Riska Rahman and Adrian Wail Akhlas, Jakarta – Experts are calling on the government to ensure transparency and tight supervision as it prepares a national economic recovery program that will see large funding disbursed to rescue state-owned enterprises.
The government issued on Monday Government Regulation (PP) No. 23/2020 on the national economic recovery program, which stipulates efforts to support the recovery of the virus-battered economy through state capital injections (PMNs), fund placements in certain banks, government investment and state guarantees.
"The state capital injection is aimed at strengthening the capital structure of the companies or their subsidiaries affected by the outbreak and to increase the SOEs and their subsidiaries' capacity to carry out economic recovery programs mandated by the government," the PP reads. The capital injection will be issued in accordance with prevailing laws.
Just like privately owned business, several state-owned enterprises are struggling to keep their businesses afloat amid disruptions brought about by the coronavirus outbreak.
According to Finance Ministry presentation material presented in a meeting with lawmakers recently, a copy of which has been obtained by The Jakarta Post and which was neither denied nor confirmed by the ministry upon being contacted by the Post on Tuesday, the government has allocated Rp 318.09 trillion (US$21.28 billion) for the program.
Of this sum, more than Rp 152 trillion is allocated for SOEs. This includes Rp 25.27 trillion for PMNs for wholly owned SOEs like electricity company PLN and construction company PT Hutama Karya, as well as Rp 94.23 trillion in the form of accelerated compensation payments to PLN and energy giant PT Pertamina.
The funds will also be channeled as working capital for state-owned firms, including national flag carrier PT Garuda Indonesia, which will receive government investment for working capital worth Rp 8.5 trillion, steelmaker PT Krakatau Steel (Rp 3 trillion) and State Logistics Agency (Bulog), which will get Rp 13 trillion in working capital.
Garuda Indonesia has been struggling to pay its sukuk, due in June, and to maintain its cash flow as the outbreak has hit air travel demand. Krakatau Steel, meanwhile, had been struggling to pay its debts even before the COVID-19 outbreak hit the economy.
Institute for Development of Economics and Finance (Indef) economist Eko Listiyanto said the funding and capital injections to the SOEs were necessary as the firms played an integral role in the country's economy.
However, he was also of the view that the decision seemed like a way for the government to piggyback "problematic" SOEs like Garuda and Krakatau Steel in the recovery program.
"They have been having problems since long before the pandemic occurred and they are all caused by their poor corporate governance," he told the Post.
Should the government go forward with its plan to channel the funds to those SOEs, Eko stressed that the companies should be under strict supervision to ensure that they manage the funds appropriately.
The PP also allows the government to provide loan interest subsidies for micro, small and medium enterprises (MSMEs) using state funds. The presentation material revealed that the government has set aside Rp 34.15 trillion in loan interest subsidies for ultra-micro enterprises and MSMEs and cooperatives.
Eko lauded the move, saying that such funds could help struggling small businesses to survive the pandemic.
"But the government should provide detailed mechanisms on how it will channel the incentives and advise the SMEs that it is not aid but rather simply temporary relief during the pandemic and that they should repay their debts once the situation gets back to normal," he said.
Indonesia's more than 60 million MSMEs, which account for 60 percent of the gross domestic product (GDP) of Southeast Asia's largest economy, are struggling to stay afloat with travel and social restrictions to contain the coronavirus severely affecting their income.
Around 41 million MSMEs have access to credit from financial institutions while 23 million are not bankable.
In addition, the PP also allows the government to place funds at certain interest rates in domestic banks, called participant banks, which provide loan restructuring and disburse additional loans to businesses to provide more liquidity to the banks.
"The participant banks will later function as supporting banks to provide liquidity for [other] banks, including secondary banks [BPR], that have also provided loan restructuring and disbursed additional loans to businesses," the PP reads. The liquidity provision will be in the form of a business-to-business scheme.
Center of Reform on Economics (CORE) Indonesia economist Piter Abdullah questioned the efforts on liquidity, saying that such measures should not be within the government's remit but rather under the central bank's authority.
"Liquidity should fall under Bank Indonesia's [BI] responsibility and should not fall under that of the government. [BI] has all liquidity instruments to control the flow of money in the country," he said.