The Rupiah is gaining ground after weeks of devaluation amidst the COVID-19 pandemic. On March 23, 2020, the Rupiah dropped to its lowest point this year to Rp 16,575 per US dollar. By April 9, the currency rose 2.3% to close at Rp 15,880 against the dollar, the biggest gain since October 2015. The appreciation is in part due to aggressive intervention by the Indonesian government. Just last month, the country spent $9.4 billion of its Foreign Reserves as Bank Indonesia stepped up market intervention to stabilize the rupiah exchange rate amid heavy capital outflows. On top of that, Bank Indonesia also struck a $60 billion repo facility deal with the US Fed - nearly half of the Indonesia’s total reserves. BI Governor Perry Warjiyo said the deal was a show of confidence in Indonesia’s economic prospect. “The Fed only works with a few emerging countries, including Indonesia, on such deals,” Mr. Warjiyo said in a recent teleconferenced meeting following announcement of the deal with the Fed Aside from the Fed, Indonesia also has a $30 billion bilateral swap agreement with China, $22.7 billion with Japan, around $7 billion with Singapore and an undisclosed amount with Australia and other central banks, as well as a $2.5 billion repo line agreement with the Bank of International Settlements and another $3 billion with the Monetary Authority of Singapore, according to data from the Central Bank. “This will be the second line of defense other than bilateral currency swaps in case we need dollar liquidity,” Mr. Warjiyo said as quoted by the Jakarta Post, adding that the current forex reserves level was “adequate” for further market interventions. Currently, the country’s financial system remains relatively safe. Data from the Central Bank shows that, as of February 2020, Indonesia’s banks retain a high CAR (Capital Adequacy Ratio) of 22.27% as well as a relatively low NPL (Non-Performing Loan) of 2.79% (gross) and 1.04% (nett). Mr. Warjiyo expressed confidence that the Rupiah will continue its climb to Rp 15,000 per dollar, adding that the Central Bank was ready to take the necessary measures to safeguard the currency.
To safeguard the national economy against the COVID-19 pandemic, President Joko Widodo issued Government Regulation in Lieu of Law Number 1 of 2020 on State Financial Policy and Financial System Stability for Mitigation of Pandemic Corona Virus Disease 2019 (COVID-19) (Perppu 1/2020), which came into force on March 31, 2020. One of the many substantial policies addressed in Perppu 1/2020 is taxation. They are as follows: Corporate Tax One of the main regulatory changes introduced in the Perppu is on Corporate Tax, in which the Indonesian Government provides a reduction of Corporate Income Tax of 22% (twenty two percent) from the current 25% (twenty five percent) for companies and permanent establishment (BUT), which applies for the Tax Years 2020. For Tax Year 2022, the tax deduction will be 20% (twenty percent). Public companies listed in the Indonesia Stock Exchange (IDX) that sell more than 40 percent of their shares to the public and meet certain requirements will be eligible for an additional 3% (three percent) reduction. E-commerce Tax With the issuance of this regulation, domestic and foreign online business practitioners that conduct e-commerce activities in Indonesia will be charged: value added tax (VAT) on taxable intangible goods and/or services sold through their e-commerce platforms. income tax or electronic transaction tax on their e-commerce activities. Foreign online business practitioners with a significant economic presence in Indonesia will be declared as permanent establishments. The significance of the company’s economic presence is determined by the company’s gross circulated product, sales and/or active users in Indonesia. As is all permanent establishments, these companies will now be subject to Indonesian taxation regulations. In the event that the Indonesian government is not able to determine certain foreign online business practitioners as permanent establishments due to tax treaties with certain countries, these companies will be charged an electronic transaction tax on their company’s sales in Indonesia. Further provisions regarding the rate, object and calculation of the income tax and the electronic transactions tax will be regulated through a Government Regulation (PP). Under Perppu 1/2020, domestic and foreign online business practitioners that fail to comply with the provisions will be subject to: administrative sanctions in accordance with prevail Indonesian taxation regulations. termination of companies’ access by the Minister of Communication and Information Taxation Obligations Via Perppu 1/2020, the Indonesian government will further provide relaxation to taxpayers in regards to the extension of filing an objection to tax payments and returning tax overpayments due to the COVID-19 pandemic. For the submission of objections, the Indonesian government has decided that the due date for the submission of the objection is extended to a maximum of 6 months. Meanwhile, the due date for returning tax overpayments