Indonesia allocates $684m to lend to regions to boost economy, step up spending

first_imgThe government is allocating Rp 10 trillion (US$684.72 million) this year to provide loans for regional administrations, while taking measures to step up government spending, as it seeks to speed up the recovery of the pandemic-hit economy.Regional administrations have seen revenues decline by around 28 percent on average amid the coronavirus pandemic, said the Finance Ministry’s fiscal balance director general Astera Primanto Bhakti, adding that the pandemic had limited the ability of regions to fund priority programs.“We know that this is a challenge for regions and therefore we’ve introduced this loan scheme to support economic recovery in the regions,” Astera told reporters in a press briefing on Friday. Government-owned infrastructure financing firm PT Sarana Multi Infrastruktur (SMI) will act as a lender for the regional administrations and will allocate another Rp 5 trillion, thereby increasing the allocated budget to Rp 15 trillion this year for the loan scheme.Last month, the government approved loans for the Jakarta and West Java administrations, the country’s top economic and industrial hubs, respectively, worth Rp 16.5 trillion, for this year and next year, to help revive economic activities.The country’s gross domestic product (GDP), the broadest measure of goods and services produced, shrunk 5.32 percent year-on-year (yoy) in the second quarter, the steepest decline since the first quarter of 1999, Statistics Indonesia (BPS) announced on Wednesday.President Joko “Jokowi” Widodo’s administration has allocated Rp 695.2 trillion of the state budget to stimulate the economy and strengthen the country’s pandemic response, but slow disbursement as a result of red tape is expected to delay the impact on the economy. Government spending, which is expected to anchor the economy and boost people’s purchasing power amid cooling private-sector activity, plunged 6.9 percent yoy in the second quarter.Since the loan approval for the Jakarta and West Java administrations, several other regions namely East Java, Banten and East Nusa Tenggara have also expressed their interest in borrowing from the government, Astera went on to say.“Banten has agreed on a Rp 4 trillion loan for this year and next year, while other regions are still in the discussion process,” he said. “This will be very important if regions do not have the capacity to implement their programs.”Meanwhile, Finance Minister Sri Mulyani Indrawati is pledging to spend Rp 1.4 quadrillion in the second half of this year to bolster economic growth, as the government promises faster stimulus spending for the remainder of the year.The government has disbursed 41.93 percent of a Rp 203.9 trillion budget for social protection, 13.43 percent of the Rp 120.6 trillion budget for business incentives and 26.3 percent of the Rp 123.47 budget for micro, small and medium enterprises (MSMEs) stimulus packages, according to data from the national economic recovery task force.However, stimulus spending for health care, ministries and regional administrations, as well as corporate financing lagged as the government only disbursed 7.83 percent of the Rp 87.55 budget for health care and 7.9 percent of the Rp 106.1 trillion budget for ministries and regions. The government has yet to disburse any funds for corporate financing.Sri Mulyani expects the economy to grow at no more than 0.5 percent, or even contract further in the third quarter, while fourth-quarter GDP growth is projected to be near 3 percent, making for a full-year expansion of zero to 1 percent.“The President always instructs us to disburse the economic recovery budget immediately so that the economy can recover sooner in the third quarter,” the head of the national economic recovery task force Budi Gunadi Sadikin told reporters on Friday.“We must expedite the process so that spending can increase by the end of the third quarter and can be completed by the fourth quarter,” he said.On Wednesday, Bank Central Asia (BCA) economist David Sumual told The Jakarta Post that the country’s economic performance would depend heavily on the government spending acceleration.“Although we expect a recovery in the third quarter, the economy is at risk of recession if the government fails to ramp up spending and boost consumer spending,” David said.Topics :last_img read more

IPE Views: Can pension funds benefit from a secondary annuities market?

first_imgTaha Lokhandwala considers whether the UK government’s latest move to create free choice in DC markets stacks up for pension schemesMuch of the talk in the UK over the last year has been one of annuities, whether it be bulk, individual, medically underwritten or just downright poor value. The reason has been the government’s reforms made in last year’s Budget statement.The chancellor has allowed those approaching retirement in defined contribution (DC) schemes the freedom to spend any which way they please. In yesterday’s Budget, he extended this freedom to existing annuitants as the UK government began consulting on creating a secondary market for annuities, where consumers wanting to rid themselves of the retirement product could sell their income stream for a cash sum to a third party.This creates an interesting prospect, one where bundled together annuities essentially create a new form of fixed income investment, as annuity providers continue to pay out regular income streams to the third party, until the contract ends as the original policyholder dies. On a basic level, this kind of makes sense for pension funds. Nothing is really more liability-matching than an annuity, and even when not an exact match like a buy-in, there is still some correlation. The government alludes to this. In the consultation, HM Treasury says asset managers, pension funds, insurers and intermediaries are ideal buyers for second-hand annuities, with the mortality risk the buyer takes on offset by longevity risk. And we all know pension funds have enough of that.So that should be set, then. Pensioners will rush to the markets to sell their ‘poor-value’ annuities, intermediaries will bundle them into fixed income products, and asset managers and pension funds will start adding the products into their fixed income allocations.Well, not quite.As mentioned above, bundled annuities do not quite match a pension scheme’s liabilities as well as a buy-in. So, according to Ian Mills of consultancy LCP, the only real place for the product would be if, one, it was valued cheaper than a traditional bulk annuity, and two, if it provided a better yield and risk management than traditional fixed income.It is not unreasonable to suggest that bundled annuities, packaged in the right way, could do this, but the core issue remains pricing. The government, in its own consultation, suggests it has no concept on how to price second-hand annuities appropriately. In fact, it goes on to say retail investors should not be allowed to purchase second-hand annuities due to the complexities in determining a fair price.(Immediately, one sees a contradiction here, given that the sellers in the market are given free rein while the very same market, comprising the same retail investors, are not trusted to buy. But that is another issue.)This idea of a fair price is a difficult one to understand, as annuities are priced in for all risks from the start to provide this guaranteed income. To leave this, the holder obviously must prefer flexibility, but this always comes at a huge cost. So the only real way for this market to come together is for annuity holders to take a significant shaving off the value of their income stream.Bob Scott, also of LCP, puts it quite succinctly: “If someone wants to buy your annuity, you probably shouldn’t sell it. And, if someone wants to sell their annuity, the buyer is unlikely to offer them an attractive price.”That alone makes this is a difficult policy to envisage taking off. Even if there were a fully working market for secondary annuities, which created new fixed income products for pension funds and reduced the cost of annuities across the board, it could be a counter-productive area for schemes to enter.Because whatever the benefit for pension funds, ultimately, the cost of it all will be laid fully at the feet of pensioners.last_img read more