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Government to expand social aid, incentives to boost household demand, economy

Jakarta Post - August 7, 2020

Riska Rahman and Adrian Wail Akhlas, Jakarta – The government is planning to expand its social aid program and incentives for micro, small and medium enterprises (MSMEs) in an effort to boost consumer spending and revive the sluggish economy in the second half of this year, as fears of a recession loom.

Finance Minister Sri Mulyani Indrawati said on Wednesday the government would reallocate around Rp 70.8 trillion (US$4.85 billion) from existing ineffective stimulus packages to fund the social aid expansion and new incentives so that the government would not need to increase its COVID-19 response budget, already worth Rp 695.2 trillion.

"This will include extending the social aid program period to December to cushion the impact of the COVID-19 pandemic," she said during a livestreamed press conference.

Indonesia's gross domestic product (GDP) shrunk 5.32 percent year-on-year (yoy) in the second quarter as all components except for net exports fell annually as a result of the pandemic.

Consumer spending, which accounts for more than half of GDP, fell 5.51 percent yoy in the second quarter, while investment, the second-largest contributor, contracted 8.61 percent.Sri Mulyani expects the economy to grow at no more than 0.5 percent, or even contract further, in the third quarter, which would mean a recession for Indonesia, while fourth-quarter GDP growth is projected to be near 3 percent, making for a full-year expansion of zero to 1 percent.

Under the plan, the government will allocate Rp 4.6 trillion to increase the amount of rice for the 10 million recipients of the Family Hope Program (PKH) to 15 kilograms per month. It would also disburse Rp 500,000 to 10 million Staple Food Card recipients this month.

The government is preparing aid for workers with salaries lower than Rp 5 million per month and allocating an estimated budget of Rp 31.2 trillion for such aid.

State-Owned Enterprises (SOEs) Minister Erick Thohir, who serves as executive chairperson for the national economic recovery and COVID-19 response team, further explained in a statement on Thursday that the aid for workers would be in the form of direct cash transfers.

The aid would be focused on 13.8 million workers registered on the Workers Social Security Agency (BPJS Ketenagakerjaan) database who are not civil servants or SOEs employees.

"The workers will receive Rp 600,000 per month for four months, disbursed directly to each worker's bank account every two months to prevent misuse," said Erick. "This program is currently being finalized so it can be carried out by the Manpower Ministry this September."

Sri Mulyani also said the government would offer electricity and tax incentives for businesses and industries as well as productive aid for ultra-micro and micro businesses to support the supply side and help businesses to reduce their production costs.

The electricity incentive will be in the form of a minimum billing waiver for businesses, industries and social sectors while the tax incentive will take the form of 50 percent corporate income tax discount from the previous 30 percent cut.

"We will also disburse aid to 12 million MSMEs with a total budget of Rp 30 trillion," she said, stressing that the aid was meant for productive use and was not in the form of loans.

The expansion, however, comes with a drawback as the government will reduce the amount of cash transfers for underprivileged families by half to only Rp 300,000 per month per family.

The expansion in social stimulus would boost purchasing power and bolster household spending in the second half of the year, said Bahana Sekuritas economist Satria Sambijantoro, despite projecting that Indonesia's economy would likely see another contraction in the third quarter.

"The possible backload of stimulus could be a blessing in disguise for the economic outlook in the second half of 2020," he wrote in a research note.

The inclusion of low-income formal workers in the social aid program, along with the distribution of salary bonuses for civil servants and low-income formal workers, would cut through the red tape in budget disbursement, he said.

"We think household spending growth will continue to surpass investment growth for the rest of 2020," said Satria.

SMERU Research Institute researcher Ruhmaniyati, however, frowned upon the idea of aiding formal workers with monthly fixed income as the government should help informal workers instead.

"There are still a lot of families with an income of less than Rp 5 million a month that work in the informal sector and need the aid," she told The Jakarta Post on Thursday.

Institute for Development on Economics and Finance (Indef) executive director Tauhid Ahmad echoed the sentiment, saying the aid for low-income workers was mistargeted.

"They are not poor. The aid could potentially sit in saving accounts as those workers hold back on spending," he said. "This can create a detrimental effect on the economy and trigger a recession in the third quarter."

Source: https://www.thejakartapost.com/news/2020/08/06/govt-to-expand-social-aid-incentives-to-boost-household-demand-economy.html