State Financial Policy and Stability of Financial Systems for the Management of Corona Virus Disease
Updated: Apr 22, 2020
In light of the development in the increasing Indonesian cases of Covid-19 to minimize the effect of the pandemic towards the financial services industry the government issued a Government Regulation in Lieu of Law Number 1 of 2020 on State Financial Policy and Stability of Financial Systems for the Management of Covid-19 and/or Encounter the Threat to National Economy and/or Stability of Financial Systems (“Perppu 1/2020“).
Perppu 1/2020 specifically regulates state financial policies, taxation policies, national economic recovery programs and financial system stability policies in connection with the management of Covid-19 pandemic and/or facing threats that endanger the national economy and financial system stability.
In order to support the state financial policies, other sectoral regulations are issued namely the Financial Service Authority (”OJK”) Regulations Number 11/POJK.03/2020 on National Economic Stimulus as Countercyclical Policy on the Impact of Spread of Covid-19 and Ministry of Finance Regulation Number 23/PMK.03/2020 dated 21 March 2020 on Incentive for Taxpayer affected by the Covid-19.
STATE FINANCIAL POLICIES
In order to manage the Covid-19 pandemic and/or facing threats that endanger the national economy and financial system stability, the Government is authorized to implement state financial policies by:
Setting a deficit limit to exceed 3% of Gross Domestic Product (GDP) during the management of Covid-19 and/or to face threats that endanger the national economy and/or financial system stability;
Formulate a necessary defrayal changes and the Regional Government can use 25% of the General Transfer Fund for handling the Covid-19 pandemic;
Shifting the budget between organizational units, between functions and/or between programs;
Carry out expenditures on the State Budget related to efforts to handle the Covid-19 pandemic where the budget is not yet available, or its availability is not enough;
Intensifying a budget sourced from the Remaining Over budget (ASL), endowment funds and the accumulation of endowment funds for education, funds owned by the state with certain criteria, funds managed by the Public Service Board and/or funds originating from the reduction of State Capital Inclusion in SOEs fresh funds for maximizing efforts in combating Covid-19;
Issuance of Government Bond and/or Government Sharia Bond for specific purposes especially in the context of the Covid-19 pandemic to be purchased by Bank Indonesia, SOEs, corporate investors and/or retail investors;
Confirm sources of budget funding originating from domestic and/or foreign countries;
Providing loans to the Indonesia Deposit Insurance Corporation (“IDIC”);
Prioritizing the use of budget allocations for handling the Covid-19 pandemic, adjusting the allocation and/or cutting/ delaying the distribution of the transfer budget to the Regional and Sub-district Funds (with certain criteria);
Give grants to local governments; and/or
Simplifying the mechanism and simplification of documents in state finance.
Further provisions will be regulated in a Minister of Finance Regulation.
National Economic Recovery Program
To carry out national economic recovery, the Government implements a national economic recovery program in the form of State Capital participation carried out through SOEs appointed by the Government, placement of funds and/or Government investments carried out directly by the Government and/or through other institutions appointed by the Government, as well as guarantee activity with a scheme established by the Government and run directly by the Government and/or through one or several deposit insurance corporation appointed by the Government.
The implementation of national economic recovery is regulated further by Government Regulation. Through the Ministry of Finance Regulation Number 23/PMK.03/2020 dated 21st March 2020 on Incentive for Taxpayer affected by the Covid-19, the Ministry of Finance is providing relaxation for taxpayer in paying their Income Tax Article 21. It also provides relaxation regarding the tax obligations Article 25 which is due and valid until the September 2020 tax period. Lastly, VAT also given an incentive in the form of a preliminary refund of overpayment of tax as a low-risk PKP for taxpayers who has the required criteria. The Tax Period is valid from April 1, 2020 to September 2020 and delivered no later than 31 October 2020.
Stability of Financial System Policies
To carry out stability of financial system policies there are 5 parties who are given the authority, namely:
Financial System Stability Committee (”FSSC”) The FSSC is a committee that organizes the mitigation and management of financial system crises. Further provisions regarding the referred support scheme are regulated by Government Regulation.
Bank Indonesia To support the authority of the FSSC in managing financial system stability issues, Bank Indonesia is authorized to conduct several measures which you can find specified in our upcoming LID Advisory.
Indonesia Deposit Insurance Corporation (”IDIC”) To support the implementation of the FSSC authority in managing financial system stability issues, IDIC is authorized to conduct a preparations management for banks under intensive supervision and increasing the intensity of preparations for banks under special supervision to manage bank solvency issues. They can also conduct sales/repo of owned Government Bonds to Bank Indonesia, issuance of obligations, loans to other parties and/or loans to the Government, in the event of IDIC is expected to experience liquidity difficulties for handling failed banks and make a decision regarding the recovery of a bank other than a Systemic Bank which is declared a failed bank. It also authorized to formulate and implement a deposit guarantee policy for customer groups.
OJK To support the implementation of the FSSC authority, OJK is authorized to give written instructions to the Financial Services Institution to merge, consolidate, acquire, integrate and/or convert, setting exceptions for issuers from the obligation to carry out the principle of openness in the capital market sector in connection with preventing and managing financial system crises and stipulating provisions regarding the use of information technology in the conduct of GMS or other meetings that must be carried out based on the laws and regulations. As part of the implementation process, OJK has issued POJK Number 12 /POJK.03/2020 regarding the consolidation of general banks to further support the implementation of the policy.
Government To support the implementation of the FSSC authority in managing financial system stability issues, the Government is authorized to provide loans to IDIC. The lending is carried out in the event of IDIC is experiencing liquidity problems that could endanger the economy and financial system as a result of the Covid-19 pandemic. Provisions regarding the terms and procedures for distributing loans are further regulated by the Minister of Finance Regulation.
Any person who deliberately ignores or does not fulfill, does not carry out or hinders the implementation of the authority of the OJK related to a written order to the Financial Services Institution to conduct a merger, consolidation, acquisition, integration and/or conversion, is imposed with a minimum of 4 years in prison and a fine at minimum of Rp 10,000,000,000, – or a maximum imprisonment of 12 years and a maximum fine of Rp 300,000,000,000. If the violation is committed by a corporation, then minimum fine of at least Rp 1,000,000,000,000.
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