Indonesia urges G20 countries not to withdraw economic stimulus prematurely to support recovery

Indonesia has urged leaders of G20 nations not to end their financial support programs prematurely to help ensure the recovery of the pandemic-battered global economy, while also calling for international cooperation in the development and distribution of a COVID-19 vaccine.

Finance Minister Sri Mulyani Indrawati said a “partial and uneven” economic recovery could result in the global economy failing to reach pre-pandemic levels.

“G20 countries should avoid withdrawing stimulus too early and ensure vaccine access and availability, which are crucial to handling the pandemic and supporting economic recovery,” the finance minister said in a statement following a virtual meeting between finance ministers and central bankers of G20 countries on Oct. 14.

“Indonesia is committed to using a full range of policy tools, including a policy mix of fiscal, monetary and structural measures to spur economic recovery,” she said.

The Indonesian government is banking on the roll-out of a COVID-19 vaccine to put a stop to the virus outbreak in the country. It has secured several deals to procure approximately 300 million doses of potential COVID-19 vaccines from various developers, including China’s Sinovac Biotech Ltd. It aims to start vaccinating its citizens by January next year.

The government has also earmarked Rp 695.2 trillion (US$47.2 billion) for COVID-19 stimulus packages to spur economic growth and finance the healthcare system. The move is expected to widen the budget deficit to 6.34 percent of GDP.

Several multilateral organizations, such as the World Bank, Asian Development Bank and the Asian Infrastructure Investment Bank, have committed to providing loans for the country.

Meanwhile, the G20, representing the world’s biggest economies, has agreed to extend the suspension of debt payments by an additional six months to support the most vulnerable countries in their fight against the coronavirus pandemic.

The G20 says the extension will provide ongoing relief for the $14 billion in debt payments that would have been due at the end of the year. The decision gives developing nations time until the end of June next year to focus spending on health care and stimulus programs rather than debt repayments.

Sri Mulyani went on to say that the newly-passed Job Creation Law was expected to help boost investment and job creation in Southeast Asia’s biggest economy.

The law has triggered widespread protests by labor unions, students and civil society groups, who argue it undermines labor rights and weakens environmental protections.

G20 countries will also continue to cooperate on the international taxation system, especially in regards to digital tax, the Finance Ministry said, adding that a global consensus on taxing digital companies may be reached next year.

“Indonesia welcomes the inclusive framework blueprint as a foundation to reach global consensus,” Sri Mulyani said. “Tax income is crucial for all countries and thus Indonesia will support efforts to reach an efficient and transparent global consensus.”

Indonesia began enforcing a digital tax policy earlier this year amid a decline in state revenue and an increasing shift toward online platforms and remote work during the coronavirus health emergency.

Earlier this month, the government added eight more technology companies to its list of value added tax (VAT) collectors, which are businesses that must charge 10 percent VAT on all goods and services sold in the country.

Since July, the Finance Ministry’s Taxation Directorate General has appointed 36 companies as “VAT collectors”, including tech giant Google Asia Pacific and Facebook.

Organization for Economic Cooperation and Development (OECD) member countries are negotiating the first major rewriting of income tax rules to take better account of the rise of big tech companies that often book profits in low-tax countries.

The OECD/G20 Inclusive Framework on BEPS (base erosion and profit shifting) has yet to reach a consensus on how to tax digital companies. In the meantime, it allows its members to pursue their own initiatives before a global consensus is reached.