has now been extended for a maximum of 1 month. Furthermore, the due date for requesting the return of overpayment of taxes, filing an objection letter, as well as requesting a reduction or an elimination of administrative sanctions, cancellation of incorrect tax assessments, and cancellation of inspection results will be extended for a maximum of 6 months. The severity period due to the COVID-19 pandemic refers to the determination of the Indonesian government through the Head of the National Disaster Management Agency (BNPB). Import Duties Exemption Lastly, Perppu 1/2020 stipulates that the Minister of Finance has the authority to grant exemptions or relaxations on import duties, which can be done in the context of handling the COVID-19 pandemic and in facing any threats that endanger the national economy and/or the stability of the financial system. Under this authorization, changes to imported goods which are exempted from import duties based on their intended use under the article 25 paragraph (1) and article 26 paragraph (1) of the Customs Law will now be regulated through the Regulation of the Minister of Finance (PMK). It is clear that the changes in the tax regulation stipulated in Perppu 1/2020 is meant to ensure that Indonesia has enough fiscal space to mitigate the impact of the COVID-19 pandemic as well as to ensure a speedy economic recovery. It should be noted that while a Perppu is legally binding at the time of issuance, the government must still submit the Perppu to the Parliament for it to become law. The Parliament has the power to reject the Perppu and force the government to retract it. In this regard, the Perppu has been handed over to the Parliament on April 2, 2020, and, as of the time of writing, is still being deliberated by lawmakers.
In order to maintain the stability of the Indonesian financial system, President Joko Widodo issued Government Regulation in Lieu of Law Number 1 of 2020 on State Financial Policy and Financial System Stability for the Mitigation of the Corona Virus Disease 2019 (COVID-19) Pandemic (Perppu 1/2020), which came into force on March 31, 2020. Perppu 1/2020 grants additional authority to the Central Bank of Indonesia (BI), the Indonesia Deposit Insurance Corporation (LPS), and the Indonesia Financial Services Authority (OJK). These three institutions, along with the Ministry of Finance, are the main institutions that comprise Indonesia’s Financial System Stability Committee (KSSK), which was established in 2016. The authorities thus provide the KSSK with more powers to handle financial system stability issues stemming from the COVID-19 pandemic. These powers, as stipulated by Perppu 1/2020, are: Central Bank of Indonesia (BI) Grant short-term liquidity loans or short-term liquidity financing based on sharia principles to systemic and non-systemic banks. Granting Special Liquidity Loans to systemic banks that are experiencing liquidity crisis and do not meet the requirements for providing short-term liquidity loans or short-term liquidity financing based on sharia principles. Purchase long-term Government Bonds and / or Government Sharia Bonds within the primary market for handling financial system problems that endanger the national economy, including Government Bonds and / or Government Sharia Bonds issued for specific purposes, especially in the context of the co-19 pandemic. Purchase/repurchase of state securities owned by the LPS for the cost of handling the solvency problems of systemic and non-systemic banks. Regulating the obligation to receive and use foreign exchange for residents, including provisions concerning the transfer, repatriation and conversion of foreign exchange in order to maintain macroeconomic and financial system stability, which will be regulated by a BI regulation (PBI). Providing funding access to corporations / private entities through the repurchase of government bonds or state sharia securities owned by corporations / private sector through banks. Indonesia Deposit Insurance Corporation (LPS) Preparations for the handling of the crisis and increasing the intensity of joint-preparations with the OJK for handling bank solvency issues. Taking action: Sale / repurchase of Government Securities owned by the BI; Issuance of debt securities; Issuance of loans to other parties; and or Issuance of loans to the Government, in the event that the LPS is expected to experience liquidity crisis for handling failed banks; Making a decision to make or not save a bank other than a Systemic Bank (failed bank) by considering, among others, economic conditions, the complexity of the bank’s problems, the need for handling time, the availability of investors, and / or the effectiveness of handling bank problems and not only considering the estimated costs as the lowest (least cost test). Making a decision to make or not save a bank other than a Systemic Bank (failed bank) by considering, among others, economic conditions, the complexity of the bank’s problems, the need for handling time, the availability of investors, and / or the effectiveness of handling bank problems and not only