Small and medium enterprises (SMEs) are key to reducing inequality in Indonesia, as they empower people and spread wealth through communities, according to Indonesian Institute of Sciences (LIPI) economist Pangky Tri Febriansyah.
SMEs had been proven to have stronger resistance to economic crises compared with corporations, he said, but both were needed to create a growing and sustainable economy and reduce the gap between the rich and the poor.
"We must prioritize their access [to infrastructure] and [government] assistance to increase competitiveness. [We should] build infrastructure with big multiplier effects such as dams, roads and electricity networks, and assist SMEs to increase productivity and at the same time prevent moral hazards," Pangky said at the LIPI headquarters in Jakarta on Tuesday.
LIPI has previously reported a wide inequality gap in Indonesia based on two indicators. First, a Human Development Index (HDI) ranking, in which Indonesia stands at number 111 among 188 countries. Second, a Gini Ratio that climbed from 0.3 in 2011 to 0.41 in 2014, which implies a wider gap between the rich and the poor.
LIPI SME researcher Yeni Septia argued that micro credit program (KUR) loans were often tainted with moral hazards as debtors considered the program a form of charity. Debtors defaulting on loans has been the main problem of the KUR program, leading to a high rate of non-performing loans (NPL).
Yeni also praised KUR’s move to cut interest rates to 9 percent next year, from 22 percent in 2014.
“However, close monitoring of the disbursement is required not all the banks joining in the KUR program have good access to and expertise in SMEs’ business,” she said.
LIPI fisheries scientist Mohammad Najib said that most sectors in which SME business were operating were very dynamic and vulnerable to risks, adding that the fishing industry was a good example.
“Fisheries are more dynamic with higher risks, while agribusiness is more predictable as it follows the seasons. This may confuse banks when calculating risks," he explained.
Source: http://www.thejakartapost.com, 29/12/15
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