The COVID-19 pandemic, which has triggered a different crisis than the monetary crisis of 1998 and the financial crisis of 2008, has forced the government to think openly and pragmatically, the Finance Minister has said.
The COVID-19 crisis is different because the core of the issue is not corporations or banking but health, Minister Sri Mulyani Indrawati pointed out during a G20 forum on “Macroeconomic Policy Mix for Stability and Economic Recovery” in Bali on Friday.
The health crisis has directly threatened people, and has thereby, affected all aspects of life, both economic and social, she explained.
G20 is an international forum comprising 19 countries and the European Union that work collectively to handle major issues. Indonesia is holding the presidency of the grouping this year.
From the fiscal standpoint, when the lockdown was implemented, the government immediately realized that economic activities had declined, the minister said.
Under such a condition, the government had to handle health issues as well as help the people due to declining revenue and the potential halt in the economy.
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One of the main consequences of the government's efforts to help the people and handle health was a widening deficit, the minister informed.
For the first time, after more than 15 years of implementing a careful fiscal policy, which involved not allowing the deficit to go beyond 3 percent, the government relaxed the deficit limit because of COVID-19.
In addition, when the Finance Ministry conducted internal discussions with Bank Indonesia, they realized that Indonesia still needed extraordinary policy action, Indrawati noted.
The extraordinary policy was related to the government's efforts to support policy credibility when the deficit limit was relaxed.
Moreover, the government has the responsibility of undertaking fiscal consolidation to return the deficit to below 3 percent in 2023.
On account of this, a policy was issued to allow Bank Indonesia purchase government bonds directly so that it assists in fulfilling fund needs to handle the COVID-19.
This is essentially deficit financing, Indrawati explained.
Related news: After COVID shock, Indonesia moves to make health sector crisis-ready
