Indonesia to Mitigate Covid-19 Outbreak’s Economic Effects
›
Indonesia to...
Iklan
Indonesia to Mitigate Covid-19 Outbreak’s Economic Effects
Economic uncertainty due to the Covid-19 outbreak has led to troubles in global financial markets. Mitigation steps are being taken to curb the effects on the national economy.
By
AGNES THEODORA / DIMAS WARADITYA
·5 minutes read
JAKARTA, KOMPAS – Investors are leaving the stock market in droves in the wake of the Covid-19 outbreak triggered by the new coronavirus. Apart from Indonesia, a similar trend is occurring globally. The government, the central bank and the Financial Services Authority (OJK) have taken several mitigation steps to curb the effects of Covid-19 on the national economy.
Bank Indonesia (BI) Governor Perry Warjiyo said in his office in Jakarta on Friday (28/2/2020) that uncertainties due to Covid-19 had caused global financial markets to suffer. Foreign investors tend to “play safely” and withdraw their capital from portfolio investments, including in Indonesia.
BI records show that, as of Feb. 27, 2020, Indonesia’s net outflow was Rp 30.8 trillion, comprising Rp 26.2 trillion in state bonds and Rp 4.1 trillion from the stock market.
As a result, the rupiah’s exchange rate plummeted and the Jakarta Composite Index (JCI) is under pressure. In the past week alone, the JCI plummeted by 7.3 percent. At closing time on Friday (28/2), the JCI dropped by 1.5 percent to 5,452.7 compared to the day before. This is also the lowest point for JCI since March 2017.
Foreign investors tend to “play safely” and withdraw their capital from portfolio investments, including in Indonesia.
Meanwhile, referring to BI’s middle rates on Friday, the rupiah’s exchange rate against the US dollar has been weakened to Rp 14,234 per US dollar. Between January and February 27, BI record shows that the rupiah weakened by 1.08 percent. However, the rupiah remains stronger than other currencies, such as the Korean won that plunged 5.07 percent. In the same period, the Singapore dollar weakened by 3.76 percent and Thai baht by 6.42 percent.
BI will take several steps to stabilize the currency, namely intervening in the spot market by selling foreign exchange, implementing domestic non-deliverable forward policy as a value-protection instrument in futures transactions and purchasing state bonds together with other domestic banks to increase the financial market’s liquidity.
The Covid-19 outbreak is estimated to have affected the national economy. BI has revised its 2020 economic growth projection for Indonesia from 5.1-5.5 percent to 5-5.4 percent. The Indonesian Institute of Sciences’ Center of Economic Studies (P2E LIPI) has revised its economic growth projection for Indonesia from 5.04 percent to 4.74-4.84 percent.
Mitigation
The Financial Services Authority (OJK) and the government are also preparing several mitigation steps. The OJK is preparing stimulus in the form of regulation relaxation in credit assessment with a ceiling of up to Rp 10 billion, namely only based on timeliness of payments of principal and interest for debtors in sectors affected by Covid-19. Customers are enabled to obtain credit restructuring leniency.
The government has issued a Fiscal Policy Package worth Rp 10.3 trillion (US$735,364.48) to curb the epidemic’s effects. The government is preparing to increase the benefits of the Staples Needs Cards from Rp 150,000 to Rp 200,000, as well as provide holiday discounts and incentives for airlines and travel agencies that can bring in local and foreign travelers.
Tax-free incentives for hotels and restaurants as well as compensation to local administrations at 10 tourist destinations are also being prepared. There are also additional interest and house down payment subsidies for people with low income.
Previously, Finance Minister Sri Mulyani Indrawati said that the local administrations in 10 tourist destinations were requested not to collect hotel and restaurant taxes for six months. The central government will compensate for potential regional revenue losses by providing grants. The 10 destinations are Lake Toba, Yogyakarta, Malang, Manado, Bali, Mandalika, Labuan Bajo, Bangka Belitung, Batam and Bintan.
To restore market trust, financial authorities and industry players need to ensure that all market players play by the rules and prioritize prudence.
North Sumatra Governor Edy Rahmayadi said that the Covid-19 outbreak had begun to affect North Sumatra’s economy. Tourist visits to Lake Toba have been affected. He said that he hoped the incentives could boost local tourist visits.
Exports and imports have also been affected. “[North Sumatra] exports and imports many things to and from China. The outbreak has significantly affected our economy,” Edy said.
Schroders Indonesia investment director Irwanti said that the government in several nations, including that of Indonesia, had issued stimuli and policies to boost their economies. However, these efforts are deemed not enough, as investors’ perception on Indonesia’s stock exchange is still troubled by various concerns over the capital market.
Throughout 2019, for instance, the OJK suspended 37 investment managers. This was the culmination of failed investments in the non-bank finance industry. To restore market trust, financial authorities and industry players need to ensure that all market players play by the rules and prioritize prudence.
Crisis protocol
Indonesia Stock Exchange (IDX) development director Hasan Fawzi said that the JCI had been corrected significantly in the past week as the coronavirus’ spread outside China had deeply affected the global economy. However, these corrections had yet to force stock exchange authorities to carry out crisis protocol.
“If the JCI dropped by more than 1 percent in one day of trade, the IDX will do an internal evaluation. The crisis protocol will only be carried out if the JCI dropped by 7.5 percent in one trade day,” he said.
In a worst-case scenario in which the JCI drops 10 percent in one trade day, the IDX would temporarily close trade and reopen it later in the day while making a public statement on capital market situations. This was the protocol in steps carried out during the 2008 financial crisis.
Separately, OJK spokesperson Sekar Putih Djarot said that the OJK was continuing to monitor domestic and global market dynamics. The OJK coordinates with the IDX and will take steps in line with the authorities of both agencies. “A collective authority of the government and BI will synergize policies to maintain investors’ trust,” Sekar said.