KEY POINTS

  • Bilateral trade between Indonesia and China totals $72 billion
  • Indonesian Finance Minister Sri Mulyani Indrawati warned GDP could slow to 4.7% this year
  • Indonesia will focus on Australian, European tourists as Chinese travelers cancel

 

 

 

Indonesia said on Tuesday it will provide a stimulus package valued at 10.3 trillion rupiah ($741 million) to defend its economy from the ongoing impact of the coronavirus outbreak in China.

The stimulus focuses on the country’s tourism, airline and housing sectors.

A slowdown in China is expected to hurt Indonesia’s overall economy since Beijing is its largest trade partner and an important source of investment and tourists. Bilateral trade amounts to roughly $72 billion.

Indonesian gross domestic product grew by 5.02% in 2019, the lowest such gain in three years. But Indonesian Finance Minister Sri Mulyani Indrawati warned that the virus outbreak in China could reduce economic growth to 4.7% in 2020, well below the government’s target of 5.3%.

The stimulus package introduced Tuesday is multi-faceted and provides for a 30% increase in subsidies for the basic needs of 15.2 million low-income households for six months in order to support domestic consumption. This measure alone will cost the Jakarta government 4.6 trillion rupiah ($331 million).

The package also will include a 1.5 trillion rupiah ($108 million) expansion of a state property program that will cover financing for 175,000 homes.

Airlines and travel agents will receive 443.4 billion rupiah ($32 million) to provide 30% discounts on airfares for some seats for a period of three months. Another 298.5 billion rupiah ($21 million) will fund an incentive to attract foreign tourists to visit Indonesia’s most popular sites.

Restaurants and hotels will be granted exemptions from some taxes paid to their local governments for six months. The national government will provide 3.3 trillion rupiah ($237 million) to cover the gaps in regional budgets.

Also, the state-owned oil and natural gas company Pertamina and two-state airport operators will be ordered to reduce jet-fuel prices and airport charges for three months.

“All these measures are expected to support economic growth,” Indrawati said.

The loss of Chinese tourists has badly hurt Indonesia. At least 50,000 hotel reservations have recently been canceled in the country, mostly by Chinese tourists.

“We depend quite a lot on China,” said Hariyadi Sukamdani, chairman of Indonesia’s Employers Association.

Indonesia will now shift to attracting visitors from the west.

“We’re going to focus on markets other than China, such as Australian and European tourists, for example, who spend a lot per arrival,” said Tourism Minister Wishnutama Kusubandio.

Kusubandio added that the stimulus measures should eventually help generate the government 13 trillion rupiah ($935 million) in foreign exchange earnings.

The stimulus follows a wave of monetary easing by Indonesia’s central bank.

Last week, Bank Indonesia, reduced interest rates for the fifth time since last May.

Indonesia is also concerned about what will happen when imports of key machinery, capital goods and raw materials from China grind to a halt in a few weeks.

"The peak of the coronavirus outbreak was on Jan. 20-30. With [a] one-to-two-month lag, its full effect would be felt here in March," said Susiwijono Mugiharso, the secretary of the coordinating minister for economic affairs.

Indonesia imports some $10 billion of machinery and mechanical appliances from China every year.

"[A total of] 74% of our imports [from China] are raw materials and capital goods. They usually get replenished every one or two weeks. That's not going to happen [in the next few weeks," Susiwijono warned. "This [coronavirus outbreak] will affect everything: traffic of goods, people, money. Changes are happening very fast from, economically and politically. We need to step very carefully in how we address [the virus].”

Susiwijono added that the government is monitoring the spread of the virus.

"We're doing our best to get the omnibus bill on job creation and taxation passed as soon as possible so we can respond to these challenges," he stated.