Stimulus to Shield Impact of Covid-19 Outbreak on Economy

To anticipate a deeper economic downturn, due to the Covid-19 outbreak, the government has prepared a number of incentives and stimulus.

KOMPAS/LASTI KURNIA

Despite concerns about the novel coronavirus, enthusiasm to travel remains strong, as seen from the large number of visitors at the BCA Travel Fair at Gandaria City Mall, Jakarta, Friday (14/2/2020). The event was held in collaboration with Singapore Airlines and seven travel agents, namely Golden Rama, Aviatour, Wita Tour, Dwidata, Bayu Buana, Smailing Tour and Panorama Tour.

JAKARTA, KOMPAS - The weakening of the Chinese economy due to the Covid-19 outbreak will directly or indirectly affect Indonesia\'s economic growth. To anticipate a deeper economic downturn, the government has prepared a number of incentives and stimulus.

The sector most affected is tourism. Foreign exchange receipts from Chinese tourists will certainly fall this year. In 2019, the number of Chinese tourists visiting Indonesia totaled 2.07 million people or equivalent to 12.86 percent of the total foreign tourists, which reached 16.11 million people during the year.

During a press conference in Jakarta on Wednesday (26/2/2020), the Center for Economic Research of the Indonesian Institute of Sciences (P2E LIPI) estimated Indonesia\'s economic growth of 4.7 percent to 4.84 percent this year. "Our hope during the launch of the 2020 outlook at the end of 2019 was that the United States-China trade war would subside. However, the trade war has not abated and the Covid -19 outbreak has emerged," said the head of P2E LIPI, Agus Eko Nugroho.

Our hope during the launch of the 2020 outlook at the end of 2019 was that the United States-China trade war would subside.

P2E LIPI calculates the potential loss of foreign exchange in the tourist sector to reach about US$2 billion. This figure is based on the arrival of tourists from China to Indonesia in 2019, with the assumption that the Chinese tourists stay in Indonesia for an average of six days and spend about $157 per day.

At the end of 2019, P2E LIPI estimated that the Indonesian economy would grow 5.04 percent this year. Previously, Bank Indonesia also revised the projections for Indonesia\'s economic growth this year, from 5.1-5.5 percent to 5-5.4 percent, due to the impact of the Covid-19 epidemic.

Based on data on the Trade Ministry’s website, in 2019, Indonesia\'s trade balance with China suffered a deficit of $16.989 billion. Indonesia\'s exports to China totaled $27.91 billion, while imports reached $44.90 billion.

KOMPAS/LASTI KURNIA

Trucks park besides shipping containers at Operation Terminal 3, Tanjung Priok Port, Jakarta, Thursday (20/2/2020). Statistics Indonesia (BPS) noted the value of non-oil exports and imports to and from China decreased in January 2020, but said the decline was not entirely due to the coronavirus.

P2E LIPI estimates the Covid-19 epidemic will affect the trade sector. "Our estimate is that spending will contract 0.5-0.8 percent. If we do nothing, it will certainly have an impact on economic growth. The government\'s target cannot be achieved," Agus said.

The economic growth in the 2020 state budget is targeted at 5.3 percent. In 2019, Indonesia\'s economy grew 5.02 percent.

LIPI recommends that the government find new sources of imports that can replace China. The distribution should be accelerated so that prices in the domestic market will not increase. "For micro, small and medium enterprises that are affected, for example due to bad credit, they can be allowed to delay penalty payment," Agus said.

Stimulus

The Financial Services Authority (OJK) has also prepared a stimulus to maintain economic growth. The stimulus is in the form of relaxation of credit asset quality assessment with a loan ceiling of up to Rp 10 billion, based solely on on-time payment of loan principal and / or interest for debtors in sectors affected by the Covid-19 epidemic.

It is also possible for customers in the sector to get least strict loan restructuring arrangements, which take effect one year after it is determined, and can even be extended if needed.

"This policy is expected to be able to mitigate the impact of the weakening global economy on the growth and stability of the national economy," OJK chairman Wimboh Santoso said in a press release.

KOMPAS/PRIYOMBODO

Finance Minister Sri Mulyani Indrawati

Finance Minister Sri Mulyani Indrawati said on Wednesday that the city/regency government in 10 tourist destinations would be prohibited from collecting taxes from hotels and restaurants for six months. The potential loss of from taxes will be compensated by the central government through a regional grant mechanism. The government has prepared grants worth Rp 3.3 trillion.

The 10 regions are Lake Toba, Yogyakarta, Malang, Manado, Bali, Mandalika, Labuan Bajo, Bangka Belitung, Batam and Bintan.

To prevent the impact of the Covid-19 outbreak on the tourist sector, the government will also issue incentives in the form of a 50 percent discount on airline airfares for certain domestic routes. The goal is to increase domestic tourist visits.

Economic Coordinating Minister Airlangga Hartarto said the impact of the incentives on the economy can be seen in the third and fourth quarters of 2020.

Bank Indonesia’s senior deputy governor Destry Damayanti said BI would focus on maintaining the stability of the rupiah exchange rate. The Covid-19 outbreak has caused investors to shift portfolio assets in developing countries to safer assets such as the US dollar.