(Bloomberg) -- Indonesia plans to cancel as much as $550 million of bad loans owed by small businesses to drive new lending and boost growth in Southeast Asia’s largest economy.
President Prabowo Subianto signed a regulation on Tuesday that paves the way for state-owned lenders such as PT Bank Mandiri and PT Bank Rakyat Indonesia to forgive as much as 8.7 trillion rupiah ($550 million) of troubled loans of small businesses, especially those in agriculture and fishery. Regulators still need to work out what types of loans could be forgiven, he added.
Indonesia’s new government has set the debt cancellation plan as one of its immediate policy goals as part of an effort to drive annual gross domestic product growth to 8%, far higher than the average 5% over the last decade. Growth clocked in at 4.95% in the third-quarter, below economist estimates and its slowest pace in a year.
Government officials and industry leaders have said millions of small businesses can’t get the loans needed to grow their enterprise because existing regulations complicate the process for state lenders to forgive their troubled borrowings. Non-government lenders like PT Bank Central Asia don’t have the same problem.
State banks will be allowed to cancel bad debt of as much as 500 million rupiah per business and 300 million rupiah per individual whose finances were hit by problems such as earthquakes and the Covid-19 pandemic, said Maman Abdurrahman, the minister for micro, small- and medium enterprises (MSMEs), in a statement late Tuesday. Around one million registered enterprises meet these requirements, he added.
“We are not canceling the debt of every MSME, but those debts that really can’t be saved,” he said.
(Recasts with President Prabowo signing the policy.)
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