The private sector would not be increasing investment until consumer demand rises.
Bank Indonesia Building Donang Wahyu|KATADATA

Bank Indonesia (BI) and several economists believe that repatriated funds from the tax amnesty will be insufficient to boost credit growth this year. They predict that the funds will not contribute to financing until next year.

Bank business plans have set a credit disbursement target of 12 - 14 percent this year. However, the central bank and Financial Services Authority (OJK) project a lower rate.

Executive Director of BI’s Macro Economic and Monetary Policy Department Juda Agung projects credit growth of just 10 - 12 percent in 2016. Meanwhile, credit disbursement could increase 2 - 3 percent above the baseline next year.

This low estimate stems from sluggish credit demand despite the expected influx of funds from tax amnesty. “In terms of supply, it’s huge. But demand must be driven first in order to see a balance between supply and demand,” Juda said on Friday last week. (Read: Hutama Karya to Use Repatriated Funds for Trans Sumatra Project).

Previously, OJK Executive Head of Banking Supervision Nelson Tampubolon said credit growth could reach 10 - 14 percent. He then admitted that this target was then lowered to a maximum of 12.5 percent due to the sluggish economy.

“This calculation did not include the tax amnesty program. There might be another revision at the middle of the second semester,” he said.

Meanwhile, Bank Central Asia (BCA) economist David Sumual predicted the tax amnesty program would have a maximum impact on credit growth of just 3.5 percent. This assumption was based on the government’s calculation that repatriated monies could amount to IDR 1,000 trillion.

However, if based on BI’s assumption, the state would receive only IDR 560 trillion from repatriated funds. Therefore, David projected the program would have an impact of just 1.5 percent on credit growth in two years.

David was unsure whether the private sector would immediately increase their credit to boost investment until domestic and global consumption improves. “Credit is only at 8 percent now; it could increase by 3.5 percent in the next two years. That would be due to the tax amnesty alone. Other factors could increase (this rate),” David told Katadata on Friday.

As for the growth of third party funds, David projected that the tax amnesty would have a lesser and more gradual impact in three to four years. (Read:  Economy Must Grow 5.3 Percent in Second Half to Meet Target).

Samuel Asset Management economist Lana Soelistianingsih confirmed that the private sector would not be increasing investment until consumer demand rises.

She predicts no significant increase in consumer confidence to the year end, despite the Christmas and New Year holidays. The private sector’s lack of interest in investment is reflected in the 31 percent undisbursed credit, which is higher than last year’s 27 percent.

Third party funds are in danger of decreasing if repatriated funds are not spent on the real sector because tax amnesty participants might use their savings in banks to pay redemption fees. (Read: Jokowi Explains Projects That Need Tax Amnesty Funds).

This could lead to liquidity tightening if the government does not immediately allocate the funds to the market through infrastructure developments or if the private sector does not disburse loans.