considering the estimated costs as the lowest (least cost test). Formulating and implementing a deposit guarantee policy for a group of customers by considering the source of funds and / or deposit allocation, as well as the amount of value guaranteed for those groups of customers that is regulated by the Government Regulation. Further provisions regarding the implementation of the authority of the LPS in the framework of implementing measures to deal with financial system stability issues are to be regulated by a Government Regulation. Perppu 1/2020 further grants the Government the authority to provide loans to the LPS, which may be carried out in the event that the LPS experiences liquidity problems that endanger the national economy and financial system as a result of the COVID-19 pandemic. Indonesia Financial Services Authority (OJK) Provide written orders to financial service institutions to conduct mergers, consolidations, expropriations, integration and / or conversions. Determine exemptions for certain parties from the obligation to carry out the transparency principle within the capital market in the context of preventing and handling financial system crisis. Set the provisions regarding the use of information technology in holding General Meeting of Shareholders or other meetings based on the provisions of the legislation that must be carried out by financial service industry players. Further provisions regarding the implementation of the authority of the Financial Services Authority in the framework of implementing financial system stability policies are regulated by an OJK Regulation (POJK). Any activities violating the authority of the OJK as mentioned above will be subject to criminal sanctions, as follows: For individual persons: Minimum terms of imprisonment of four years and maximum fines of IDR 10 billion or minimum terms of imprisonment of 12 years and maximum fines of IDR 300 billion; and For corporations: Minimum fines of IDR 1 trillion. The powers granted to the KSSK as a whole allows the government to maintain the stability of the financial system by injecting liquidity as needed to the market. Finance Minister Sri Mulyani already mentioned in a recent remote press conference that the economic impact of the COVID-19 pandemic would be substantial, with Indonesia’s GDP projected to slow down to the -0.4 - 2.3% range. “Extraordinary times require extraordinary policy and action. That is why we need extraordinary action and policy, or actions and policy that we wouldn’t think about taking on otherwise normal situations,” she warned. It should be noted that while a Perppu is legally binding at the time of issuance, the government must still submit the Perppu to the Parliament for it to become law. The Parliament has the power to reject the Perppu and force the government to retract it. In this regard, the Perppu has been handed over to the Parliament on April 2, 2020, and, as of the time of writing, is still being deliberated by lawmakers.
On March 31, 2020, the Ministry of Trade issued Trade Minister Regulation Number 34 of 2020 on the Second Amendment to Trade Minister Regulation Number 23 of 2020 (Trade Minister Regulation No. 23/2020) on the Temporary Export Ban for Antiseptic, Mask Raw Material, Personal Protective Equipment, and Masks (Trade Minister Regulation No. 34/2020). The second amendment stipulates that the Minister of Trade can determine an exemption to the provisions in this regulation, carried out in coordination with the relevant ministries or non-ministerial government institutions. In order to obtain an exemption, the exporter must submit an application electronically to the Director General of Foreign Trade through http://inatrade.kemendag.go.id. This regulation has come into force on April 1, 2020, and is retroactively effective since March 18, 2020. Through regulation No. 34/2020, the Indonesian government is anticipating the secured supply of such goods as many local industries have ramped up the production of face masks, sanitizers and PPEs. Sinar Mas Group, one of Indonesia’s largest conglomerates, is reportedly preparing to produce 1.8 million masks domestically. Minister of State-owned Enterprises Erick Thohir has pledged to have state-owned enterprises produce masks continuously to combat the COVID-19 epidemic. Meanwhile, Minister of Cooperatives and Micro-small-and-medium-sized Enterprises (MSMEs) Teten Masduki has urged MSMEs to produce PPEs to also help combat COVID-19. Below is the list of goods banned from being exported as stipulated by Trade Minister Regulation No. 23/2020, which had already been previously amended by Trade Minister Regulation No. 31/2020 on the amendment to Trade Minister Regulation No. 23/2020 on the Temporary Ban for Antiseptic, Mask Raw Material, Personal Protective Equipment, and Masks: Tariff Post Description of Goods A 22.07 Non-denatured ethyl alcohol with an alcohol content of 80% or more by volume; ethyl alcohol and other alcohols, denatured at any level. 