What are the Stimulus Measures in Indonesia's Third Economic Policy Package?
The government of Indonesia unveiled the last installment of a series of three stimulus packages on Wednesday (07/10). The first two installments had been unveiled last month. In general, these stimulus packages aim to boost economic growth of Indonesia (which has slowed to a six-year low) and restore investors' confidence in the Indonesian rupiah and stocks. When markets believed that the Federal Reserve would soon raise its key interest rate, Indonesia was plagued by severe capital outflows pushing the rupiah to a 17-year low.
Although over the past three trading days, this situation changed drastically, Indonesia is dangerously vulnerable to foreign sentiments and shocks. Through this economic policy package the government aims to make Indonesia's economy stronger, hence less susceptible to external shocks.
The previous two packages, released in September 2015, involved deregulation measures in an effort to attract (domestic and foreign) investment. The third installment is more focused on cutting domestic operational costs in order to support local industries. This will not only help local businesses to survive the current period of economic slowdown, but will also avert the emergence of more layoffs. According to the latest data from the Confederation of Indonesian Workers Unions (KSPSI), more than 62,000 people have lost their jobs in Indonesia during the first nine months of 2015.
In Indonesia's third stimulus package, there are three main points:
1. Lower Prices of Fuel, Electricity and Gas
a. Effective per 1 October 2015, prices of jet fuel, 12-kilogram LPG canisters, 92-octane gasoline Pertamax, and 90-octane Pertalite have been lowered.
b. The price of diesel is to be cut by IDR 200 to IDR 6,700 (USD $0.48) per liter, effective per 10 October 2015.
c. Prices of gasoline (locally known as Premium) will not be cut. In the fourth quarter of 2015 the price of Premium remains IDR 7,400 per liter on the islands of Java, Madura and Bali, and IDR 7,300 per liter outside these three islands.
d. The price of gas (originating from the country's new gas fields) is set according to the purchasing power of the fertilizer industry, which is equal to USD $7 mmbtu (million British thermal units). Only industries will obtain such cheaper gas. The price of gas for other industries (such as petrochemical, ceramics, etc.) will be reduced in accordance with the ability of their respective industries. The government can offer a cheaper gas price by making the gas distribution system more efficient. Lower gas prices will come into effect per 1 January 2016.
e. In line with lower petroleum prices, electricity tariffs for industries will be cut. Secondly, the government will offer a 30 percent discount to industries for electricity usage between 11pm and 8am. Lastly, those companies engaged in labor-intensive sectors that are plagued by financial turmoil are allowed to delay paying their electricity bills (up to 60 percent of the bill) to the next year. This will reduce the risk of bankruptcy as well as layoffs.
2. Micro-Loan Subsidies, Expansion of Loans for People's Small Businesses
After having previously cut the interest rate for people's small businesses (Kredit Usaha Rakyat, abbreviated KUR) from 22 percent to 12 percent, the government will widen the customer base for these micro-loans in the third stimulus package. Now families who have a regular income or an employee may receive KUR (to be used in a productive business sector). Through this new policy the government hopes to see more Indonesian entrepreneurs.
3. Simplifying Land Permits for Investment Activities
The Ministry of Agrarian and National Land Agency will revise Ministerial Regulation No. 2/2015 on Service Standards and Agricultural Regulations, Spatial Organization, and Land for Investment Activities. This revision includes that potential investors will obtain information about land availability much more rapidly and those that purchase land have more legal certainty.
Further Reading:
• Economic Policy Package Indonesia: What are the Stimulus Measures?
• Second Installment Economic Policy Package Indonesia
• Economic Policy Package Indonesia: Bonded Zones & Import Tax Cut
• Policy Package Bank Indonesia to Safeguard Rupiah Stability & Enhance Management