The Bad Idea Bears are running Bank Indonesia

Via Ben Bland (famously booted out of Singapore for the heinous crime of committing journalism), comes the alarming news that the Indonesian central bank has decided to boost its economy by encouraging reckless lending:

Bank Indonesia is finalizing a raft of incentives to kickstart corporate lending and ensure that the economic recovery gathers pace in the coming year.

The key incentive will allow banks that lend more to reduce the size of their minimum statutory reserves (GWM), which lenders are obliged to deposit with the central bank.

You can imagine the scene in the boardroom at PT Bank Something-or-other: “Righto, boys, if we can lend another billion dollars, the BI will let us hold less regulatory capital. Does anyone know any noodle makers who want some cheap cash? Who cares if they turn around and blow all that cash on punting IDR vol?”

This will not end well.