Indonesia unveils US$742mil stimulus to counter virus impact

Performers welcome travellers at the Jakarta international airport in Jakarta

JAKARTA (Bloomberg): Indonesia unveiled a raft of fiscal incentives for its tourism, airline and housing sectors hit by the outbreak of the deadly coronavirus, broadening efforts to bolster growth in Southeast Asia’s largest economy.

The government will waive taxes on hotels and restaurants in the nation’s top 10 tourist destinations for a three-month period starting March 1, Coordinating Minister for Economy Airlangga Hartarto told reporters in Jakarta after a cabinet meeting.

State-run oil behemoth PT Pertamina will sell jet fuel at concessional rates to airlines to enable them offer a 30% discount on a quarter of their seats to these destinations, Finance Minister Sri Mulyani Indrawati said.

The fiscal incentives will be equivalent to 10.3 trillion rupiah (US$742mil), including about 3.3 trillion rupiah to be given as grants to local governments hit by the slump in tourist arrivals, Indrawati said.

The stimulus for the tourism and related sectors may help draw more visitors and net the government 13 trillion rupiah in foreign exchange earnings, Tourism and Creative Economy Minister Wishnutama Kusubandio said.

The incentives will complement the central bank’s interest rate cut last week to support economic growth, Indrawati said, adding the banking regulator will also take steps to reduce cost of borrowing.

The government will extend 1.5 trillion rupiah as interest rate and down-payment rebate for home buyers from the low-income groups, she said.

"All these measures are expected to support economic growth,” Indrawati said. The stimulus for housing will help clear the unsold inventory and have a multiplier impact on the economy, she said.

The coronavirus outbreak, which has killed nearly 3,000 people worldwide and is fast spreading outside China, is threatening to further weaken Indonesia’s already sputtering economy. Indrawati has called for a coordinated global response to the outbreak, warning that authorities may be underestimating its impact on trade and economic growth.

Indonesia hasn’t recorded any coronavirus cases, yet officials are worried about the broader impact the pandemic will have on the economy. The government had already announced plans to accelerate spending to protect household consumption which accounts for nearly 60% of the economy.

While Bank Indonesia last week trimmed its growth forecast for this year by 10 basis points to 5%-5.4%, the government had projected an expansion of 5.3% before the virus outbreak. The economy grew at 5.02% last year.