Indonesia

This report analyzes the key issues affecting the rural financial system in Indonesia since the June 1983 financial reform. It suggests policies and institutional arrangements... Show More + for tapping savings in the rural sector and improving the availability and efficient use of credit for agriculture and related activities. The report develops several recommendations from its analysis; the most urgent being to remedy the failure of the rural financial system, which has not been charging borrowers enough for loans. Accordingly, the report recommends: (a) immediately instituting sound collection procedures for outstanding and new loans, and (b) raising interest rates on BI (Bank Indonesia) liquidity credits and onlending rates on agricultural and rural program loans until market rates are attained. Finally, it is noted that the rural credit system is an integral part of the country's financial sector; thus, some findings and recommendations have an impact not only on rural finance, but also on the whole financial system. Show Less -