Finance Minister Sri Mulyani Indrawati. (Antara Photo/Puspa Perwitasari)

Stimulus Spending Faces Delays as Indonesia Braces for Q2 Contraction

BY :DIANA MARISKA

JUNE 17, 2020

Jakarta. The government has barely spent its $49 billion stimulus package to help Indonesians survive the impact of the Covid-19 pandemic weeks after it was first introduced to the public, Finance Minister Sri Mulyani Indrawati said on Tuesday. 

The delay in government spending could exaggerate the drag to Indonesia's economy, which is expected to contract by at least 3.1 percent in the second quarter this year as economic activities ground to a halt amid large-scale social restrictions (PSBB) to curb the pandemic, the minister said. 

"We expect a contraction in the second quarter due to social restrictions in several regions with large economic contributions, such as Jakarta, Central Java, East Java and West Java," Sri Mulyani said. 

Sri Mulyani said the government would now spend Rp 695.2 trillion ($49 billion), or 4 percent of the country's gross domestic product (GDP), on the stimulus package.

The size of the stimulus – officially called the National Economic Recovery (PEN) program – had gone up from Rp 677.2 trillion announced earlier this month and from Rp 405.1 trillion announced in April after the government added spending for state-owned enterprises, ministries and regional governments.

But the much-needed boost from the stimulus has not materialized.

Sri Mulyani said until May the ministry had only disbursed 1.54 percent of the Rp 87.55 trillion allocated to the health sector. 

The minister pointed to administrative challenges as the main obstacle in delivering incentives to health workers or compensating Covid-19 patients' treatment expenses.

Aside from that, few companies have signed up for the government's Rp 120.6 trillion tax incentives. Sri Mulyani said only 6.8 percent of the budget for the tax incentives has been spent. 

Sri Mulyani said a large number of individuals and corporations who are eligible for the program remain unregistered and unable to receive the benefits.

Better communication is needed from every stakeholder to spread information about the stimulus, she said. 

Only 0.06 percent of the stimulus package for small and medium enterprises (SMEs) has been spent despite the government's emphasis on the sector, which is allocated Rp 123.5 trillion, or 18 percent, of the total PEN budget. 

Sri cited an ongoing process with the Financial Services Authority (OJK) to establish a database and IT infrastructure as the main culprit for the delay.

The Finance Ministry will also communicate closely with the State-Owned Enterprises Ministry to optimize the realization of the SME stimulus with loans from SOEs, including Pegadaian and PNM.

Ministries and local government had spent only 3.65 percent of the Rp 106.1 trillion stimulus allocated to them. The budget, which had been increased from Rp 91.7 trillion, was earmarked for running labor-intensive programs to minimize the economic impact from forced layoffs. 

Sri Mulyani said the stimulus for SOEs and corporations had been increased from Rp 44.6 trillion to Rp 53.57 trillion, but the ministry has yet to disburse any of the money as it is still finalizing the paperwork and supporting regulations. 

"We will focus on completing all the regulations and supporting schemes in June so we can immediately help the business sector that's been experiencing enough pressure already," she said. 

One silver lining is the healthy spending rate on the Rp 203.9 trillion social safety net. The government has spent close to 29 percent of the budget for various aids and subsidies, including discounts on electricity bills.

Unfortunately, the stimulus disbursement from the pre-employment card unemployment benefits program and village cash aid is still considerably low.

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