Mitigating the Impacts of COVID-19 on the Financial System in Indonesia

COVID-19 and the efforts to slow the transmission of the virus, including social distancing (and Large-scale Social Restrictions or PSBB in some areas) and transport disruptions are bringing profound impact to various levels of the Indonesian socio-economic system. Amidst the crisis, the Government of Indonesia (GOI) has been urged to deliver a robust fiscal response to shield households, business and financial markets from more significant damage.

The GOI has taken an immediate action by enacting a series of fiscal and non-fiscal measures to mitigate the economic turmoil due to the pandemic. As of March 2020, the government has allocated an extra of IDR 401.5 (USD 24.5 billion) for financial stimulus in the 2020 state budget; nearly 55% of it is allocated for economic recovery which includes credit restructuring and financing for small and medium enterprises, and tax incentives and credit for business.[1]

In addition to the fiscal packages, the GOI has also been introducing other measures to help impacted individuals and business (especially Micro, Small, and Medium Enterprise or MSME). Among the highlighted measures related to agriculture and finance are:

  • credit restructuring for MSMEs and individuals with loans under IDR 10 Billion by lowering interest rate, payment rescheduling, lowering principal repayment, lowering interest repayment, and adding additional credit facilitation, as well as in some cases credit conversion to temporary equity investment[2];
  • assessment of the quality of credit/ financing/ provision of other funds only based on the accuracy of paying the principal and/ or interest for credit up to IDR 10 Billion in sectors affected by COVID-19;
  • Kredit Usaha Rakyat (a subsidized credit program for MSMEs and individuals, or KUR) relaxation for debtors impacted by COVID-19. This includes restructuring for KUR in the form of reduction/removal of interest payments and rescheduling principal loan repayments for up to six months with existing borrowers, and relaxation of administrative requirements for new applicants[3];
  • simplification and reduction of limitations and policies related to exports for all sector including agriculture and simplification and reduction of limitations and policies related to imports, especially for main crop commodities[4], and
  • reduction of processing time related to exports and imports of certain MSMEs with good records and improving services of export-import as well as supervision through national logistics ecosystem.

The GOI regulations to combat COVID-19 are targeting various levels of the community, including those in agriculture and rural settings. The hope is that some of these measures may soften the impact felt by farmers, traders and MSMEs for the current harvest, and ultimately prevent large scale loan defaults in rural areas. These policies will go a long way in reducing the debt burden for many, including those in the agricultural value chain. This may allow farmers, traders and local market actors to maintain their cash and reinvest it into another season. 

To support the GOI and play its role in ensuring the continuity of agricultural value chain, PRISMA is continuously looking to provide means of ensuring that farmers have access to quality inputs with flexible payment schemes and MSMEs have access to finance. It is expected that their businesses can weather this storm and that commodities and supply chains can continue to function if we support these initiatives, work alongside the GOI efforts and increase the use of technology during this time.

 

 


[1] Ministry of Finance, 2020. COVID-19

[2] OJK, 2020. POJK on Countercylical Policy of COVID-19 Impact

[3] Coordinator Ministries of Economic, 2020. Formal Media Announcement of KUR Relaxation for up to 6 Months

[4] Katadata, 2020. GOI Policy Non-fiscal Policy to Combat COVID-19