Indonesia Unveils Stimulus Package to Combat Coronavirus Impact
On February 25, 2020, the Indonesian government unveiled a US$725 million stimulus package in a bid to protect its economy from the impact of the coronavirus outbreak.
The package provides financial incentives for the tourism, airline, and the property industries in addition to subsidies, tax cuts, and unemployment benefits.
With 74 percent of imports coming from China, the country has become one of Indonesia’s largest trading partner and a key source of foreign direct investment (FDI). Total trade between the two countries was worth more than US$72 billion in 2019.
The virus has already dealt an immediate blow to key industries nationwide such as tourism and travel, with the manufacturing sector likely to be next unless businesses can find new sources for raw materials outside of China.
Indonesia has recorded 19 virus cases thus far and Finance Minister, Dr Sri Mulyani, estimated that the economy could shrink by 0.3 percentage points for every 1 percentage point drop in China’s growth. This would mean the growth outlook for 2020 could slow to 4.7 percent, below the initial target of 5.3 percent. Bank Indonesia (the central bank) has already cut interest rates by 25 basis points, the fifth time since May 2019.
The government plans to issue another stimulus package in the coming weeks which is expected to provide larger incentives. The new package will focus on easing rules for imports and exports to dampen the disruption being felt by supply chains nationwide.
Incentives for the tourism and airline industries
According to Indonesia’s Coordinating Maritime Affairs and Investment Minister, Luhut Pandjaitan, the country’s tourism sector has lost an estimated US$500 million due to the coronavirus outbreak.
The government has provided 98.5 billion rupiah (US$6 billion) worth of incentives to airlines and travel agencies, 103 billion rupiah (US$7.1 billion) towards tourism marketing and promotions, and an estimated 72 billion (US$5 billion) to social media influencers to also promote the country’s tourist hotspots.
There is also an additional 443-billion-rupiah (US$30 million) worth of discounts available for domestic tourists visiting one of the 10 tourist destinations promoted by the government. This equates to a 30 percent discount for flights from March to May 2020.
State-run oil company PT Pertamina will give discounts on jet fuel equivalent to 265 billion rupiah (US$18 million) at nine airports to support airlines provide the 30 percent airfare discounts.
Furthermore, the government will waiver taxes for hoteliers and restaurants located in the 10 promoted destinations for the next six months. Local governments will be compensated by the central government for the loss of taxes which is estimated to total US$230 million.
The 10 destinations are:
International investors and tourists should seek the help of registered local advisors to better understand how these incentives can impact their business operations or travel plans.
Extra funding for the Affordable Food Program
The government prepared funding totaling 4.6 trillion rupiah (US$324 million) for the Affordable Food Program (Sembako Murah) to boost local consumption. This program was initiated by the President during his re-election campaign in 2019 and aims to enable 15 million low-income households to purchase staple food products at discounted prices.
As part of the stimulus package, low-income households will also receive 200,000 rupiah (US$13.97) per month in financial benefits, an increase from 150,000 rupiah (US$10), for the next six months.
Support for low-cost housing
The government has injected 1.5 trillion rupiah (US$104 million) into its subsidized housing program which is expected to cover financing for a further 175,000 new homes. 800 billion rupiah (US$55 million) will be used to cover interest payments with the rest going to paying for subsidies.
This article was first published by ASEAN Briefing, which is produced by Dezan Shira & Associates.
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