Indonesia unveils more emergency stimulus to counter coronavirus fallout

JAKARTA • Indonesia has unveiled an emergency fiscal stimulus plan worth 22.92 trillion rupiah (S$2.18 billion) as it seeks to protect South-east Asia's largest economy from the coronavirus crisis.

The package announced yesterday, which includes a raft of tax breaks, would help push the budget deficit to 2.5 per cent of gross domestic product (GDP), from an initial target of 1.76 per cent, Finance Minister Sri Mulyani Indrawati said. "These won't be the last measures," she added.

The new package, which follows some US$745 million (S$1.1 billion) in stimulus announced last month, comes amid a deteriorating outlook for Indonesia's economy.

Despite only 34 confirmed cases in a population of 270 million, the country has been hit hard by the risk aversion sweeping global markets, with Indonesia's stock index now in bear territory and its currency down about 7.5 per cent in the past month.

As the virus continues its rapid spread beyond China, governments around the world are boosting stimulus and taking other steps to protect their economies. Central banks are also stepping up action with emergency rate cuts aimed at countering the economic fallout.

In Indonesia, policymakers are turning to measures deployed during the global financial crisis more than a decade ago. Bank Indonesia, which cut interest rates by 25 basis points last month, is under pressure to lower them again at next week's policy meeting.

The central bank bought 6 trillion rupiah of government bonds yesterday to prop up financial markets and stem a rout in the currency, adding to the 8 trillion rupiah of bonds bought on Thursday.

The government previously warned that economic growth may slow to 4.7 per cent in the first three months of the year, which would be the worst quarter in more than a decade. It now expects the budget deficit to widen by 0.8 percentage point, amounting to 125 trillion rupiah. The total value of stimulus to date, including two fiscal packages, is 160 trillion rupiah, Coordinating Minister for Economic Affairs Airlangga Hartarto said yesterday.

As a result of this crisis, the Indonesian authorities hope "there could be a mechanism that creates global leadership which will lead to synchronised measures to mitigate this", Ms Indrawati said. "We at the economic ministries will keep trying to mitigate this, but at the end of the day, the bottom line is this is a health issue."

Tourism bore the initial brunt of the virus' economic fallout, but Ms Indrawati said the impact is spreading to other areas. While last month's fiscal package aimed to support the tourism sector and low-income households, the new stimulus targets manufacturers.

As part of the state's non-fiscal response, rules will be relaxed governing the restructuring of bank loans to small and medium-sized companies, certification processes for exporters will be simplified and the government will make it easier to import raw materials.

"It's definitely better than the first package, but it's not enough," said Mr Enrico Tanuwidjaja, an economist at PT Bank UOB Indonesia. "We need to safeguard consumer confidence and spending with real stimulus that is on top of the normal expenditure and revenue adjustments," he said, adding that there is an "underlying special need for more significant fiscal measures".

The government should consider cash transfers, Mr Tanuwidjaja said. He also called it "an opportune time" to look at amending the law that limits Indonesia's budget deficit to 3 per cent of GDP.

BLOOMBERG