Is Indonesia ready to face a disturbance

Indonesia Unveils Stimulus Package To Combat The Effects Of Coronavirus

  • On February 25, 2020, the Indonesian government unveiled a $ 725 million stimulus package to support tourism, airlines, and the real estate industries following the coronavirus outbreak.
  • There is also a tax exemption for hotels and restaurants in selected regions of the country.
  • The government also provided additional affordable grocery funding to help 15 million low-income households buy basic groceries.
  • Further incentives will be granted in the coming weeks in the form of easing the export and import regulations.

On February 25, 2020, the Indonesian government unveiled a $ 725 million stimulus package to protect its economy from the effects of the coronavirus outbreak.

In addition to subsidies, tax cuts and unemployment benefits, the package provides financial incentives for tourism, airlines and the real estate industry.

With a significant 74 percent of all Indonesian imports, China is one of Indonesia's most important trading partners and has become an important source of Foreign Direct Investment (FDI). Total trade between the two countries was worth more than $ 72 billion in 2019.

The virus has already had an immediate blow to key industries like tourism and travel across the country, with manufacturing likely being the next most affected - unless companies can have new sources of raw materials outside of China.

Indonesia has had 19 virus cases to date, and Finance Minister Dr. Sri Mulyani estimated that for every 1 percentage point of decline in growth in China, the economy could contract 0.3 percentage points. This would mean the growth outlook for 2020 could slow to 4.7 percent, which would be below the original target of 5.3 percent. Bank Indonesia (Indonesia's central bank) has already cut rates by 25 basis points, the fifth time since May 2019.

The government plans to pass another stimulus package in the coming weeks that will provide greater incentives. The new package will focus on easing the rules on imports and exports to curb the disruption that supply chains across the country are feeling.

Incentives for the tourism and aviation industries

Indonesia's coordinating minister of marine affairs and investments, LuhutPandjaitan, said the country's tourism sector has lost an estimated $ 500 million to the coronavirus outbreak.

The government has incentivized airlines and travel agents worth 98.5 billion rupiah ($ 6 billion), 103 billion rupiah ($ 7.1 billion) for tourism marketing and advertising, and an estimated 72 billion ($ 5 billion) ) for social media influencers to also promote the country's tourist hotspots.

In addition, domestic tourists visiting any of the ten government-sponsored destinations are eligible for discounts worth Rs.443 billion ($ 30 million). This corresponds to a discount of 30 percent for flights from March to May 2020.

State-owned oil company PT Pertamina will be offering discounts on kerosene worth 265 billion rupees (US $ 18 million) at nine airports to help airlines grant 30 percent airfare discounts.

In addition, the government will exempt hoteliers and restaurants in the 10 subsidized destinations from taxes over the next six months. Local governments are being compensated by the central government for the tax shortfall, which is estimated to total US $ 230 million.

These 10 destinations are in particular:

  • Denpasar
  • Batam
  • Bintan
  • Manado
  • Yogyakarta
  • LabuanBajo
  • Belitung
  • Lombok; and
  • Malang

International investors and tourists should seek the help of registered local advisors to better understand how these incentives can affect their business operations or travel plans.

Additional funding for the Affordable Food Program

The government allocated a total of 4.6 trillion rupiah ($ 324 million) to the Affordable Food Program (SembakoMurah) to stimulate 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 basic groceries at discounted prices.

As part of the stimulus package, low-income households will also receive 200,000 rupiah ($ 13.97) per month in financial aid over the next six months, an increase of 150,000 rupiah ($ 10).

Support for inexpensive housing

The government has poured 1.5 trillion rupiah ($ 104 million) into its subsidized housing program, which aims to fund an additional 175,000 new homes. 800 billion rupiah ($ 55 million) will be used to cover interest payments, with the rest to be used for subsidies.

ASEAN Briefing is produced by Dezan Shira & Associates. With offices in China, Hong Kong, India, Indonesia, Singapore, Russia and Vietnam, the company supports investors in Asia.

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