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Jokowi earmarks Rp 405.1 Trillion in battle against COVID-19

07/04/2020

Businesses must still wait as to when and how exactly the Rp 405.1 trillion will be disbursed to stimulate the Economy.

On March 31, 2020, President Joko 鈥淛okowi鈥 Widodo announced that he has signed Presidential Regulation in Lieu of Law (Peraturan Presiden Pengganti Undang-Undang or Perppu) on State Financial Policy and Financial System Stability in the handling of COVID-19. 

The Perppu, number 1 of 2020 (Perppu No. 1/2020), proposes a lifting of the state budget deficit cap of 3%. This will allow President Jokowi to allocate Rp 405.1 trillion (roughly US$24.6 billion) - an amount he announced alongside the Perppu - from the state budget for various programs designed to safeguard the nation鈥檚 economy during, and after, the COVID-19 pandemic. Should the Perppu gain Parliament approval, President Jokowi is looking at an estimated state budget deficit of 5.07%.

At a separate teleconference with the media held in the morning of April 1, 2020, Finance Minister Sri Mulyani laid out the reasons why the government has allocated that amount. Out the Rp 450.1 trillion, Rp 75 trillion would be used as incentives for doctors, nurses and other medical professional, as well as to procure medical devices. Another Rp 110 trillion would be used expand the government鈥檚 social safety net programs such as the Family Hope Program and the Staple Food Program. As much as Rp 70.1 trillion would be spent to support industries via tax reliefs and loan deferments. Lastly, the remaining Rp 150 trillion has been earmarked to support economic recovery programs.  

Description  Amount (in Rp trillion) Explanation
Healthcare  75

- Subsidies for premiums for the national healthcare insurance program BPJS. (Rp 3 trillion) - Incentives for doctors, nurses and other medical professionals. (Rp 5.9 trillion)
- Compensation for healthcare workers who died in the line of duty. (Rp 0.3 trillion)
- Purchase of healthcare equipment such as test kits and ventilators. (Rp 65.8 trillion) 

Social Safety Net  110

- Additional funds for 10 million families in the Family Hope program as well as 20 million families in the staple food program. (Rp 19.2 trillion)
- Additional funds for the pre-employment card program. (Rp 10 trillion)
- Exemption and discount of electricity bills to some 31 million homes (Rp 3.5 trillion)
- Other social safety net programs as well as reserved funds (Rp 77.3 trillion) 

Industry Support  70.1

- Income tax and import tax exemptions to be borne by the government for specific sectors (Rp 64 trillion)
- Stimulus for micro-business loans (Rp 6.1 trillion)

Economic Recovery Program  150 - Credit restructuring and financing for micro, small, and medium enterprises (MSMEs), as well as other economic recovery programs. (unspecified) 

Source: Ministry of Finance

The move has been lauded by economists, many of whom attributed the necessity of the decision in light of the extraordinary circumstances spurred by the COVID-19 pandemic. Indeed, Indonesia is not the only country to siphon a not an insignificant amount of funds from its coffers in response to the COVID-19 pandemic. Australia allocated A$189 billion or 9.7% of its GDP to support households and businesses and to ensure the flow of credit in the economy. Germany allocated EUR 156 billion or 4.5% of its GDP on healthcare equipment, expanded access to short-term work (Kurzarbeit), as well as for grants to small business owners and self-employed persons. See table below for comparisons. 

Australia
A$189 billion (9.7% of GDP) Net cumulative over FY2024

Includes support for households and businesses, as well as balance-sheet support to ensure the flow of credit in the economy. 

Canada
$138 billion (6% of GDP) 

Includes increased testing, vaccine development, medical supplies, mitigation efforts, and greater support for Indigenous communities; direct aid to households and businesses, including tax deferrals and wage subsidies. 

France
EUR 45 billion (2% of GDP) plus EUR 300 billion (13% of GDP) 

includes streamlining and boosting health insurance for the sick or their caregivers; increased spending on health supplies; and state guarantees for bank loans to companies. 

Germany
EUR 156 billion (4.5% of GDP) plus EUR 822 (24% of GDP) 

Includes spending on healthcare equipment, hospital capacity and R&D; expanded access to short term-work (鈥淜urzarbeit鈥); and an expansion of volume and access to public loan guarantees for firms of different sizes.

Italy
EUR 25 billion (1.4% of GDP) 

Includes funds to strengthen the Italian health care system and civil protection; as well as measures to support credit supply (鈧5.1 billion) aimed to unlock about 鈧350 billion (20% of GDP) of liquidity for businesses and households. 

Malaysia
RM 6 billion (0.4% of GDP) plus RM 0.62 billion (0.1% of GDP) 

Includes increased spending on medical equipment and personnel; electricity discounts and temporary pay leave. A second stimulus package is expected. 

Saudi Arabia
$18.7 billion (2.7% of GDP) 

Includes the suspension of government tax payments, fees, and other dues. Reduce spending in non-priority areas of the 2020 budget by SAR 50 billion (1.9% of GDP) to accommodate some of the new initiatives within the budget envelope. 

Singapore
S$54.4 billion (10.9% of GDP) 

Includes funds to contain the outbreak and support to households and businesses. On March 26, a supplementary budget worth over S$48 billion was announced. The package includes, an expansion of wage subsidies, and enhancement of financing schemes and setting aside loan capital of S$20 billion. 

United States
$2.1 trillion (10.5% of GDP) 

Includes transfers to households; extended unemployment insurance; incentives for firms; loans and grants for businesses; funding for hospitals and health care infrastructure and deferral of payroll tax obligations, as well as 60-day suspension to Federal student loan obligations and delayed deadline for tax filing. 

Source

Whether the amount allocated is enough to buoy Indonesia鈥檚 economy is still anyone鈥檚 guess. Without a cure or a vaccine in sight, there is no certainty as to when the pandemic will end. The government鈥檚 most immediate concern is to ensure that the proposal passes through the Indonesian parliament without too much delay. In this regard, Parliament speaker Mrs. Puan Maharani, who held the position of Coordinating Minister of Human Development and Cultural Affairs during Jokowi鈥檚 first term, has expressed support. Nonetheless, businesses will still have to wait before any impact from the stimulus can be felt.