Revving the Engine of Economic Growth

The government plans to expand the engine of economic growth by promoting the role of cooperatives and micro, small and medium enterprises (MSMEs). The cooperatives are to facilitate the disbursement of funds to MSMEs.

Kompas/Bahana Patria Gupta

A worker prepares baking equipment on Wednesday (24/6/2020) at Surabaya Nastar House in Ketandan village of Genteng district, Surabaya, East Java. Diah Arfianti, who owns the business, said she had taken more creative means to promote her cakes. Many micro, small and medium enterprises (MSMEs) have been severely affected by the economic impacts of the Covid-19 health crisis.

JAKARTA, KOMPAS – President Joko “Jokowi” Widodo has called for the relaxation and acceleration of fund disbursements to cooperatives and MSMEs, so as to minimize the impacts of the economic slowdown due to Covid-19 on the businesses. Cooperatives and small companies are also expected to become the drivers of growth in the national economy.

The President Jokowi symbolically handed over Rp 1 trillion (US$68.50 million) in liquidity assistance funds on Thursday to cooperatives affected by Covid-19 at the State Palace in Jakarta.

The cooperatives are to channel the funds immediately to MSMEs so that the wheels of the economy can start turning again.

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The funds are part of the Rp 123.46 trillion allocated for cooperatives and MSMEs as part of the National Economic Recovery Program. According to the Cooperatives and Small and Medium Enterprises (SMEs) Ministry, Rp 11.84 trillion, or 9.59 percent of the total allocation, had been disbursed as of 21 July 2020.

The funds are disbursed as a microcredit program (KUR) interest subsidy scheme, an MSME loan restructuring program, and as a cooperatives liquidity assistance through the The Micro, Small and Medium Enterprises (MSMEs) and Cooperatives Revolving Fund Management Institute (LPDB-KUMKM).

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KOMPAS/TOTOK WIJAYANTO

A One-Stop Integrated Services clerk (right) serves a customer seeking to obtain a business license on Thursday (23/7/2020) at the offices of the Investment Coordinating Board (BKPM) in Jakarta.

In his address before cooperatives heads, the President highlighted the devastation the Covid-19 health crisis had wrought on the economy.

"We have to speak the truth. In the second quarter, economic growth will be negative. The economy could shrink by 4.3 percent or even 5 percent. It will fall sharply from 2.97 percent growth recorded in the first quarter of 2020,” Jokowi said at the handover event, which also saw the attendance of Cooperatives and SMEs Minister Teten Masduki.

The President instructed the immediate disbursement of the funds. The LPDB-KUMKM must channel the liquidity assistance funds to cooperatives quickly through a simple process. Likewise, Jokowi added, the cooperatives should immediately channel the funds to small businesses.

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"We need speed. Disburse the funds quickly, simplify the process. I do not want the cooperatives to close their operations, [so] please help them. It is the same with business owners, help them,“ he said.

The President said that disbursing of the funds quickly was necessary to ensure that the Indonesian public would not lose the opportunity to drive economic growth. Economic growth in the fourth quarter of the year would depend highly on economic activities in July, August and September. If the working capital loans for SMEs were disbursed immediately, the economy was expected to recover again, especially in the regions.

KOMPAS/TOTOK WIJAYANTO

A worker carries trays of freshly made tofu to the packaging section of a small tofu producer on Thursday (23/7/2020) in Pancoran, South Jakarta. As of July 21, the government has disbursed Rp 11.84 trillion in working capital for cooperatives and micro, small and medium enterprises (MSMEs) through national economic recovery program. The figure is 9.59 percent of the Rp 123.46 trillion fund for cooperatives and MSMEs.

Three stages

At the same event, Teten Masduki said the SMEs ministry had developed three stages for the cooperatives and MSMEs recovery program. The first stage was survival, during which the government would restructure the loans of LPDB-KUMKM partners by deferring installment loan payments for 12 months. Up to now, the government had restructured the loans of the agency’s 40 cooperative partners by deferring their interest payments, cutting the administrative costs, and by extending the loan tenures.

"They have also received additional financing facilities with outstanding loans totaling Rp 135.7 billion. The [LPDB-KUMKM] will not charge interest for one year,” said Teten.

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The second stage was to disburse the Rp 1 trillion in liquidity assistance funds for cooperatives and MSMEs. The funds were placed directly with cooperatives at a fixed interest rate of 1.5 percent per year. The cooperatives were expected to channel the funds to 4.8 million small businesses.

The third stage was driving economic growth, during which the government would issue a number of policies to facilitate easier access to financing for cooperatives and MSMEs. At the same time, the government would partner with cooperatives to distribute cheap loans to MSMEs.

Loan distribution

Suroto, who is the director of the Parent Cooperative of Community Businesses and the chairman of the Strategic Socioeconomic Cadres Association, said that many cooperatives had the capacity to meet the institutional requirements to channel the funds to MSMEs. He said that large cooperatives such as the Kospin Jasa Cooperative and Credit Union had networks in a number of provinces it could use to channel the funds.

Those cooperatives that have be appointed to distribute the funds are only those that are registered at the SMEs ministry. Around 35,000 registered cooperatives must ensure that their listed addresses are valid and that they have ID numbers. "The cooperatives should have MSME members, and [must complete] their profiles, including names and addresses," Suroto said.

KOMPAS/ISMAIL ZAKARIA

A woman arranges a display of locally produced coffee on Thursday (23/7/2020) at a business meeting on micro, small and medium enterprises (MSMEs) in Mataram, West Nusa Tenggara (NTB). Local MSMEs have developed superior products from the NTB administration’s economic assistance for earthquake-affected communities. Today, MSMEs in Lombok have said they have been encouraged by the transition to the “new normal” phase of the Covid-19 mitigation measures.

Aside from the government, a number of e-commerce companies have also played an important role in supporting the activities of MSMEs in the country. Bukalapak, for example, is cooperating with Indodana to provide an interest-free capital financing facility to MSMEs, called Bayar Tempo.

Meanwhile, Ralali.com has brought together suppliers and wholesale MSMEs on its online marketplace. The company is financing MSMEs that buy goods through the Ralali.com ecosystem. The MSME partner can then repay the funds after the goods have been sold.

If their products sell, MSMEs will make earnings and be able to adapt to the situation.

In East Java, the Surabaya municipal administration is regularly holding an online bazaar to promote the products of local MSMEs. Surabaya Mayor Tri Rismaharini said that MSMEs needed the government’s support in marketing their products. Providing capital assistance to MSMEs was not enough, she added, because they needed assistance in marketing as well as financing.

"If their products sell, MSMEs will make earnings and be able to adapt to the situation," she said.

Many MSMEs in other regions were also selling their products through online marketplaces and social media to maintain their business. In West Lombok, West Nusa Tenggara, Supiani, the 28-year-old owner of Akram Mutiara Lombok, said that her company received orders through Instagram, Facebook and WhatsApp, especially from customers outside NTB including those in Makassar, South Sulawesi, and in Malang, East Java. (NTA/CAS/JUD/ERK/ETA/KOR/ZAK/TAM)