Indonesia plans new stimulus package to shore up economy

Central bank is countering impact of virus outbreak

Indonesia is working on a second stimulus package to shore up South-East Asia’s biggest economy, adding to the central bank’s aggressive moves to counter the impact of the coronavirus on financial markets.

A new tranche of fiscal measures would be “sizeable” and “bigger” than the first one of 10.3 trillion rupiah (US$725mil) announced last week, Coordinating Minister for the Economy Airlangga Hartarto said in an interview Monday.

“We still need to inject more stimulus, ” he said.

Indonesia confirmed its first two cases of the virus Monday, roiling financial markets and spurring the central bank to action.

It pledged to buy more bonds – adding to the US$6bil spent last month to stem the market rout – and announced a cut to banks’ reserve requirements to pump more liquidity into the financial system.

The Jakarta Composite Index rose as much as 3% yesterday, the most since May 2017, on news of plans for a second stimulus package.

The yield on Indonesia’s 10-year government bonds pared losses to 6.859%. The rupiah held gains to trade at 14,223 per dollar.

Central bankers around the world are pledging more action to calm market jitters and bolster their economies.

The Bank of England and Bank of Japan said Monday they’ll act as necessary to ensure stable financial markets, while the leaders of the International Monetary Fund and World Bank said they stand ready to help member nations.

The Federal Reserve on Friday signalled a possible interest rate cut.The rupiah tumbled 4.6% against the dollar last month, making it Asia’s worst-performing currency. The benchmark 10-year yield surged 27 basis points over the same period as foreign investors sold in the rout.

Global funds sold US$1.9bil of Indonesian debt in February, the most since June 2013.

Jakarta’s stock market came close to entering bear territory on Monday, with losses nearing 20% from a record high in February 2018.

Foreigners already have pulled almost US$360mil from Indonesia’s equity funds this year.

Euben Paracuelles, an economist at Nomura Holdings Inc in Singapore, said the stimulus package unveiled last week probably wasn’t “enough to move the needle” as downside risks to growth continue to rise.

“The budget will have to be revised materially higher to accommodate a more growth-friendly fiscal stance, ” Paracuelles said, noting that Indonesia’s government has “plenty of fiscal space” to inject more stimulus.

“Hints of a second stimulus package are therefore very much welcome, ” he said.

The new fiscal package would include spending not included in the budget, Hartarto said, implying the deficit may widen from an original target of 1.76% of gross domestic product.

The government would aim to help middle-income earners this time around, after allocating 4.6 trillion rupiah for low-income households in last week’s measures, he said.

Like elsewhere in the region, Indonesia’s exports, tourism and investment are taking a knock from the spread of the virus.

Hartarto said the government now estimated economic growth would slow to 4.7% in the first quarter, which would be the weakest pace since 2009 amid the global financial crisis.

Growth has been hovering around the 5% level for several years now, reaching 5.02% in 2019.

The central bank has trimmed its forecast for this year to 5%-5.4%, from 5.1%-5.5% earlier.

Source: Bloomberg 

Posted on : 04 March 2020
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Last Updated : Thursday 21st May 2020