Coronavirus: Indonesia has no plan for capital controls, but will ramp up fiscal stimulus

The Indonesian rupiah is the worst hit currency in emerging Asia, losing around 14 per cent so far this year as virus fears prompt outflows.
The Indonesian rupiah is the worst hit currency in emerging Asia, losing around 14 per cent so far this year as virus fears prompt outflows.PHOTO: REUTERS

JAKARTA (REUTERS) - Indonesian central bank governor Perry Warjiyo on Thursday (March 26) said the country has no plan to implement capital control measures to stop outflows due to coronavirus fears, saying that its foreign exchange reserve is more than enough to prop up the currency.

The Indonesian rupiah is the worst-hit currency in emerging Asia, losing around 14 per cent so far this year as virus fears prompt outflows.

"I have to stress that our assessment so far, we want to ensure the proper market mechanism, the proper flows - inflows and outflows - and so far we've managed to do that," he said in a teleconference with investors.

Mr Warjiyo told reporters earlier on Thursday that the central bank is seeing signs of easing capital outflows as US and European authorities launched fiscal stimuli.

The rupiah gained 1.1 per cent on Thursday, while Indonesia's stock index jumped 10 per cent, rebounding from its lowest close since 2012.

Mr Warjiyo added that the central bank has several bilateral swap arrangement with a number of other central banks, including a US$30 billion (S$43 billion) arrangement with China's central bank, as a second line of defense to support the rupiah.

Finance Ministry data showed that foreigners have sold around 85 trillion rupiah (S$7.5 billion) worth of government bonds this year as of March 23, while in shares foreigners have sold a net 10 trillion rupiah as of Thursday.

Vice-Finance Minister Suahasil Nazara said the government is preparing to expand its fiscal stimulus to cushion the economy from the virus outbreak disruption.

The government has issued two stimulus packages so far, which include easing taxes for some industries, and Finance Minister Sri Mulyani Indrawati said around US$3.85 billion in government spending will be shifted to finance its Covid-19 response.

 
 
 
 

"Given our reading that the economic impact of Covid-19 will be significant to Indonesia, we think that those fiscal packages will need to be upgraded," Mr Nazara said.

The authorities are currently drafting up a plan for stimulus aimed at Indonesia's informal sector and there is a discussion to beef up the country's social safety net scheme, he added without going into detail.

Dr Sri Mulyani has warned of no economic growth this year if the coronavirus outbreak lasts for six months and if Indonesia went into lockdown.

Meanwhile, the government is planning to issue bonds so the proceeds can be distributed as cheap loans for struggling businesses to avoid layoffs.