2207.10.00 Non-denatured ethyl alcohol with an alcohol content of 80% or more by volume 2207.20 Ethyl alcohol and other alcohols, denatured at any level 2207.20.11 Ethyl alcohol with an alcohol content exceeds 99% by volume 2207.20.19 Etc. 2207.20.90 Etc. B 30.04 Medicine (not including goods of tariff post 30.02, 30.05 or 30.06) consist of mixed products or not for therapeutic or prophylactic purposes, prepared in certain doses (including in the form of a transdermal distribution system) or in the form or package for retail sale. 3004.90 Etc. Ex.3004.90.30 Antiseptic hand rub, hand sanitizer and the like which are alcohol based C 38.08 Insecticides, rodenticides, fungicides, herbicides, anti-sprouting products and plant growth regulators, disinfectants and similar products, prepared in the form or package for retail sale or as preparations or goods (for example ribbons, wicks and candles processed with sulfur, and fly paper ). 3808.94 Disinfectant Ex.3808.94.10 Hand rub, hand sanitizer and the like contain a mixture of coal tar and alkali acids Ex.3808.94.20 Hand rub, hand sanitizer and the like in aerosol packaging Ex.3808.94.90 Hand rub, hand sanitizer and the like other than those containing a mixture of coal tar and alkali acids, and not in aerosol packaging D 56.03 Nonwovens, whether or not impregnated, coated, covered, laminated or not. Ex.56.03.11.00 Non-woven meltblown nonwoven fabric is made from artificial filaments weighing not more than 25 g / m2 Ex.56.03.91.00 Non-woven meltblown nonwoven fabric made from materials other than artificial filaments weighing not more than 25 g / m2 E 62.10 Garments, made from fabrics of tariff post 56.02, 56.03, 59.03, 59.06, or 59.07. 6210.10 Made from fabrics of tariff post 56.02, 56.03 Ex.6210.10.19 Medical protective clothing F 62.11 Track suits, ski suits and swimwear; other garment 6211.43 From man-made fibers: 6211.43.10 Surgical Wear. G 63.07 Other finished goods, including clothing patterns. 6307.90 Etc: 6307.90.40 Surgical mask. Ex.6307.90.90 Other masks of nonwoven material, besides surgical masks. The temporary ban against exporting these goods is valid until June 30, 2020. Exporters who violate the provisions will be subject to sanctions in accordance with the prevailing regulations. However, exporters obtaining a permission from the Minister of Trade are able to export the goods without breaking the law.
On March 16, 2020, the Indonesian Financial Services Authority (OJK) had issued OJK Regulation (POJK) No. 11/POJK.03/2020 concerning the National Economic Stimulus as a Countercyclical Policy Impact of the Spread of Coronavirus Disease 2019 (POJK Stimulus Impact COVID-19). This regulation states that the development of the spread of the Corona virus disease 2019 (COVID-19) has a direct or indirect impact on the performance and capacity of debtors, including micro, small and medium business (MSME), which could potentially disrupt banking performance and the stability of the financial system, which may further affect economic growth. Therefore, in order to encourage the optimization of the banking intermediary function, maintaining financial system stability, and supporting economic growth, an economic stimulus policy is needed as a countercyclical impact of the spread of COVID-19. The regulation effectively extends the deadline and reduces the interest rate of loans of debtors affected by the COVID-19 pandemic. Examples of such debtors include those who are affected by the closure of transportation and tourism routes to and from China or other countries that have been affected by COVID-19 and the travel warnings of several countries, or those who are affected by the significant decline in the volume of import and export due to supply chain and trade links with China or other countries that have been affected by COVID-19. The method of credit / financing restructuring is carried out as stipulated in OJK regulations regarding asset quality assessment. Banks can provide credit/financing/provision of other new funds to debtors who have received special treatment in accordance with this POJK by determining the quality of credit/financing/provision of other funds carried out separately from the quality of credit/ financing/provision of other previous funds. This POJK applies to Conventional Bank (BUK), Syariah Bank (BUS), Syariah Business Venture (UUS), Rural Credit Bank (BPR) and Syariah Rural Credit Bank (BPRS). Banks can implement policies that support economic growth stimulus for debtors affected by the spread of COVID-19, including MSME debtors, while still observing the precautionary principle. The policy has taken effect since March 16 and applies until March 31, 2021. By OJK’s account, the banking sector is still holding well against the COVID-19 pandemic. The Head of the OJK Banking Supervisory, Heru Kristyana, said Indonesian banks have the support of a strong capital and quality credit lines. “The capital adequacy [of our banks] is still good at 22.42%. The liquidity of major banks, as measured by the LCR [Liquidity Coverage Ratio] is still above 200%, which means that it’s still okay... the gross ratio of troubled credit is still at 2.79%, while net ratio is 1% per,” he said, as quoted by Bisnis Indonesia.