Package follows recent nationwide protests urging President Prabowo to tackle rising economic pressures
[JAKARTA] Indonesia has rolled out a 16.23 trillion rupiah (S$1.3 billion) stimulus package, using tax breaks and social aid to counter slowing growth and support households and businesses.
Coordinating Minister for Economic Affairs Airlangga Hartarto said on Monday (Sep 15) that the fiscal support will be channelled into eight programmes designed to strengthen social protection, create jobs and accelerate growth in strategic sectors.
The government also plans infrastructure development programmes that could create temporary employment for more than 600,000 people.
“With this stimulus package, we hope we could still reach the 5.2 per cent economic growth target this year,” said Airlangga during a press briefing.
The stimulus was unveiled following a wave of protests in late August that shook South-east Asia’s largest economy. The demonstrations, sparked by revelations over the housing allowances of Members of Parliament, saw protesters urging President Prabowo Subianto to adjust his policy priorities in response to mounting economic pressures on Indonesians.
Among the measures introduced is an income-tax exemption for workers in labour-intensive sectors such as textiles, restaurants and hospitality.
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The income tax for small businesses will remain at 0.5 per cent till 2029, thus postponing the planned increase to 1 per cent that was scheduled to take effect next year.
In addition, the government will distribute seven trillion rupiah to provide 18.3 million low-income households with 10 kilograms of rice each. It will also expand social assistance to gig workers.
Airlangga emphasised that the programme will run alongside structural reforms and greater private-sector participation.
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Despite recording 5.12 per cent year-on-year growth in the second quarter, Indonesia, hit by a 19 per cent US tariff that took effect in August, is grappling with mounting concerns over an economic slowdown.
The tariff shock has been compounded by softening household consumption in the nation of 280 million, which is adding pressure to an already fragile outlook.
Indonesia is also seeking to bolster economic growth by injecting additional liquidity into the banking sector, aiming to stimulate lending and meet the credit needs of households and businesses.
To this end, the government has redirected around 200 trillion rupiah of idle state funds from the Bank Indonesia to five state-owned banks.
Newly appointed Finance Minister Purbaya Yudhi Sadewa announced on Monday that the funds will be disbursed as loans, including through the Merah Putih Cooperative Fund – Prabowo’s initiative to spur economic activity in the country’s outer regions.
Analysts have warned that the effectiveness of the government’s liquidity injection will hinge on whether the additional funds actually boost lending, rather than simply expand banks’ balance sheets.
“We do not expect the new policy to serve as a magic bullet for credit growth. Banks may take time to deploy the extra funds, given the weak demand from both corporate and household borrowers,” wrote Brian Lee, economist at Maybank, in a note dated Sep 12.
