The government approved on Monday a Rp 16.5 trillion (US$1.14 billion) loan for the Jakarta and West Java administrations, the country’s top economic and industrial hubs, to revive economic activity during the coronavirus pandemic.
Jakarta will borrow Rp 4.5 trillion from the government this year and will borrow another Rp 8 trillion next year to pay for several infrastructure projects on waste management, drinking water management and flood control, among other projects.
West Java will borrow Rp 1.9 trillion from the government this year and another Rp 2.09 trillion next year to pay for various infrastructure projects, including hospital, road and housing projects.
“Both Jakarta and West Java contributed around 30 percent to Indonesia’s GDP. Therefore, this agreement will help support economic recovery efforts while also upholding COVID-19 health protocols,” Finance Minister Sri Mulyani Indrawati said on Monday.
Sri Mulyani said the funds were raised by sovereign debt papers (SBNs) bought by the central bank, which will allow for low debt costs for the regional administrations.
Government-owned infrastructure financing firm PT Sarana Multi Infrastruktur (SMI) will act as a lender for the regional administrations.
While government spending accounts for less than 10 percent of Indonesia’s GDP, it has a multiplier effect on various components of the economy, such as household spending and investment, as social aid can boost purchasing power, while government spending on goods and services helps support demand for businesses.
The central government is also currently working to accelerate the disbursement of a Rp 695.2 trillion stimulus package to boost the cooling economy and strengthen the healthcare system. It expects the economy to shrink 0.4 percent at worst or grow 1 percent at best, with second quarter growth expected to shrink 3.54 to 5.08 percent.
“We are hoping that Jakarta and West Java can accelerate their spending because we would like to stimulate the economy in the third and fourth quarters,” said Sri Mulyani.
The government will provide a near-zero interest rate for the regional administrations, the finance minister went on to say, adding that it would provide a grace period of 24 months for regions to pay their debts.
The government also announced on Monday that it would place Rp 11.5 trillion in regional development banks to be channeled as loans to businesses to further support economic recovery after placing Rp 30 trillion in state-owned banks under the same program.
According to Finance Ministry data, Rp 2.5 trillion will be given as a loan for Bank BJB, Rp 2 trillion each for Bank DKI, Bank Jateng and Bank Jatim, and Rp 1 trillion each for Bank SulutGo, Bank Bali and Bank Yogyakarta.
The funds should be used only to provide working capital loans for businesses and should not be used to buy SBNs, Sri Mulyani said, calling for regional leaders to supervise the disbursement of funds.
Jakarta Governor Anies Bawedan pledged on Monday to speed up recovery efforts in the capital and improve COVID-19 management to ensure public safety.
“We will step up COVID-19 handling proactively by increasing virus testing and tracing to restore the public’s confidence,” Anies told reporters.
Meanwhile, West Java Governor Ridwan Kamil said the administration had allowed several economic sectors such as manufacturing to continue their activities, adding the administration would soon open up more sectors such as trade and tourism to further revive the economy.
Indonesia has recorded 100,303 cases of infection as of Monday, with Jakarta and West Java recording some of the highest rates in the country with 19,125 and 6,039 cases respectively.