BI Governor revealed four steps to reject the recession, what are they?

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ILLUSTRATION. Bank Indonesia Governor Perry Warjiyo

Reporter: Bidara Pink | Editor: Herlina Kartika Dewi

KONTAN.CO.ID – JAKARTA. Bank Indonesia (BI) warned that Indonesia’s economy in the second quarter of 2020 will drop by 4%. This is caused by the economic slowdown due to reduced economic activity in order to break the chain of the spread of Covid-19.

To that end, BI Governor Perry Warjiyo claimed to have prepared various measures to save the Indonesian economy so as not to fall into recession.

“There are four steps. I said earlier, if this step requires stronger synergy between BI, the government, relevant authorities, and also the business world,” Perry said, Thursday (7/16) via video conference.

Also Read: Not the benchmark interest rate, this is the most effective instrument of economic boosting according to BI

Step first, opening productive economic sectors but by not forgetting to apply health protocols. According to Perry, adherence to this health protocol is very important to suppress the potential spread of Covid-19 in the new normal era.

Second, accelerating the realization of the budget. According to him, the realization of the budget is one of the most powerful bullets in targeting economic recovery targets, because it is able to directly touch the real sector and can boost demand from the public.

In accelerating the absorption of the budget, the central bank takes the role by taking part in bearing the burden of the government (burden sharing) in the budget of APBN 2020, by purchasing State Securities (SBN) in the primary market through both market mechanisms and private placement.

BI will bear the burden of debt interest up to 100% of the burden for public goods such as health budgets, social protection, and sectoral, ministries and institutions (K / L), and local governments whose financing is estimated to reach Rp 397.60 trillion.

Also Read: BI suggests burden sharing has the potential to hoist inflation next year

BI also bears the burden of debt for financing non public goods specifically for MSMEs and non-MSMEs corporations which amounted to Rp 177.03 trillion. In this scheme, the government will issue SBN through market mechanism with BI in accordance with the provisions agreed on April 16, 2020.

In this case, the Ministry of Finance will bear interest at 1% below the reverse repo rate. While the rest is borne by BI. In addition, the Ministry of Finance fully covers the financing non public goods others with a value of Rp 329 trillion following market interest rates.

Step third, accelerated the credit and business restructuring program, particularly from the banking sector. According to Perry, there is encouraging news from this restructuring process, because reportedly as of June 2020 there were already Rp 871.6 trillion in loans that had been relaxed.

This is the breakdown of MSME credit restructuring of IDR 309.3 trillion, corporate credit of Rp 164.7 trillion, commercial credit of Rp 130.9 trillion, and consumption credit of Rp 119.2 trillion.

“Progress in the credit restructuring program will accelerate economic recovery and a number of banks, as well as increase working capital loans,” he added.

Step fourth, accelerating economic and financial digitalization. In this case, the central bank will continue to intensify the program of digitizing the distribution of social assistance (social assistance), electronification of local government transactions, electronification of transportation, and encouraging the digitization of payment and banking systems.

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