President Jokowi Signs Perppu on State Finance Policy, Financial System Stability to Combat COVID-19

Government Regulation in Lieu of Law (Perppu) Number 1 of 2020

President Joko “Jokowi” Widodo, on Tuesday (31/3) has signed a Government Regulation in Lieu of Law (Perppu) Number 1 of 2020 on State Finance Policy and Financial System Stability for the Handling of Corona Virus Disease 2019 (COVID-19) and/or in the Framework of Dealing with Threats Endangering National Economy and/or Financial System Stability.

The Indonesian Government considered the COVID-19 spread declared by the WHO as a pandemic in most countries, including in Indonesia, shows an increase over time and has claimed greater lives and material losses, which implicated the social, economic, and social welfare aspects.

In addition, the implications of the COVID-19 pandemic has impacted, among others, on the slowing down of national economic growth, the decrease in state revenue, and the increase in state spending and financing, so various Government efforts are required to save health and the national economy, with spending focus on health, social safety net, as well as economic recovery, including for businesses and affected communities. (Link: https://jdih.setkab.go.id/PUUdoc/176087/Perpu_Nomor_1_Tahun_2020.pdf)

Then, the implications of the COVID-19 pandemic have also affected the deterioration of the financial system as indicated by a decline in various domestic economic activities so that the Government and the Financial System Stability Committee (KSSK) are required to jointly mitigate by taking anticipative measures for the stability of the financial sector.

For the reason, the Government and related institutions are immediately required to take extraordinary policies and measures to save the national economy and financial system stability through various relaxation policies related to the implementation of the State Budget (APBN) in particular by increasing spending on health, spending on social safety nets, and economic recovery, and strengthening the authority of various institutions in the financial sector.

This Perppu states that the implementation of APBN as referred to is in the framework of: a. pandemic management (COVID-19) and/or b. dealing with threats endangering the national economy and/or financial system stability. It is necessary to establish a state financial policy and a financial system stability policy.

State financial policies, as referred to in this Perppu, comprise of state revenue policies including taxation policies, state expenditure policies including regional financial policies, and financing policies as well as for the handling of financial institution problems endangering the national economy and/or financial system stability.

Based on Article 2 of this Perppu, in implementing state financial policies, the Government is authorized to: a. set limits on the budget deficit; b. make adjustments to mandatory spending; c. shift the budget between organizational units, between functions, and/or between programs; d. take actions that result in expenditure at the expense of the APBN;  e. use budgets originating from the excess budget balance (SAL), endowment funds and accumulated education endowment funds, funds controlled by the state with certain criteria, funds managed by the Public Service Agency; and/or funds originating from the reduction of State Capital Inclusion in SOEs; f. issue Government Bonds (SUN) or State Sharia Sovereign Bonds (SBSN); g. determine the Budget funding sources originating from domestic and/or abroad; h. provide loans to the Indonesia Deposit Insurance Corporation (LPS) i. prioritize the use of budget allocations for certain activities (refocusing), adjust the allocation, and/or cut/delay the distribution of the Transfer to Regional and Village Fund budget, with certain criteria; j. provide grants to local governments; and/or k. perform simplification of mechanism and documents in state finance.

“In the context of implementing policies in the area of ​​regional finance as referred to in Article 1 paragraph (4), the Regional Government shall be given the authority to prioritize the use of budget allocations for certain activities (refocusing), make changes to the allocations, and make use of the Regional Revenues and Expenditure Budget,” Article 3 of this Perppu reads.

Changes in the posture and/or details of the APBN in the context of implementing state financial policies and the measures as referred to in this Perppu are regulated by or based on Presidential Regulation.

In the implementation of the financial system stability policy, as referred to in Article 14 of this Perppu, the KSSK, is authorized to: a. hold face-to-face meetings or meetings through the use of information technology to formulate and determine measures to deal with financial system stability problems; and b. establish the Government’s support scheme to handle the problems of financial service institutions and financial system stability endangering the national economy.

According to this Perppu, central bank of Indonesia (Bank Indonesia/BI), the LPS, and the Financial Services Authority (OJK) have the authority regulated in Article 16 through Article 23 of Chapter III on the Financial System Stability Policy.

In accordance with Article 27 of this Perppu, costs incurred by the Government and/or KSSK member institutions in the context of implementing state revenue policies including taxation policies, state expenditure policies including regional financial policies, financing policies, financial system stability policies, and national economic recovery programs, shall be part of the economic costs to save the economy from the crisis and shall not constitute a loss to the state.

“This Government Regulation in Lieu of Law shall apply as of the date of its promulgation,” Article 29 of the Perppu reads. The Perppu was promulgated by Minister of Law and Human Rights Yasonna H. Laoly on 31 March 2020. (EN)

Translated by: Fairuzzamani Inayatillah
Reviewed by: Yuyu Mulyani