Indonesia Backs Calls for Global Response to Virus Outbreak

(Bloomberg) -- Indonesia is backing calls for a coordinated global response to the coronavirus outbreak, warning that authorities may be underestimating its impact on trade and economic growth.

It’s “very important” to synchronize, Indonesian Finance Minister Sri Mulyani Indrawati said in a Bloomberg TV interview in Riyadh, where she’s attending the Group of 20 meeting of finance chiefs.

“All the economic ministers coming here, and the central banks, they have instruments and policy tools that they can implement and execute, including fiscal expansion if it’s necessary,” Indrawati said.

There is a risk that policy makers “underestimate the impact in terms of both confidence or psychology and the real impact on trade, on tourism,” she said. There are consequences if officials aren’t able to agree on “the right timing and the right measures” to counter the fallout, the finance minister said.

The virus has spread from China’s Hubei province to almost every continent, causing major disruptions to supply chains and damaging the outlook for the global economy.

While Indonesia hasn’t recorded any cases, officials are increasingly worried about the broader impact the outbreak will have on the economy, the biggest in Southeast Asia. The government announced plans to accelerate spending, and the central bank cut interest rates Thursday while revising down its growth forecast for this year to 5%-5.4%.

Indrawati said the government will increase payments to low-income households and is considering a tax break for companies if the situation gets “severe.”

Before the virus, the government had projected 5.3% growth in 2020, up from last year’s pace of 5%.

“It is conservative,” Indrawati said of the central bank’s revised growth forecast. “We are assuming that if China’s and global growth are going to be corrected downward then Indonesia is going to be affected” to the tune of between 0.3 and 0.6 percentage points.

Like many economies in the region, Indonesia is reliant on Chinese trade and tourism, which have been disrupted. Indonesia is the world’s biggest exporter of coal and palm oil, with China being a major customer. The central bank estimated this week a $700 million loss in foreign-exchange revenue from trade, and more than $1 billion from tourism as a result of the virus.

Capital inflows may also take hit as global sentiment drops, undermining the currency and putting the current account under pressure. The rupiah is down more than 0.6% against the dollar in the past month, while the current account shortfall widened to 2.8% of gross domestic product in the fourth quarter from 2.6% in the previous three months.

Hit Hard

Indrawati said transport and tourism “are going to be hit very hard” considering the magnitude of China’s contribution to the global economy.

Steps by some countries to restrict the movement of people, goods and services are “creating this confidence problem,” she said.

Bank Indonesia cut its benchmark rate by 25 basis points to 4.75% on Thursday, the fifth reduction since July last year. Governor Perry Warjiyo said the bank will keep an “accommodative policy mix,” indicating scope for further easing.

Indonesia followed other central banks in the region that have cut rates this year, including Malaysia, the Philippines, Thailand and Sri Lanka.

“The worst case scenario is for the global economy to be corrected significantly,” Indrawati said. “For Indonesia we are going to concentrate on our domestic sources of growth. We still have fiscal-policy space to take counter-cyclical action.”

(Adds video and seventh paragraph on stimulus measures.)

--With assistance from Paul Wallace and James Amott.

To contact the reporters on this story: Karlis Salna in Jakarta at ksalna@bloomberg.net;Manus Cranny in London at mcranny@bloomberg.net

To contact the editors responsible for this story: Nasreen Seria at nseria@bloomberg.net, Shamim Adam

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