Sri Mulyani's Solution To Save MSMEs

Minister of Finance, Sri Mulyani. (Irfan Meidianto / VOI)

JAKARTA - The government is looking for ways to encourage the micro, small and medium enterprises (MSMEs) sector which is proven to be experiencing liquidity difficulties due to the corona virus pandemic or COVID-19. In addition, this policy is also considered to be able to minimize layoffs (PHK).

Finance Minister Sri Mulyani explained that the government is issuing special debt securities, in which this instrument will be an addition for MSME players to obtain liquidity, which currently only comes from people's business credit (KUR).

"Apart from the KUR, we support this program, namely by means of which the government will issue bonds that will be given to existing MSME customers, or KPR, or motorbike loans who are experiencing difficulties," he said, during a joint working meeting with Commission XI of the DPR, in Jakarta. , Monday, April 6.

Sri Mulyani said that this special debt or bond could also minimize layoffs in the MSME sector. Moreover, MSMEs contribute more than 50 percent to Indonesia's economic growth.

For your information, in 1997-1998, MSMEs were also one of the sectors that saved the monetary crisis. "We can provide liquidity or working capital to customers who experience difficulties in routine financing needs, especially salary payments so that layoffs can be prevented," he said.

For now, said Sri Mulyani, the fiscal authority is mapping which MSMEs meet the requirements so that they can be assisted. One of the requirements that will be examined is a track record of tax payment compliance.

The former Managing Director of the World Bank admitted that these bonds were prioritized for sectors affected by COVID-19. "It is important that people's money is given back to the people when they need it. This is prioritized for the sectors and areas affected," he said.

Pandemic Bond

Previously, the government also planned to issue a pandemic bond to contain the impact of the spread of COVID-19 on the economy. Sri Mulyani stated that the mechanism for the issuance of these bonds was being regulated.

Pandemic bonds will have a special clause, which can be purchased directly by Bank Indonesia (BI) in the primary market. That way, government financing or debt is provided directly by BI.

Sri Mulyani said that the Ministry of Finance together with BI will strictly regulate the debt securities purchase process. This is because so far the central bank has not been allowed to finance the fiscal deficit.

"This will be arranged extremely carefully between us and BI," he said.

This pandemic bond, as reported by CNBC Indonesia, according to the Secretary of the Coordinating Ministry for Economic Affairs Susiwijono, will be in the form of government debt securities in the form of rupiah purchased by BI and other private parties, such as importers, exporters and investors.

"The proceeds from the sale of these bonds are held by the government and then distributed throughout the business world in the form of special credit, to revive the business world," explained Susiwijono.

If the government issues a pandemic bond, this will be the first recovery bond in Asia. Historically, these bonds were first released in the United States (US) in the New Deal era (1936), to recover the US from the Great Depreciation. Most recently, they issued a Recovery Bond to fund the post-disaster reconstruction of Hurricane Katrina in 2005.

Australia also had plans to issue recovery bonds in 1984 to accelerate the growth of the banking industry. However, the plan was canceled because the government preferred the recommendation from the Australian Chamber of Commerce to carry out banking and monetary deregulation.

Ireland in 2009 had a plan to issue recovery bonds to overcome the economic crisis. However, the plan ran aground and was replaced by an injection of the International Monetary Fund (IMF) worth 85 billion euros. In exchange, Ireland was forced to implement an austerity program in the form of cutting government spending and increasing taxes.

The European Union also briefly explored recovery bonds to be issued through the European Investment Fund in 2010 to overcome the effects of the Subrime Mortgage Loan crisis in the region. However, the Eurozone countries have yet to agree on the details of the covenant of debt securities that are given to the Euro-Bonds.