As global governments race to confront the twin threats of a health crisis and an economic recession, the stakes are high. Millions of lives are at stake while workers around the world face the possibility of job losses and loss of income.
As a result, a number of governments have already announced economic stimulus packages to help buttress the impact of a sharp economic slowdown. A doomsday scenario is fast building where the cost of the corona virus (COVID-19) could cost the global economy US$1 trillion dollars in 2020 and upto US$2 trillion if the pandemic were to stretch beyond the summer.
“We envisage a slowdown in the global economy to under 2 percent for this year and that will probably cost in order of US$1 trillion, compared to what people were forecasting back in September,” said Richard Kozul-Wright, director, Division on Globalization and Development strategies at UNTAD.
The COVID-19 outbreak has generated both demand and supply shocks across the global economy with major economies deeply connected to China possibly facing the brunt of the fallout. The United Nations projects that foreign direct investment flows could fall between 5 and 15 percent to their lowest levels since the 2008-2009 global financial crisis.
Against this backdrop, the Indonesian government has moved to mitigate the impact of a global economic slowdown by announcing a second economic stimulus package that is aimed calming business nervousness and helping businesses ride out the downturn.
On March 13, Minister of Finance Sri Mulyani told a media conference that the government has allocated Rp22.9 trillion (US$15 billion) from the state budget to offset relaxation on individual tax (PPh21); corporate income tax (pph25) and import tax (PPh22) and has extended the deadline for filing income tax returns to next April.
The tax breaks will benefit individuals who earn under Rp200 million a year and companies who will enjoy a 30 percent tax reduction as well as importers of raw materials for 19 manufacturing industries. T
“On February 25, we issued the first fiscal stimulus around Rp 10.2 trillion which covers incentives for travel related industries and 15.2 million social assistance program beneficiaries. With this second stimulus, I hope we can minimize the impact on corporations and the public. This will not be the last stimulus, as the developments have been extremely dynamic and we will assess the situation to mitigate and minimize the impacts,” Sri Mulyani noted.
For non-fiscal stimulus, the government will reduce export requirement for 749 HS code, including the fisheries and forestry industries. Health certificates and V-legal documents will also no longer be required. In addition, the government will simplify import requirements for companies that hold status as producers, including steel and alloy steel, pharmaceuticals and strategic food commodities producers such as salt, sugar, meat, corn, potato and tapioca.
Coordinating Ministry of Economic Affairs Airlangga Hartarto added that President Joko Widodo has mandated him to improve the national logistics ecosystem (NLE) so as to lower logistics costs, which at 24 percent of GDP are among the highest in the region. Related ministries and institutions such as the Ministry of Transportation, Ministry of Trade, Ministry of Industry, Ministry of State Owned Enterprises, Ministry of Health, Ministry of Fishery and the Indonesian Investment Coordinating Board should integrate their own infrastructure network into NLE system to avoid repetition, duplication and complicated services so importers and exporter should need only provide their data one time that can be accessed together among ministries/ institutions.
“There should be also standard for cost, service time, logistic tracking and tracing. It will help reputable traders a lot for their export and import activities. We also mandate the Ministry of trade to issue import permits for 11 food commodities and coordinate with retail associations such as Apindo, Hipindo, Gappmi to secure food stock during pandemic Covid-19,” Hartarto said.
In addition, the government through ministries/ institutions will collaborate with 9 technology companies to hold online classes for pre-working card beneficiaries in regions that are most affected by the pandemic COVID-19 such as Bali, North Sulawesi, Riau Islands, West Java, Jakarta and East Java. This is to anticipate any retrenchments so workers who lose their jobs can reskill through online class.
Business Response
The second economic stimulus will also be facilities from the Financial Services Authority that provides greater leeway for companies that carry loan repayments of up to Rp10 billion. The move was applauded by financial sector players who noted that this will allow banks to restructure loans of high quality debtors.
“We welcomed the relaxation. At the moment, we identified our customers that have the ability to withstand a weakening in business activities. In 2019, we disbursed RP 700 trillion in loans to SMEs, or around 78 percent of total lending. This year we want to increase it to 80 percent,” said Sunarso, President Director of PT Bank Rakyat Indonesia.
Chairman of the Indonesian Food and Beverages Association (GAPMMI), Adhi S Lukma also welcomed the second stimulus package from the government. The fiscal incentive, especially individual income tax exemption and corporate income reduction will effectively protect national F&B players in the current uncertain economic climate.
“I think it is the best anticipation for the worst case scenario of people seeing their purchasing power fall. These incentives will cut our product expense price so in the end manufacturing companies and society as buyers will get the benefit. Currently we are still waiting for the technical regulation on this, but in general we welcome the idea,” he said.
Chairperson of Indonesian Soft Drink Manufacturer (Asrim), Triyono Prijosoesilo who is also the director at PT Coca Cola Indonesia added that the new fiscal incentives would benefit workers, especially those that work in production and sale divisions. It will keep their purchasing power stable amid the pandemic.
The simplification on import permits for raw material would protect the bottom line of companies as most soft drink manufacturers still import sugar primarily from Thailand, Philippines and Brazil.
“I also propose incentives for SME traders. For our industry, our distribution process still relies heavily on small or traditional grocery stores and with the the current situation, sales will be affected,” Prijosoesilo said.