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Jakarta Post

Small firms wait for aid

  • Editorial Board

    The Jakarta Post

Jakarta   /   Tue, May 12, 2020   /   08:17 am
Small firms wait for aid A worker fries crackers in a large wok. (JP/Afriadi Hikmal)

More than eight weeks have passed since our economy began to suffer from the severe brunt of the COVID-19 outbreak. Late last month, Finance Minister Sri Mulyani Indrawati said the government was preparing Rp 34.1 trillion (US$2.2 billion) in emergency assistance for micro, small and medium enterprises (MSMEs).

But media reports last week said a presidential regulation and a ministerial directive were being finalized for the aid disbursement. Where is the sense of urgency to act firmly in a time of crisis, such as we are in now, while massive worker layoffs have continued to affect as many as 3 million people.

Most of the layoffs should have been done by MSMEs, as they have thin cash buffers, rely mainly on short-term loans with high interest rates, while their cash flows have virtually stopped under the current public health crisis and melting economy. Many of them are concentrated in services where the containment and physical distancing measures have hit the hardest.

Worse still, most lenders have shunned MSMEs, while businesses run on credit. True, the Finance Ministry has given MSMEs and most other labor-intensive manufacturers, payroll income tax reliefs for six months until September. But this is far from enough as they still have to service their debts and finance other operating costs such as wage and power bills.

A senior official at the ministry revealed recently that the bulk of the Rp 34.1 trillion emergency assistance for MSMEs would be used to subsidize the interest costs of their loans.

But again, we think, MSMEs also badly need financial aid to maintain their payrolls. Such financial support is essential to maintain jobs and incomes and prevent the downturn from turning into a prolonged depression that permanently damages the economy. Only the government has the means to extend this lifeline in the face of such an unprecedented shock. Creditors should also give debtors loan forbearance, at least for the next six months

We understand the government would be very careful to prevent misallocation, as occurred recently in the distribution of social assistance and should therefore prepare comprehensive and reliable data on the targeted MSMEs. The aid disbursement should also be safeguarded by well-designed oversight and be subject to high standards of transparency.

Since MSMEs eligible for the emergency aid are those with debts of up to Rp 10 billion, the number to be served would understandably be quite huge. But gathering data on MSME debtors would not be as complex and difficult as doing the same for social assistance beneficiaries, because the debtors are by and large documented in the accounts of creditors.

Hence the government should immediately embark on disbursing the emergency aid, starting with those that have taxpayer registration numbers and those with loans that were taken out before the COVID-19 outbreak. The ministry could also cooperate with the MSME creditors which, in the Indonesian business scheme, consist of a wide variety of lenders, including conventional banks, microfinance firms and cooperatives.