Under the guarantee program, the government has paid out Rp 5 trillion worth of credit insurance premiums to state-owned credit insurers PT Jaminan Kredit Indonesia (Jamkrindo) and PT Asuransi Kredit Indonesia (Askrindo) to provide guarantees for banks that channel loans to MSMEs until November 2021.

“The premiums are enough to cover Rp 100 trillion worth of working capital loans to be disbursed in the next 18 months with an interest rate of 7.65 percent,” Finance Minister Sri Mulyani Indrawati said during a virtual launch of the guarantees on Tuesday, with the expectation that the banks channel between Rp 65 trillion and Rp 80 trillion worth of loans following the launch.

The program would cover loans with a ceiling of Rp 10 billion and a tenor of three years, with loans available for 60.6 million healthy MSMEs from all business sectors, Cooperatives and Small and Medium Enterprises Minister Teten Masduki said in the same event.

The loan guarantee is part of the government’s relief package to help small businesses recover from the impact of the COVID-19 pandemic. Previously, the government rolled out tax incentives and loan restructuring and loan interest subsidies for MSMEs.

It has also placed Rp 30 trillion in funds in state-owned banks with the expectation that they will disburse more loans for businesses.

The government has allocated Rp 695.2 trillion toward fighting the health and economic impacts of the coronavirus outbreak, of which Rp 123.46 trillion is allocated for MSMEs incentives, Rp 87.55 trillion for health care and Rp 203.9 trillion for social safety nets.

The loan guarantee program, Sri Mulyani explained, not only aimed to help MSMEs by encouraging them to seek funding for their businesses, it also encouraged banks to disburse more loans during the pandemic.

The loan disbursement rate among Indonesian banks grew just 3.04 percent year-on-year (yoy) in May, much slower than 5.73 percent in April as the coronavirus battered the real sector.

“Guaranteeing loans can help us break the risk-averse attitude of MSMEs and banks, which would allow us to boost our economic growth,” Sri Mulyani said, adding that the government hoped to record positive economic growth in the third and fourth quarters this year.

The government projects the economy to shrink 3.1 percent in the second quarter this year, the worst quarterly growth since the 1998 Asian financial crisis, due to the impact of large-scale social restrictions. The Indonesian economy grew 2.97 percent yoy in the first quarter.

Bank Indonesia, meanwhile, projected gross domestic product to shrink 0.4 percent in the second quarter before picking up 1.2 percent in the third quarter and 3.1 percent in the fourth quarter.

Coordinating Maritime Affairs and Investment Minister Luhut Pandjaitan expressed hope that aside from boosting economic growth, the program would prevent further layoffs as the pandemic forced businesses, especially small ones, to shut their doors after social restrictions hit demand.

Unemployment numbers are expected to increase by 4.22 million people in 2020, according to the National Development Planning Agency (Bappenas).

With the government having launched various stimulus programs to stoke the economy, Luhut gave assurances that all measures were being carried out in accordance with President Joko “Jokowi” Widodo’s instructions.

“We need to quickly realize our spending in times of crisis, but we’re going about it carefully without disregarding the good governance principle,” he said.

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