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Indonesia’s Variety of Stimulus Resists the Impact of Corona Virus

Wednesday, 11 March 2020

Indonesia’s Variety of Stimulus Resists the Impact of Corona Virus

The Government of Indonesia has prepared a variety of fiscal, monetary and capital market stimulus to minimize the negative impact of the spread of the corona virus (Covid-19) on economic stability and the national financial market.

Covid-19 virus was first reportedly spread in Wuhan, China on 13 January, 2020. This epidemic then spread to various countries, including Indonesia. This was bad news in the early 2020s which hit global economic and trade performance, and capital markets. 

Since the beginning of January 2020 until this news was made (11/3/2020), the Indonesian Composite Index (Indeks Harga Saham Gabungan/IHSG) on the Indonesia Stock Exchange has dropped more than 18%. The spread of the deadly virus also has an impact on import performance from China to Indonesia, whose value has dropped by around 50% to USD463 million as of February 28, 2020 from the previous USD948 million last January.

The Government, The Central Bank of Indonesia (Bank Indonesia/BI), and the Financial Services Authority (Otoritas Jasa Keuangan/OJK) gave a simultaneous response to the spread of the Corona virus by each issuing a policy stimulus.

Quoting Kontan Daily Newspaper (11/03/20), the Government will use fiscal instruments to counter the bad impacts of the Covid-19 to the economy through the following policy plans:


Tax Incentives 

Income Tax Article (ITA) 21 (Pajak Penghasilan/PPh Pasal 21) is borne by the government for workers in the manufacturing industries for six months

Relaxation of ITA 22 (PPh Pasal 22) for importers in three months 

Reduction of ITA 25 (PPh Pasal 25) for business entities range from 25%-50% 

Speeding up the refund for Value Added Tax (Pajak Pertambahan Nilai/PPN) for three months 

Increasing the limit on value of restitution for VAT Registered Persons (Pengusaha Kena Pajak/PKP) from IDR 1 billion to IDR 5 billion 


Incentives for Households

Speeding up the distribution of Pre-Work Cards ini Bali, Sulawesi Utara, dan Kepulauan Riau (Maret 2019) 

Increasing the basic food card incentives over the next six months to IDR 50 thousand per month to IDR 200 thousand per month per group of beneficiaries

Allocating a budget of IDR 1.5 trillion specifically to increase the interest subsidy and down payment on housing loans and upgrade the number of subsidized new homes by 175,000 units.


Incentives for Tourism Industry 

Incentives for airlines and travel agents worth a total of IDR 98.5 billion

Incentives for tourism promotion IDR 103 billion

Incentives for tourism activities IDR 25 billion

The budget for tourism influencers is IDR 72 billion

Budget allocation of IDR 443.49 billion for subsidies (discounts) on domestic flight ticket prices (only for 25% of the number of seats per aircraft)

Budget allocation of IDR 265.6 billion for a 20% reduction in air passenger services (Pelayanan Jasa Penumpang Pesawat Udara/PJP2U) for three months for 10 destinations

Budget allocation of IDR 265.5 billion for avtur discounts by Pertamina for three months

Reallocation of Special Allocation Funds (Dana Alokasi Khusus/DAK) worth IDR 147.7 billion to 10 tourist destinations

The use of grants valued at IDR.3.3 trillion for hotel and restaurant tax exemption in 10 tourist destinations.


Monetary Policy

Previously, BI had already responded to the impact of the spread of the Covid-19 virus by implementing the following five policies:

Reducing the BI 7-Day Reverse Repo Rate (BI7DRR) by 25 bps to 4.75%, cutting the Deposit Facility rate by 25 bps to 4.00%, and the Lending Facility interest rate by 25 bps to 5.50%.

Increasing the intensity of BI intervention in financial markets or so-called triple interventions, both in the spot market, domestic non-delivery forward (DNDF) market and purchase of government securities (Surat Berharga Negara/SBN) from the secondary market.

Reducing the statutory reserve requirement ratio (Giro wajib Minimum/GWM) of commercial banks, which was originally 8% of total Third Party Funds (Dana Pihak Ketiga/DPK) to 4% of DPK.

Expanding the types and scope of underlying hedging transactions for foreign investors, including domestic non-delivery forward (DNDF) purchases.

Allowing foreign investors to use custodian banks, both global and domestic, to invest in Indonesia.


Capital Market Incentives

Meanwhile, OJK seeks to reduce the negative impact of the Covid-19 virus on the stock exchange by allowing all issuers to buy back shares without the mechanism of the General Meeting of Shareholders (Rapat Umum Pemegang Saham/RUPS).

In this regard, the Stock Market Authority encourages issuers of State-Owned Enterprises (Badan Usaha Milik Negara/BUMN) to prepare a budget to buyback their shares. This suggestion was responded positively by the Government, which through the Ministry of State-Owned Enterprises requested a number of state-owned companies to conduct share buybacks, with an estimated allocation of funds of around IDR 8 trillion. (ags)


Photo: Kateryna Babaieva/www.pexels.com

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