Indonesia

Background. Indonesia reported its first confirmed COVID 19 case on March 2, 2020.

The government adopted various containment measures, including temporary bans on
domestic and international air and sea travel, screening at ports of entry, school
closures, and other restrictions on public events.

In June 2020, Indonesia began easing some containment measures. The city of Jakarta
started a transitional phase from large-scale social restrictions on June 5th and further
eased restrictions on malls (on June 15) and parks and recreation areas (on June 20).
However, the city of Jakarta has extended the transitional phase from large-scale social
restrictions through September 10 in the absence of a sustained decline in daily new
virus cases. On September 9, Jakarta's governor announced that large-scale social
restrictions would be tightened further to contain the spread of the virus. On January 6,
2021, the government announced the implementation of tighter social restriction in Java
and Bali region, effective from January 11 to 25 and subsequently extended until
February 8. The government also launched its nationwide vaccination program in mid-
January, starting with health care workers. As of June 3, about 4.1 percent of Indonesia
population had received second dose of COVID 19 vaccines.

While Indonesia’s GDP in 2021:Q1 declined moderately by about 0.7 percent over a
year ago, economic activity continues to recover quarter over quarter since the second
half of 2020.External pressures remain moderate, although some volatility remains.

Key Policy Responses as of June 3, 2021

FISCAL

 In 2020, the government disbursed a total of IDR 579.8 trillion (about 3.8 percent
of GDP) as part of a national economic recovery program (PEN). The PEN
comprises (i) support to the health care sector to boost testing and treatment
capacity for COVID-19 cases; (ii) increased benefits and broader coverage of
existing social assistance schemes to low-income households such as food aid,
conditional cash transfers, and electricity subsidies; (iii) expanded unemployment
benefits, including for workers in the informal sector, (iv) tax reliefs, including for
the tourism sector and individuals (with an income ceiling); and (v) permanent
reductions of the corporate income tax rate from 25 percent to 22 percent in
2020−21 and 20 percent starting in 2022. The PEN also includes capital
injections into state-owned enterprises and interest subsidies, credit guarantees,
and loan restructuring funds for micro, small, and medium enterprises. To
support credit creation, the government has placed state funds in selected
commercial banks in an effort to enable banks to increase leverage and
guaranteed working capital loans for labor-intensive corporations. In 2021, the
government has budgeted a total of IDR 699.4 trillion for the PEN.
MONETARY AND MACRO-FINANCIAL

Bank Indonesia (BI) reduced the policy rate by 125 bps cumulatively in February,
March, June, July, and November 2020, and by 25 bps in February 2021, to 3.5
percent. BI also announced other measures to ease liquidity conditions,
including: (i) lowering reserve requirement ratios for banks; (ii) increasing the
maximum duration for repo and reverse repo operations (up to 12 months); (iii)
introducing daily repo auctions; (iv) increasing the frequency of FX swap auctions
for 1, 3, 6 and 12 month tenors from three times per week to daily auctions; and
(v) increasing the size of the main weekly refinancing operations as needed. BI
also adjusted macroprudential regulation to ease liquidity conditions and support
bond market stability. The minimum down payment requirements on automotive
loans, as well as the loan-to-value ratio for residential real estate, have also been
eased, effective from March 1 until December 31, 2021. A Presidential decree
has expanded BI’s authority to maintain the stability of the financial system in the
presence of the COVID-19 shock, including by facilitating BI liquidity assistance
to banks, allowing BI to purchase government bonds in the primary market, and
financing the deposit insurance agency (LPS) for bank solvency problems. The
government and BI announced on July 6, 2020, a burden sharing scheme to help
finance the economic response to the pandemic. The scheme, implemented in
2020, covered (i) BI’s purchases of government bonds with coupons at the BI’s
policy rate to finance priority spending on public goods such health and social
protection; (ii) the budgetary interest cost of spending support to firms will be
subsidized by BI transfers to the budget; and (iii) BI will act as buyer of last resort
for long-term local-currency bonds to finance other spending. The government
issued the first bond under the burden sharing scheme on August 6, 2020. In
2021, only the buyer-of-last-resort arrangement remains in place. BI has also
been providing funding to LPS through repo transactions and purchases of
government bonds owned by LPS. BI has also taken measures to further
strengthen financial deepening, access to financial services, and monetary
operations, including by facilitating collaboration between the banking industry
and Fintech companies, supporting digital payment in various sectors, and
introducing Sharia-compliant instruments. To ease stock market volatility, the
regulator OJK has introduced a new share buyback policy (allowing listed
companies to repurchase their shares without a prior shareholders’ meeting) and
introduced limits on stock price declines. OJK has also relaxed loan classification
and loan restructuring procedures for banks to encourage loan restructuring and
extended the deadline―by 2 months―for publicly listed companies to release
their annual financial reports and hold annual shareholders meetings. They have
also postponed banks’ implementation of mark-to-market valuation of
government and other securities for six months; relaxed the obligation to fulfill the
Liquidity Coverage Ratio and Net Stable Funding Ratio requirements; and
allowed the use of the Capital Conservation Buffer.
EXCHANGE RATE AND BALANCE OF PAYMENTS

 BI has intervened in the spot and domestic non-deliverable foreign exchange

markets, and in the domestic government bond market to maintain orderly
 market conditions. BI has also reaffirmed that global investors can use global and
domestic custodian banks to conduct investment transactions in Indonesia. The
stimulus packages also include measures to lift restrictions on imports and
exports, aiming to ease global supply-chain disruptions caused by the virus.

Policy Responses to COVID19 (imf.org)

New COVID waves delay economic recovery in Southeast Asia - Nikkei Asia

Beyond the pandamic_Theme study.pdf (unescap.org)

How ASEAN Can Improve Its Response to the Economic Crisis Generated by the COVID-19 Pandemic:
Inputs drawn from a comparative analysis of the ASEAN and EU responses (eria.org)
Developing Asia to recover strongly, but COVID-19 risks remain - ADB | Reuters

Policy Measures | ADB COVID-19 Policy Database