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Luhut, Moody’s discuss Indonesia’s pandemic response amid budget concerns
Credit rating agency Moody’s Investors Service affirmed in February that Indonesian sovereign debts at Baa2, one notch above the lowest investment grade, had a stable outlook.
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Coordinating Maritime Affairs and Investment Minister Luhut Pandjaitan speaks in Jakarta on June 30. He has met with Moody’s Investors Service officials on Monday to discuss Indonesia’s economic response to the COVID-19 pandemic. (Coordinating Maritime Affairs and Investment Ministry/Coordinating Maritime Affairs and Investment Ministry)
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oordinating Maritime Affairs and Investment Minister Luhut Pandjaitan met with officials of credit rating agency Moody’s Investors Service on Monday to discuss Indonesia’s economic response to the coronavirus and the current investment climate.
He told the rating agency that the government’s handling of the pandemic was getting better with the recovery rate from the coronavirus reaching 52.5 percent, adding that the government would continue to supervise COVID-19 handling in several virus hotspots, such as East Java and Jakarta.
“Several stimulus packages have been prepared to support the national economy. So far, the government has allocated Rp 695.2 trillion (US$46.9 billion) to stimulate the economy and to serve as a social safety net for up to 40 percent of the poor,” the ministry’s spokesman, Jodi Mahardi, said in a statement.
Moody’s wrote in a note dated back in April that Indonesia's response to contain the coronavirus outbreak lagged compared to other countries in the region. However, its policies to limit the pandemic’s economic shock were introduced in a relatively coordinated manner.
The pandemic has battered the Indonesian economy, shutting business activity and causing people to lose their jobs. The government has had to stretch its state budget to provide funding to fight the virus, with slumping tax revenues due to the cooling economy threatening to affect its sovereign credit rating.
The rating agency affirmed in February that Indonesian sovereign debts at Baa2, one notch above the lowest investment grade, had a stable outlook. It cited at the time Indonesia’s stable economic growth rates and low government debt burden while lauding the government’s consistent fiscal discipline and effort to maintain macroeconomic stability.
The government now expects the budget deficit to reach 6.34 percent of gross domestic product this year, more than double the initial legal ceiling of 3 percent, as it moves to rescue the economy from a possible recession.
Most of the funding to plug the deficit will come from debt financing, as the government expects to raise more than Rp 1.5 quadrillion from bonds this year.
“The government’s stimulus is being used to help the public. Meanwhile, fiscal management is being conducted in a prudent and disciplined manner,” said Jodi, adding that the government would speed up expenditure to boost consumption and help micro, small and medium enterprises to survive the pandemic.
The minister also highlighted in the discussion a debt monetization scheme between the government and Bank Indonesia worth $40 billion. It would see the central bank buy at least $26.87 billion worth of government bonds to cover the widening budget deficit and reduce the government’s debt burden.
Moody’s vice president Anushka Shah said earlier this month that Indonesia’s debt monetization might affect the central bank’s credibility. Shah also said Moody’s analysis of the ratings would depend on aspects that remained unclear, including the central bank’s exit strategy and the money supply and inflation.
