The government is set to provide cash transfers and working capital loans for micro, small and medium enterprises (MSMEs) in its latest bid to boost economic growth amid the COVID-19 pandemic.
Budi Gunadi Sadikin, the head of the national economic recovery task force, said Wednesday the government would provide Rp 2.4 million (US$165) for 10 to 12 million MSMEs, as well as working capital loans of Rp 2 million for MSMEs.
“We hope this assistance will maintain people’s income and be used as working capital to support their businesses,” he told reporters during a press briefing. “We will also add working capital loans with low interest for those who have already started businesses.”
The funds may be used by MSMEs to pay for daily needs and to restart business activities, said Budi, who is also the deputy state-owned enterprises (SOEs) minister.
President Joko “Jokowi” Widodo has asked the national economic recovery task force to focus on boosting economic growth in the third quarter this year, as well as to maintain employment and income levels to prevent a recession this year, Budi went on to say.
MSMEs have been particularly hit hard by the economic downturn, as the government expects the economy to grow by 1 percent at best or shrink by 0.4 percent at worst this year. It also forecasts a contraction of around 5 percent in the year’s second quarter due to large-scale social restrictions (PSBB) to curb the spread of COVID-19.
The government has allocated Rp 695.2 trillion to strengthen the country’s virus response and boost economic growth, expanding the fiscal deficit to 6.34 percent of gross domestic product (GDP).
On the same day, the government also guaranteed working capital loans worth Rp 100 trillion for labor-intensive businesses to help businesses survive the pandemic.
Finance Minister Sri Mulyani Indrawati stated on Wednesday that the loan guarantee program was expected to boost credit disbursement from banks to businesses.
To be eligible for the government program, labor-intensive firms are required to employ at least 300 individuals, prove that their activities have been affected by the pandemic and have a good track record of paying back loans, according to the minister.
“We hope the credit guarantee scheme will restore the risk appetite of both banks and firms to help boost economic activity,” Sri Mulyani said. “We will use all of our policy instruments to improve supply and demand.”
Amid the uncertainty about how long the COVID-19 pandemic battle will need to be fought, the government has announced that it will raise its 2021 state budget deficit assumption to 5.2 percent of GDP. The outbreak is expected to continue affecting the economy next year.
The change will be proposed to the House of Representatives, which previously agreed to the government’s proposal of a deficit between 4.17 percent and 4.7 percent of GDP.