The Jakarta Post
Government Regulation (PP) No. 23/2020 on the economic rescue program to safeguard the economy during the pandemic gives hope to our state enterprises in dire need of a lifeline to sustain operations as the economy heads for recession. Although a little too late for many micro and small businesses that have closed permanently, in this case “better late than never” holds true.
The regulation allows for the government to inject money into ailing state-owned enterprises (SOEs) and local banks to ease loan-repayment burdens for small and medium businesses. Primary beneficiaries of this policy should be micro and small businesses as well as SOEs affected by the virus-ridden economic downturn.
The rescue program will follow five principles: social justice; people’s welfare; support for businesspeople; adhering to prudential, good governance, transparency and accountability principles based on prevailing laws; not invoking moral hazard; and the division of payment and risk among stakeholders based on their respective roles and authorities.
These founding principles are important to ensure that all the debts issued to finance this Rp 318 trillion (US$21.3 billion) program are funneled to the businesses most affected by the crisis, and do not result in moral hazard. The new regulation stipulates that the government will issue debt papers that can be directly purchased by the central bank to finance the economic-rescue program.
The top officials in charge of the economic rescue program must live by these principles and ensure that the funds are used to save not only businesses but the livelihoods of their workers and their families. The program’s main policymakers include the coordinating economic minister, the coordinating maritime affairs and investment minister, the finance minister, the Bank Indonesia governor, the Financial Services Authority chairperson and the chairperson of the Deposit Insurance Corporation.
Details of the fund allocation for the business rescue will be covered by regulations from the relevant ministries and government agencies. It is quite reassuring that Finance Minister Sri Mulyani Indrawati and policymakers have learned from the tremendous political turbulence over the controversial Bank Century bailout in 2008. Moreover, Indonesia understands well the risks of injecting money into banks given the 1998 experience.
The government did the right thing to rescue micro, small and medium enterprises, which employ 97 percent of Indonesian active workers, from this severe economic downturn. Now the next right thing to do should be to accelerate the program to avoid more business closures, layoffs and furloughs while maintaining good governance principles in doing so.
The program needs to choose its battles when funding rescue packages for businesses. Some SOEs were already walking on a tightrope before the pandemic and of course COVID-19 has exacerbated their operational and financial conditions. For these types of businesses, rescue funds will only work with management overhauls to better manage the money injected into them.
Indonesia’s budget to fight COVID-19 is relatively low relative to gross domestic product, when compared with other countries around the world, therefore the money must be spent wisely. After all, taxpayers’ money will be used to repay the debts that will be issued to finance this program.