Analysis: Indonesia's US$24bn pandemic recovery fund to minimally impact agencies

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The Indonesian government will be allocating IDR366.5 trillion (US$24 billion) towards accelerating the National Economic Recovery program in the 2021 state budget. In a press release, president Joko Widodo said the budget would be allocated towards six fields.

Of the allocated budget, IDR25.4 trillion (US$1.7 billion) will be dedicated to the healthcare industry, IDR110.2 trillion (US$7.4 billion) will go into social protection, and IDR136.7 trillion (US$9.2 billion) will be allocated to ministries and regional governments for sectoral improvement. This includes increasing tourism, food security and fisheries, industrial estates, information and communication technology (ICT) development, loans to regions, and anticipating economic recovery.

Additionally, IDR 48.8 trillion (US$3.2 billion) will be set aside for micro, small and medium-sized enterprises, and IDR14.9 trillion (US$1 billion) will be used for funding of corporates. Last but not least, IDR20.4 trillion (US$1.3 billion) will be used for business incentives.

Widodo also placed a strong emphasis in digital infrastructure. Estimating a budget of IDR414 trillion (US$27.9 billion) for infrastructure development in 2021, he said that the COVID-19 pandemic showed that the availability and functioning of digital infrastructure is "very important and strategic". He added that the infrastructure spending is directed towards strengthening digital infrastructure and encouraging logistical efficiency and connectivity, labor-intensive infrastructure that supports industrial and tourism areas, as well as the construction of public health facilities and the provision of basic necessities, such as water, sanitation and housing.

In the tourism industry, IDR14.4 trillion (US$972 million) will be allocated to encourage economic recovery. According to the press release, the head of state said destination development will be in five focus areas: Lake Toba, Borobudur, Mandalika, Labuan Bajo, and Likupang. The government will also be developing the 3A aspects: attractions, accessibility and amenities, as well as enhancing 2Ps: promotion and participation of private entrepreneurs.

This new stimulus packages is the third this year that the government is handing out. Earlier in April, it increased total state spending to up to IDR405.1 trillion (US$24.2 billion), in a bid to combat the COVID-19 situation. Widodo said then that IDR150 trillion was allocated for economic recovery programmes, which includes credit restructuring and financing for small and medium businesses. Approximately IDR70.1 trillion (US$4.7 billion) was also said to be used for tax incentives and credit for enterprises, IDR75 trillion (US$5 billion) for healthcare spending, and IDR110 trillion (US$7.4 billion) for social protection. This came after the first package in February, where the government handed out 10.3 trillion rupiah (US$695 million) to aid businesses and consumers in its first attempt to counter the economic impact brought by the COVID-19 outbreak.

Impact on advertising industry

In a conversation with Marketing Interactive, industry players in Indonesia expressed that while they were heartened by the initiative, the impact on advertising would be minimal given advertising is seen as a non-essential industry. Elwin Mok, chairman of P3I (Indonesian Advertising Companies Association) Jakarta, said while the impact will not be direct, what is more important is how the budget would save the macro-economy and build confidence among the business community.

“Advertising budget, as usual, is one of the first areas to be reduced by companies when a crisis emerges. So building business confidence is vital to the advertising industry,” he said. Another area of importance, said Mok, was to see how the government can accelerate disbursing the allocated budget so people have more money at their disposal. “Public buying power is what can save the economy. The advertising industry is actually is merely a lubricant for this huge economy machine to work and move forward,” he added.

Adding on to the conversation, Marianne Admardatine, CEO of H+K Indonesia said, “The industry definitely needs help, specially on the employees benefits including healthcare and taxes, as the industry is people-based so the biggest asset is human resource.”

While the allocated budget is able to help to spur Indonesia's economy to a certain extent, Irfan Ramli, president director of Hakuhodo, is of the view that the impact on ad agencies will simply be a by-product of consumers or sectors spending. At the end of the day, agencies need to rely on themselves as the impact of the budget will not be immediate.

He added that to stay afloat, agencies have to manage their money and bank on savings for the long run till a vaccine is found. “This means those that have savings to weather rainy times will survive it through, but if it’s evaporated on non-essential expenses, it will be much harder to manage,” he added.

Deeming advertising as a core essential service in the business ecosystem, industry players such as Anwesh Bose, CEO of Whisper Media Group say that advertising plays a fundamental role in stimulating economic growth and trade through promotion of competition, consumer demand and brand awareness. Bose who also ex-group CEO Havas Indonesia said profits of advertising agencies have been under duress for a many years now, but many have managed to stay afloat due to robust cash flows. But COVID-19 has disrupted that cash flow in many ways.

“Agencies are either getting paid less for the same and/or are facing delays in getting paid by clients, which then affect cash flow and as a consequence forcing agencies to downsize. How the government can step in here is by temporarily speeding up payment of past tax refunds and allow advertisers to not deduct tax at source,” he said, adding that the temporary hiatus would allow agencies to remain afloat.

(Photo courtesy: 123RF)

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