BI Anchors Shaky Rupiah
Bank Indonesia (BI) announced Monday, March 2 five measures to stabilize the rupiah as foreign investors sold off Indonesian financial assets from stocks to bonds and after Indonesia officially reported its first coronavirus cases.
- Starting March 16, the requirement for banks to store their dollar funds at BI, called the US$ reserve requirement ratio (RRR), would be lowered to 4 percent from 8 percent at present.
- The rupiah RRR is also being lowered by 50 basis points (bps), but only for banks with clients engaged in export and import activities, starting April 1.
- BI was conducting “triple intervention in the financial market”: stabilizing the rupiah in the domestic non-deliverable forward (DNDF) and spot markets, as well as buying government bonds (SBN) on the secondary market.
- Fourth, the central bank now allows foreign investors who sell rupiah bonds but place their proceeds in Indonesian banks to turn them into underlying transactions in the domestic non-deliverable forward (DNDF) market. Therefore, foreign investors no longer need to hedge to offshore indexes.
- Fifth, BI also encourages foreign investors to use domestic banks as custodians for investment activities.
“Lowering the foreign exchange RRR will boost banks’ liquidity by $3.2 billion while lowering the rupiah RRR will support export and import activities,” BI Governor Perry Warjiyo told a news conference in Jakarta on Monday after President Joko “Jokowi” Widodo announced the first coronavirus cases in the country. The central bank has bought Rp 103 trillion (US$7.24 billion) worth of SBNs, Rp 80 trillion of which followed its assessment that the novel coronavirus may pose risks to Indonesia’s economy. “We’ve increased the volume [of intervention] so the market is assured and confident that BI is always in the market to guard the market,” Perry said. “BI will intensify intervention in the financial market through triple intervention to stabilize the rupiah to follow its fundamental.
IDX Stops Short Selling Stocks to Halt Market Decline
The Indonesia Stock Exchange, or IDX, stopped short selling at the local burse on March 2 seeking to stave off a further decline in the stock market caused by panic selling as the novel coronavirus outbreak shows no sign of stopping and the Indonesian government announced the first two cases of the Covid-19 infections in the country. The Jakarta Composite Index has declined 7.3 percent in the past week, its largest decline since the 2008 financial bust.
Indonesia Plans Taxes on Plastics, Sugar Drinks, and Gas Vehicles
Indonesia is planning to impose an excise tax on plastics, fossil-fuel vehicles and sweet drinks in a move aimed at reducing their adverse environmental and health effects, Finance Minister Sri Mulyani Indrawati has said.She said the planned tax would reduce plastic consumption by up to 50 percent, adding the government would likely receive an excise of Rp 1.6 trillion (US$116.6 million) each year. “We are hoping that this will make plastic producers transform into producers of environmentally friendly goods,” the minister told House Commission XI overseeing financial affairs. (Jakarta Post)
Indonesia Loses Developing Country Designation
The US Trade Representative Office revoked the special preferences for Indonesia and other developing countries in the World Trade Organization, meaning that the US recognized Indonesia as a developed country. According to the policy issued on Feb. 10, Indonesia was excluded from the developing and least-developed countries list, making the country no longer eligible to receive Special Differential Treatment (SDT) from the WTO’s Agreement on Subsidies and Countervailing Measures. The decision would open exported goods from Indonesia to be charged with higher tariffs compared to exported goods from developing countries. The new policy would lower the de minimis thresholds to less than 1 percent as opposed to less than 2 percent in the previous policy. The threshold refers to the value of imported goods below which no duty or tax is collected. Moreover, Indonesia would no longer be eligible for the negligible import volumes criteria. Coordinating Economic Minister Airlangga Hartarto said the United States’ decision to no longer recognize Indonesia as a developing country would not affect the country much, despite the potential effects the decision would bring. “We will receive fewer facilities and benefits as we’re no long recognized as a developing country. However, we’re not worried about that,” Airlangga said on Friday. “However, things are still up in the air; therefore, we’re not worried,” Airlangga said.
Separately, the Trade Ministry said the US’ decision would affect its assessment of Indonesia’s Generalized System of Preferences (GSP) status. “This is related to trade remedies rather than the GSP status,” said the Trade Ministry’s bilateral negotiations director, Ni Made Ayu Marthini.
Coronavirus May Shave 0.6% GDP
Indonesia’s economic growth may be adversely affected by the global coronavirus outbreak in China, with the government planning to provide incentives to the tourist industry to prevent steep drops. “A drop of 1 percentage point in China’s economic growth will result in a drop of 0.3 to 0.6 percentage points in Indonesia’s [growth],” Finance Minister Sri Mulyani said during a press briefing in Jakarta on Wednesday. Indonesia’s economic growth rate, which hit a three-year low of 4.97% in the fourth quarter of 2019, was projected to grow 5.3% this year. Sri Mulyani’s estimate means economic growth may slide to 4.7 percent. (Jakarta Post)
Coronavirus Travel Disruptions
- Singapore Airlines/Silk Air has temporarily cut back the number of flights for the next 3 months form Singapore to Makassar, Surabaya, Bandung, Balikpapan, and Jakarta
- Garuda said it will spare 65,000 seats at discounted fares per month on domestic flights to Batam Island, Bali, Yogyakarta, Labuan Bajo in East Nusa Tenggara, Lombok in West Nusa Tenggara, Malang in East Jaba, Manado in North Sulawesi, Toba in north Sumatra, Tanjung Pandan in Bangka Belitung and Tanjung Pinang in Riau Islands. It is also offering half priced fares to Europe.
- Tens of Bali Travel Agents specializing in the Chinese market say they are now facing financial collapse.
- Saudi Arabia has stranded hundreds of Indonesian Umroh pilgrims in Indonesia and across the Arabian Gulf with the abrupt cancellation of visas for Indonesian nationals.
- The Bali Spirit Festival (30 April – 5 April) and Ubud Food Festival (17-19 April) – both committed to “carry on” .