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Indonesia Plans New Stimulus Package to Counter Virus Threat

Indonesia Planning Second Stimulus Package as Virus Threat Grows

(Bloomberg) -- Indonesia is working on a second stimulus package to shore up Southeast Asia’s biggest economy, adding to the central bank’s aggressive moves to counter the impact of the coronavirus on financial markets.

A new tranche of fiscal measures would be “sizable” and “bigger” than the first one of 10.3 trillion rupiah ($725 million) announced last week, Coordinating Minister for the Economy Airlangga Hartarto said in an interview Monday.

“We still need to inject more stimulus,” he said.

Indonesia Plans New Stimulus Package to Counter Virus Threat

Indonesia confirmed its first two cases of the virus Monday, roiling financial markets and spurring the central bank to action. It pledged to buy more bonds -- adding to the $6 billion spent last month to stem the market rout -- and announced a cut to banks’ reserve requirements to pump more liquidity into the financial system.

The Jakarta Composite Index closed 2.9% higher, the most since October 2015, on news of plans for a second stimulus package. The yield on Indonesia’s 10-year government bonds tumbled 17 basis points to 6.807%. The rupiah fell 0.1% to 14,283 per dollar.

Indonesia Plans New Stimulus Package to Counter Virus Threat

Swinging into Action

Central bankers around the world are pledging more action to calm market jitters and bolster their economies. The Bank of England and Bank of Japan said Monday they’ll act as necessary to ensure stable financial markets, while the leaders of the International Monetary Fund and World Bank said they stand ready to help member nations. The Federal Reserve on Friday signaled a possible interest rate cut.

The rupiah tumbled 4.6% against the dollar last month, making it Asia’s worst-performing currency. The benchmark 10-year yield surged 27 basis points over the same period as foreign investors sold in the rout. Global funds sold $2.1 billion of Indonesian debt in February, the most since September 2011.

Jakarta’s stock market came close to entering bear territory Monday, with losses nearing 20% from a record high in February 2018. Foreigners already have pulled almost $380 million from Indonesia’s equity funds this year.

Euben Paracuelles, an economist at Nomura Holdings Inc. in Singapore, said the stimulus package unveiled last week probably wasn’t “enough to move the needle” as downside risks to growth continue to rise.

“The budget will have to be revised materially higher to accommodate a more growth-friendly fiscal stance,” Paracuelles said, noting that Indonesia’s government has “plenty of fiscal space” to inject more stimulus.

“Hints of a second stimulus package are therefore very much welcome,” he said.

Fresh Spending

The new fiscal package would include spending not included in the budget, Hartarto said, implying the deficit may widen from an original target of 1.76% of gross domestic product. The government will aim to help middle-income earners this time around, after allocating 4.6 trillion rupiah for low-income households in last week’s measures, he said.

Indonesia Plans New Stimulus Package to Counter Virus Threat

Like elsewhere in the region, Indonesia’s exports, tourism and investment are taking a knock from the spread of the virus. Hartarto said the government now estimated economic growth would slow to 4.7% in the first quarter, which would be the weakest pace since 2009 amid the global financial crisis.

Growth has been hovering around the 5% level for several years now, reaching 5.02% in 2019. The central bank has trimmed its forecast for this year to 5%-5.4%, from 5.1%-5.5% earlier. When he was first elected in 2014, President Joko Widodo promised to lift economic growth to 7%.

“It’s the new normal,” Hartarto said. “It’s the new uncertainty.”

Still Optimistic

Indonesia’s policy response to the virus will also include a streamlining of export processes, with certifications and other documents to be handled at ports of shipment, and cuts to import duties on a range of goods, the minister said.

The government remains optimistic that the economy will recover, with Hartarto pointing to the improvement in Indonesia’s factory output last month. Data Monday showed the purchasing managers index rose to 51.9 in February from 49.3 in January, indicating a shift from contraction to expansion, even as a PMI for China plunged to a record low.

“This is as simple as saying actually the production of China has almost shut down,” the minister said. “The expansion in the Indonesian manufacturing sector is an opportunity for Indonesia to fill the gap that is not supplied by China.”

--With assistance from Cecile Vannucci.

To contact the reporter on this story: Karlis Salna in Jakarta at ksalna@bloomberg.net

To contact the editors responsible for this story: Nasreen Seria at nseria@bloomberg.net, Michael S. Arnold

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