JAKARTA: Indonesia's economy faces the risk of recession this year due to the coronavirus pandemic, its finance minister said today, adding that only a small amount of the government's billion dollar budget to fight the crisis had been doled out.
Sri Mulyani Indrawati told an online briefing Southeast Asia's largest economy was expected to shrink in the April-June quarter by 3.1% from a year earlier – marking the first contraction since 1999.
The economy could also contract in the third quarter before returning to growth in the final three months of 2020, she said. However, gross domestic product (GDP) could also be flat in July-September quarter, which would mean the economy avoids a technical recession.
GDP expanded 2.97% in the first quarter.
"We're preparing for all possibilities so that the corporate sector and then the financial sector do not get hit by the domino effect of this Covid-19," she said. "All while we're praying there is no second outbreak."
The minister said the government had only spent a fraction of its pandemic response budget, including less than 2% of allocations for public health and 7% on incentives for businesses. It had disbursed 27% of its social protection programmes, she said.
Indrawati said the programmes were new and there had been challenges distributing cash assistance due to problems such as overlapping data.
She put the size of the 2020 stimulus at 695.2 trillion rupiah (RM208.5 billion), slightly more than her previous estimate.
Her baseline outlook for 2020 GDP growth remained between -0.4% to 2.3%, but she said growth looked more likely to be within a range of 0% to 1%. A steep recovery was expected in 2021, with GDP growth projected at 8.2%. The economy expanded 5% last year.
The government ran a budget deficit of 1.1% of GDP as of the end of May, data showed, significantly below the 6.3% expected for the whole year. It had spent 843.9 trillion rupiah in the first six months, or 31% of the amount targeted for 2020.
On a separate issue, Indrawati said Indonesia's plan to impose 10% value-added tax (VAT) on digital services offered by technology giants is not the subject of a trade investigation by the United States
The US Trade Representative's office earlier this month said it was investigating digital services taxes (DSTs) being adopted or considered by several countries, such as Britain, Italy and Indonesia.
Indonesia announced last month it would require big internet companies to pay VAT on digital products and services – including streaming services, applications and games – starting July, though authorities have more recently pushed the deadline to no later than August.
"The VAT plan is not the subject of the USTR letter. It took issue with plans for corporate tax, which remains a subject of discussions led by the OECD," Indrawati told the streamed briefing.
The US. embassy in Jakarta could not immediately be reached for comment.
Indrawati said Indonesia would not impose DST or corporate income tax before the Organisation for Economic Co-operation and Development and G20 countries agree a global standard for such taxes, likely later this year.
She noted that consumers were paying VAT when they bought a product or a service, rather than companies.
The USTR has also been reviewing Indonesia's eligibility for its Generalized System of Preferences trade facility since 2018 due to concerns about market access for US goods, services and investment. – Reuters
source https://www.thesundaily.my/business/indonesian-finance-ministry-flags-recession-risk-as-spending-hits-a-snag-XD2588275
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