall economic growth in 2010 would reach six percent or higher than the government's target.          "I am confident that the 2010 overall economic growth will exceed six percent, which means that it is higher than the government's assumption at 5.8 percent" Tony said.          The Central Bureau  of Statistics (BPS) reported on Thursday that in the first semester of this year  economic growth reached 5.9 percent compared with that in the same period.          The 5.9 percent economic growth was fueled by growing exports, imports and household consumption, the BPS said. Household consumption grew 4.5 percent, gross fixed capital formation 8.0 percent, exports 17.2 percent and imports 20.1 percent, however, government consumption fell 8.9 percent, according to BPS Deputy Head for Balance Sheet and Statistical Analysis Slamet Sutomo.           Based on an increase in gross domestic product (GDP) the domestic economy in the second quarter of 2010 expanded 2.8 percent compared to the first quarter of 2010 and 6.2 percent compared to the second quarter of 2009, he said.          "The GDP based on the current prices and the 2000 constant prices in the second quarter of 2010 reached Rp1,572.4 trillion and Rp573.7 trillion respectively," he said.          The second-quarter growth of 2.8 percent was driven by household consumption which rose 1.2 percent, government consumption 23.5 percent, gross fixed capital formation 2.3 percent, exports 2.7 percent and imports 5.1 percent, he said.          Compared to the same period last year, the economy in the second quarter of 2010 grew 6.2 percent, fueled by household consumption which increased 5.0 percent, gross fixed capital formation 8.0 percent, exports 14.6 percent and imports 17.7 percent, while government consumption fell 9.0 percent, he said.          On a quarterly basis, the economic growth was led by the transportation and communications sector which grew 5.0 percent, followed by the electricity, gas and drinking water sector 4.8 percent and the service sector 3.7 percent.          The transportation and communication sector also was on top of the year-on-year growth, contributing 12.9 percent, with the trade, hotel and restaurant sector trailing behind with 9.6 percent and the construction sector with 7.2 percent, he said.          Slamet said the second-quarter GDP was still dominated by the processing industry, the agricultural sector and the trade, hotel and restaurant sector, contributing 24.9 percent, 15.9 percent and 13.7 percent respectively to it.          In the meantime, President Susilo Bambang Yudhoyono said last week that the government was continuously monitoring the progress being made in relation to economic growth and investment to ensure that the national economic growth target would be achieved.          "We always have to pay attention to economic developments and increase economic growth in the coming four years. Our remaining time in office is effectively  only four years so we have to use it in the best possible way to increase economic growth and  cut the poverty rate," the President said.          He said that investment should be generated because it constituted the main pillar of the country's economy which was related to the availability and development of infrastructure, micro, small and medium economic development.          "Our economic growth target is rather ambitious so that we have to work hard and continue to measure its progress," the head of state said.***2*** (T.A014/A/HAJM/21:30/H-YH) 05-08-2010 21:33: