The Indonesian government unveiled on Wednesday a bigger stimulus package worth 677.2 trillion rupiah ($47.8 billion) to anchor the virus-battered economy, the growth of which is expected to fall to a level similar to that of the 1998 Asian financial crisis.

The latest budget, which is higher than the 641.17 trillion rupiah initially allocated, aims to strengthen the healthcare system, direct more spending toward social protection to boost consumption and provide incentives to rescue Indonesian businesses from bankruptcy and workers from layoffs.

Minister of Finance Sri Mulyani Indrawati said the government had put in place support measures to counter an economic fallout from the coronavirus pandemic, adding that the government would again revise the macroeconomic assumption underpinning the state budget to cover for the larger stimulus package.

“This is a thorough stimulus package to support people’s purchasing power and businesses,” Sri Mulyani told reporters in a livestreamed news conference. “We are hoping that this stimulus can maintain our economic growth at above zero per cent.”

The Indonesian economy grew 2.97 per cent year-on-year in the first quarter, the weakest in 19 years, as household spending and investment growth plunged as the outbreak hit economies around the world.

Sri Mulyani said gross domestic product (GDP) growth could be lower than the government’s projection of 2.3 per cent this year. In the worst-case scenario, the government expects the economy to contract 0.4 per cent.

Under the new stimulus budget, the government will provide 87.55 trillion rupiah for the healthcare sector, 203.9 trillion rupiah to strengthen social safety net programmes and 123.46 trillion rupiah in incentives for micro, small and medium businesses.

As much as 120.6 trillion rupiah will be allocated for bigger tax incentives and 97.11 trillion rupiah to support ministries and regional administrations, while 44.57 trillion rupiah comprises the stimulus for state-owned enterprises (SOEs) and labour-intensive businesses.

The government now projects the state budget deficit to reach 6.34 per cent of GDP, up from the previous estimation of 6.27 per cent. It expects state revenue to reach 1.4 quadrillion rupiah this year, while state spending is projected to increase by 124.5 trillion rupiah to 2.74 quadrillion.

“We will treat the widening budget deficit carefully in terms of sustainability and financing,” Sri Mulyani pledged. “We will look for financing sources with the lowest risk and costs.”

Perry Warjiyo, governor of Bank Indonesia (BI), the central bank, pledged during the same briefing to continue buying government bonds in the primary market as the last resort and non-competitive bidder to help finance the government’s budget. BI has bought around 26 trillion rupiah worth of bonds directly through auctions.

“Close coordination between the finance ministry and the central bank in budget financing has fuelled confidence among market players,” Perry told reporters. “With growing market optimism, we expect that the needs of our bond buying programme will be small.

“Bank Indonesia is also ready to minimise the government’s interest rate burden to support economic recovery if needed.”

BI has injected a total of 583.5 trillion rupiah since the beginning of the year to carry out monetary operations to stabilise the financial market and boost bank liquidity, among other purposes.

World Bank senior economist for Indonesia Ralph van Doorn called on the Indonesian government to take steps to maintain market confidence as debt mounts amid the outbreak.

“The government must [provide assurances over its] fiscal strategy to raise revenues back to at least the 2018 level to flatten the debt curve,” Van Doorn said recently.

It should unwind “exceptional measures” taken to battle the pandemic after the virus threat subsides, including by reinstating the deficit ceiling of three per cent and ending BI’s partial financing of the deficit, he said.

Indonesia’s debt-to-GDP ratio would rise to 37 per cent this year, from 29.8 per cent at the end of last year, van Doorn projected.

Meanwhile, Center of Reform on Economics (Core) Indonesia economist Piter Abdullah lauded the government’s move.

“Although it may not be enough, the move signals that the government is flexible about adjusting the stimulus,” Piter told The Jakarta Post on Wednesday. “This would boost market confidence and help strengthen the rupiah exchange rate.”

THE JAKARTA POST/ASIA NEWS NETWORK