Australia has signed a AU$1.5 billion (US$1 billion) loan deal with Indonesia to help it fight the coronavirus pandemic, Finance Minister Sri Mulyani Indrawati announced on Thursday.
“All parts of society are hurt by COVID-19 and the role of fiscal policy together with other instruments, like monetary policy, is very critical during this difficult time,” she said during a press briefing.
“We feel that this kind of partnership underlines not only the strong relationship between Indonesia and Australia but also the understanding as neighboring countries.”
The funds would be used to finance pandemic response and economic recovery programs such as social protection and aid for micro, small and medium enterprises (MSMEs), she added.
President Joko Widodo’s administration has allocated Rp 695.2 trillion ($47 billion) for a stimulus program aimed at strengthening the country’s pandemic response and reviving the economy from its first recession since the 1998 Asian financial crisis.
Indonesia officially entered recession in the third quarter as the economy shrank 3.49 percent after recording a 5.32 percent contraction in the second quarter. The Indonesian economy is expected to contract by 0.6 percent to 1.7 percent this year, according to the government’s estimate.
The government expects the economic downturn will sap tax revenue as businesses see disrupted activity and individuals suffer from job losses. At the same time, the pandemic response will require more aggressive government spending, resulting in a widening state budget deficit of 6.34 percent of gross domestic product, which would necessitate government borrowing.
Australia’s Federal Treasurer Josh Frydenberg said in a statement on Thursday that Australia and Indonesia had focused on protecting citizens from the “worst of the pandemic”, adding that both countries were “confronting this crisis as partners” and committed to an equitable distribution of successful vaccines.
“This loan reflects the extraordinary times which we all must face together and is in recognition of Indonesia’s record of sound fiscal management,” he said.
“Indonesia’s strong and quick recovery is critical for not only Indonesia but for Australia and our region.”
