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Indonesia unveils bigger stimulus worth $47.6 billion to fight coronavirus impacts

Adrian Wail Akhlas  The Jakarta Post Thu, June 4, 2020

Indonesian Finance Minister Sri Mulyani (Photo: Antara)

JAKARTA – The government unveiled on Wednesday a bigger stimulus package worth Rp 677.2 trillion (US$47.6 billion) to anchor the virus-battered economy, the growth of which is expected to fall to a level similar to that of the 1998 Asian financial crisis.

The latest budget, which is higher than the Rp 641.17 trillion initially allocated, aims to strengthen the healthcare system, direct more spending toward social protection to boost consumption and provide incentives to rescue Indonesian businesses from bankruptcy and workers from layoffs.

Finance Minister Sri Mulyani Indrawati said the government had put in place support measures to counter an economic fallout from the coronavirus pandemic, adding that the government would again revise the macroeconomic assumption underpinning the state budget to cover for the larger stimulus package.

“This is a thorough stimulus package to support people’s purchasing power and businesses,” Sri Mulyani told reporters in a livestreamed news conference. “We are hoping that this stimulus can maintain our economic growth at above zero percent.”

The Indonesian economy grew 2.97 percent year-on-year (yoy) in the first quarter, the weakest in 19 years, as household spending and investment growth plunged as the outbreak hit economies around the world.

Sri Mulyani said gross domestic product (GDP) growth could be lower than the government’s projection of 2.3 percent this year. In the worst-case scenario, the government expects the economy to contract 0.4 percent.

Under the new stimulus budget, the government will provide Rp 87.55 trillion for the healthcare sector, Rp 203.9 trillion to strengthen social safety net programs and Rp 123.46 trillion in incentives for micro, small and medium businesses.

As much as Rp 120.6 trillion will be allocated for bigger tax incentives and Rp 97.11 trillion to support ministries and regional administrations, while Rp 44.57 trillion comprises the stimulus for state-owned enterprises (SOEs) and labor-intensive businesses.

The government now projects the state budget deficit to reach 6.34 percent of GDP, up from the previous estimation of 6.27 percent. It expects state revenue to reach Rp 1.4 quadrillion this year, while state spending is projected to increase by Rp 124.5 trillion to Rp 2.74 quadrillion.

“We will treat the widening budget deficit carefully in terms of sustainability and financing,” Sri Mulyani pledged. “We will look for financing sources with the lowest risk and costs.”

Bank Indonesia Governor Perry Warjiyo pledged during the same briefing to continue buying government bonds in the primary market as the last resort and non-competitive bidder to help finance the government’s budget. The central bank has bought around Rp 26 trillion worth of bonds directly through auctions.

“Close coordination between the Finance Ministry and the central bank in budget financing has fueled confidence among market players,” Perry told reporters. “With growing market optimism, we expect that the needs of our bond buying program will be small.

“Bank Indonesia is also ready to minimize the government’s interest rate burden to support economic recovery if needed.”

BI has injected a total of Rp 583.5 trillion since the beginning of the year to carry out monetary operations to stabilize the financial market and boost bank liquidity, among other purposes.

World Bank senior economist for Indonesia Ralph van Doorn called on the Indonesian government to take steps to maintain market confidence as debt mounts amid the outbreak.

“The government must [provide assurances over its] fiscal strategy to raise revenues back to at least the 2018 level to flatten the debt curve,” Van Doorn said recently.

It should unwind “exceptional measures” taken to battle the pandemic after the virus threat subsides, including by reinstating the deficit ceiling of 3 percent and ending Bank Indonesia’s partial financing of the deficit, he said.

Indonesia’s debt-to-GDP ratio would rise to 37 percent this year, from 29.8 percent at the end of last year, van Doorn projected.

Center of Reform on Economics (CORE) Indonesia economist Piter Abdullah, meanwhile, lauded the government’s move.

“Although it may not be enough, the move signals that the government is flexible about adjusting the stimulus,” Piter told The Jakarta Post on Wednesday. “This would boost market confidence and help strengthen the rupiah exchange rate.”

https://www.thejakartapost.com/news/2020/06/04/indonesia-unveils-bigger-stimulus-worth-47-6-billion-to-fight-coronavirus-impacts.html

From: THE JAKARTA POST, INDONESIA Thu, June 4, 2020

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