Bayu Krisnamurthi, deputy minister at the chief economics ministry told Reuters in an interview: "One of Indonesia's biggest challenges is poverty which is related to unemployment. We face fiscal constraints, while (economic) growth is not big enough to cope with unemployment. So there must be a direct approach."
It is hoped that the scheme will help to lift people out of poverty by creating jobs in the agriculture sector, where the biggest exports are palm oil, cocoa, and rubber.
The remarks from Krisnamurthi came as the government announced that the number of people living below the poverty line in March had risen 11 per cent from February last year.
Poverty has often been blamed for religious radicalism and fragile social stability in the country of 220 million people, where two thirds of the poor live in rural areas, including near plantations.
Under the loans scheme, commercial banks can extend 10 trillion rupiah ($1.10 billion) in total at subsidised interest rates to plantations in the next four years.
Poverty has often been blamed for
religious radicalism in Indonesia
Indonesia, the world second-biggest producer of rubber and palm oil and third-biggest for cocoa, said the loans carried fixed rates of 10%.
With commercial lending rates at up to around 16 per cent, the government covers the difference.
PT Bank Rakyat Indonesia, the country's leading bank in rural areas, is expected to play a major role in the subsidised loan scheme which has so far received a healthy response from the plantation sector, Krisnamurthi said.
Official data indicates that about half of Indonesia's 100 million labour force is employed in the agriculture sector.
Krisnamurthi said he was optimistic that the scheme would work as palm oil prices were expected to stay firm amid strong global demand for biofuel, while rubber prices were being boosted by high demand from the fast-growing economies of China and India.
"We have to capitalise on the momentum not just to resolve problems faced by the plantation sector, but also to fix the bigger economic problems so as to create employment opportunities"
Bayu Krisnamurthi, deputy minister at the chief economics ministry
"We have to capitalise on the momentum not just to resolve problems faced by the plantation sector, but also to fix the bigger economic problems so as to create employment opportunities," Krisnamurthi said.
Indonesia's unemployment is around 11 per cent, one of Asia's highest rates.
Latest government data showed that the number of people living below the poverty line in Indonesia was 39 million in March, about 18 per cent of the popluation.
The number rose compared with February 2005 as prices of fuel and rice rose.
It set the poverty line at 152,847 rupiah ($16.8) a head per month, or about 56 US cents a day. Based on the more frequently used poverty line of $1 a day, the number of the poor would be much higher.