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W&P Newsletter – New Regulations Issued to Curb COVID-19: Large-Scale Social Restriction and Economic Stability Policies

To manage and mitigate the impact of the COVID-19 outbreak in Indonesia, the Indonesian Government has issued various policies and regulations, among others, those regarding the protection of employees’ rights (please see W&P’s previous newsletter on this matter here) and the giving of certain leeway to publicly-listed companies (please see W&P’s previous newsletter on this matter here).

More recently, on 31 March 2020, the Government also issued two further regulations, namely (i) Government Regulation No. 21 of 2020 on Large-scale Social Restriction (Pembatasan Sosial Berskala Besar) (“GR 21/2020”), and  (ii) Government Regulation in lieu of Law No. 1 of 2020 on State Finance Policy and Financial System Stability (Kebijakan Keuangan Negara dan Stabilitas Sistem Keuangan) (“Perppu 1/2020”).

Below is the summary of each regulation.

GR 21/20 on Large-Scale Social Restriction

In response to the COVID-19 crisis in Indonesia, President Joko Widodo, with reference to Law No. 6 of 2018 on Health Quarantine (“Law 6/2018”), has declared the COVID-19 pandemic as a national public health emergency by issuing Presidential Decree No. 11 of 2020.

In light of the urgency of the situation and as a measure to stave off the rampant COVID-19 cases in Indonesia, Law 6/2018  offers various options to the Government in combating the coronavirus disease, namely: home quarantine, hospital quarantine, territorial quarantine (karantina wilayah) or more popularly known as ‘lockdown’, and large-scale social restriction (pembatasan sosial berskala besar). After wavering between the territorial quarantine and the large-scale social restriction, the Government, having considered all potential adverse economic and social impacts of each option, finally decided to implement the large-scale social restriction policy by issuing GR 21/2020. The latter policy is much less strict than a lockdown, for it does not strictly prohibit people’s movements within the quarantined territory as the lockdown. The large-scale social restriction only restricts certain activities of people, for example, by way of temporary closure of schools and workplaces, restriction of religious activities or other activities in public places/facilities.

GR 21/2020 gives greater control and authority to the Central Government in handling COVID-19 cases throughout Indonesia by requiring all Regional Governments (governors, regents or mayors) to obtain consent from the Minister of Health (as the representative of the Central Government) before implementing the large-scale social restriction in their respective jurisdictions.

Perppu 1/2020 on State Finance Policy and Financial System Stability

To safeguard national economy and maintain financial system stability, the Government may take the following measures as permitted by Perppu 1/2020:

  1. New Policies for the Financial System StabilityThrough Perppu 1/2020, the Government grants greater authority to Bank Indonesia (the central bank of Indonesia), the Indonesia Deposit Insurance Corporation (Lembaga Penjamin Simpanan – LPS) and the Financial Services Authority (Otoritas Jasa Keuangan – OJK) to take the necessary measures to maintain national economic stability, as described below:
    1. Bank Indonesia
      Under Perppu 1/2020, Bank Indonesia is now authorized to buy long-term Government Bonds (Surat-Surat Utang Negara) and Government Sharia Securities (Surat Berharga Syariah Negara) through the primary market (directly from the Government). Prior to the issuance of the regulation, Bank Indonesia was only permitted to buy Government Bonds in the secondary market (except for short-termed Government Bonds).
    2. LPS
      One of the most significant extended authority given by Perppu 1/2020 to LPS is that LPS is now allowed to take the following actions when restructuring a Failing Bank (Bank Gagal):

      1. sell/repurchase (repo) Government Securities (Surat Berharga Negara);
      2. issue Bonds (Surat Utang);
      3. obtain loans from other parties; and/or
      4. obtain loans from the Government.
    3. OJK
      Under Perppu 1/2020, the OJK is now authorized to (i) instruct financial services institutions to conduct merger, consolidation, acquisition, integration and/or conversion; (ii) exempt issuers or public companies from certain disclosure requirements; (iii) allow financial services companies to hold their General Meeting of Shareholders or other regulatory corporate meetings through information technology.
  2. Adjustment to the State Finance. Under the regulation, the Government may reallocate state spending and sources towards the healthcare sector in the battle against the virus;
  3. Tax Incentives and Customs Facilities, which include income tax rate reduction for domestic entities and permanent establishments (Badan Usaha Tetap) and exemption or relief of customs duties; and
  4. National economy recovery programs, which include (i) State Capital Participation (Penyertaan Modal Negara) through the designated State Owned Enterprises, (ii) Fund Placement (Penempatan Dana) and/or Government Investment (Investasi Pemerintah), either directly by the Government or through financial institutions, investment manager, or other designated institutions; and (iii) Guarantee, to be further determined by the Government.

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