Indonesia's 7th Economic Stimulus Package: Focus on the Village Economy
The government of Indonesia is currently preparing the seventh economic policy package. Through this new package it aims to boost people's purchasing power by focusing on the village economy (ekonomi desa). The package will have two main centers of focus: (1) making the use of village funds - disbursed by the central government - more effective, and (2) improving logistics at the village level. Edy Putra Irawadi, Indonesian Deputy Minister for Industry and Trade, said these new policies will boost people's purchasing power, especially at the village level.
Regarding the village funds, the central government aims to speed up the disbursement of these funds (through creating a new legal framework) and to stimulate productive use of the funds through incentives. In particular infrastructure development will be 'rewarded' by providing certain incentives as Southeast Asia's largest economy is still plagued by weak quality and quantity of infrastructure, hence causing high logistics costs which result in curbed competitiveness of local businesses and also leading to social problems (for example difficult access to healthcare). Irawadi said the central government may offer both fiscal and non-fiscal incentives to authorities in the villages for the use of village funds for infrastructure development.
The aforementioned new legal framework will speed up fund transfers to the village level as the central government wants to send these funds directly to the villages, instead of - as is the case currently - indirectly (through districts/cities).
Disbursement of government funds to the villages have not been optimal. Based on information from the Indonesian Finance Ministry, fund transfers from the central government to the regions have been solid in the first 10 months of the year (IDR 16.6 trillion, equivalent to 80 percent of the target set in the revised 2015 State Budget, has been transferred to the regions). However, only a small amount (approx. IDR 4.9 trillion) has been passed on - by Indonesia's 434 districts and cities - to the villages.
On Thursday (12/11), Indonesia's Chief Economics Minister Darmin Nasution will discuss the 7th stimulus package with Indonesian President Joko Widodo but it remains unclear when the new package will be officially announced and implemented.
Economic Stimulus Packages of the Indonesian Government:
| Package | Unveiled | Main Points |
| 1st | 9 September | • Boost industrial competitiveness through deregulation • Curtail red tape • Enhance law enforcement & business certainty |
| 2nd | 30 September | • Interest rate tax cuts for exporters • Speed up investment licensing for investment in industrial estates • Relaxation import taxes on capital goods in industrial estates & aviation |
| 3rd | 7 October | • Cut energy tariffs for labor-intensive industries |
| 4th | 15 October | • Fixed formula to determine increases in labor wages • Soft micro loans for >30 small & medium, export-oriented, labor-intensive businesses |
| 5th | 22 October | • Tax incentive for asset revaluation • Scrap double taxation on real estate investment trusts • Deregulation in Islamic banking |
| 6th | 5 November | • Tax incentives for investment in special economic zones |
| 7th | to be announced | • Speed up transfers of funds to the village level • Boost infrastructure development in the villages |