Fiscal and monetary policies cannot directly repair the supply-chain disruption in China, the world’s second-largest economy, nor will they prevent people from falling sick. But contingency policy measures are still vital to mitigate the economic impact of the COVID-19 outbreak on the livelihood of the people.

We highly commend the quick and appropriate policy response of Bank Indonesia to calm the financial market and to press down the costs of credit. The fiscal stimulus from the Finance Ministry will help the hardest-hit sector of tourism and its related businesses, which are all labor-intensive, and protect the purchasing power of the poorest segment of the people.

Realizing that the biggest challenge for businesses battered by the broken supply-chain in China is severe liquidity pressures, the finance minister is now preparing a fiscal measure that will defer the transfer of payroll income tax from labor-intensive companies and simplify the procedures for the refund of value-added taxes (VATs) to

manufacturers.

The payroll tax is a tax withheld from an employee’s salary by an employer who remits it monthly to the government on their behalf. But the payroll deferment will be given only for workers with a maximum monthly wage of Rp 5 million (US$350). Last year, payroll income tax revenues totaled Rp 149 trillion, more than 21 percent of total income tax receipts from non-oil sectors.

Corporate taxpayers, notably manufacturers, have long complained about the cumbersome procedures for the refund of the 10-percent VAT they pay on their inputs. Such red tape, which often holds up their funds for several months, has been adversely affecting their cash flow. Hence, a significantly expedited VAT refund system will ease the liquidity pressures they are facing now.

Still, those measures, we think, are not enough. It is now time for banks, notably the top 20 banks, which have enjoyed big profits over the past five years and the highest net interest rate margins in ASEAN, to act immediately to remedy the liquidity crunch of their borrowers, who are now being battered by the impact of the life-threatening disease.

The largest banks should demonstrate forbearance toward companies hardest hit by the global health emergency by lowering their credit interest rates, easing up on delinquent borrowers in regard to debt restructuring or rescheduling for as long as the epidemic lasts.

Such relief, like the fiscal incentives provided directly to the battered economic sectors, is urgently needed to prevent needless bankruptcies and massive layoffs. The problem is that, even though the companies hardest hit by the disease have now lost a lot of revenue, they still face tax, wage and loan-interest bills. And nobody can predict when the current epidemic will end.