Indonesia would allow regional authorities to impose a lockdown to control the coronavirus, as part of a major strategy change after previously resisting more severe restrictions. But what is the economic impact of the virus on the country?
This live coronavirus article has been updated on April 22, 2020.
2 April, 2020 | AtoZ Markets – Cases of coronavirus, COVID-19, in Indonesia have soared since two of them tested positive on 2 March. The number of cases gradually increased to 50 between 2 March and 13 March. It doubled to 100 cases on 17 March, rose to 300 cases on 19 March and reached 790 cases on 25 March.
Indonesia confirmed 113 new coronavirus infection on April 2, bringing the total to 1,790 in the Southeast Asian country, an official with the ministry of health said. The official, Achmad Yurianto, reported 13 new deaths, bringing the total to 170, while 112 had recovered.
COVID-19 cases remain geographically concentrated in Jakarta (463) and the rest of Java (246), but the virus has spread throughout most of the archipelago. The situation has become increasingly grim. Faced with the shortage of personal protective equipment, several doctors have already passed away from the coronavirus. The photos of exhausted medical personnel lying on the floor of hospitals in Indonesia have circulated on social media.
According to the Center for Mathematical Modeling and Simulation at the Bandung Institute of Technology, the number of COVID-19 cases in Indonesia could exceed 8,000 by mid-April. Given current trends, Indonesia will need to take strong action now to slow the spread and avoid overwhelming its health system. The Indonesian government is currently seeking a month-long suspension of all foreigner arrivals and the segmentation of suspected cases from home quarantine and hospital quarantine.
BI Interest Rate
Bank of Indonesia (BI) expected to cut its benchmark interest rate further due to coronavirus. Economic growth could fall to its lowest level since 1999. It is in the context of an economic recession triggered by COVID-19, according to multinational investment bank Morgan Stanley.
Four Morgan Stanley economists said the Indonesian economy was facing several headwinds. It includes the fallout from COVID-19 on exports and domestic demand the impact of lower oil prices on prices of oil-substitute commodities and USD funding stress.
“We see BI cut further by 50 basis points and there is also a plan to raise the tax deficit ceiling to 5% temporarily,” said Morgan Stanley. However, in a crisis scenario, the Bank of Indonesia could cut its interest rate by 100 basis points, economists said. “An ever-present current account deficit means that policymakers will have to find a balance between supporting growth and managing the risks of macroeconomic stability.”
The central bank reduced its benchmark rate by 50 basis points to 4.5% this year to protect the economy from the effects of COVID-19. It is continuing its prudent monetary policy after a reduction of 100 basis points the year last to mitigate the risks of the US-China trade war.
Indonesia’s Economic Growth
According to a baseline scenario, Morgan Stanley expects the Indonesian economy to grow 3.7% this year. However, in a crisis scenario, Indonesia’s economic growth could fall to just 2.8% this year.
“Between fiscal and monetary policy, there is more space on the fiscal front given a generally manageable public debt, fiscal deficits,” economists said on the Asian economy. “Overall, the easing of policies is helping to mitigate the fallout on the private sector and the labour market. But a reversal of growth must still be contained by COVID-19”.
President Joko “Jokowi” Widodo revealed that government officials and legislators are in talks to raise the ceiling on Indonesia’s budget deficit below 3% of current GDP. It would allow the country to borrow more money to fund emergency measures against the new coronavirus pandemic. The budget committee chairman of the House of Representatives (Banggar), Said Abdullah, said on 23 March:
The government should raise the ceiling from 3% to 5% of GDP.
According to Morgan Stanley’s data, Indonesia’s budget deficit could reach between 2.7 and 3.5% this year. It would be the highest level in the country’s history. Meanwhile, Bahana Sekuritas economist Satria Sambijantoro said the budget deficit would end up between 3.5% and 4% of GDP.
“The deficit ceiling of 3% of GDP in Indonesia helped introduce fiscal prudence. It reduces the country’s credit risks,” said Satria. “Therefore, we expect the waiver to be only temporary, with the deficit ceiling being put back in place after the risks from the COVID-19 epidemic have subsided.”
Coronavirus Shakes Indonesia’s Economy
Indonesia’s accounts deficit is expected to widen by 0.4% ppt, from 2.6% to 3%. It is due to the impact of the coronavirus on trade and financial markets, according to the Fitch Solutions report.
The decrease in primary income is due to the volatility of the financial markets. Just January and February, trade data grew by an average of 4.4% YoY. The imports fell by 4.9% in the same period, with shipments from China dropping by 35.3%.
Finance Minister Sri Mulyani introduced two sets of fiscal stimulus packages. It aimed at the retail and tourism sector totaling $ 645.6 million and $ 7.5 billion. It includes income tax cuts and discounts for people affected by the epidemic.
Indonesia Budget Deficit to 2.5% of GDP
The finance ministry estimates that these measures could reduce the budget deficit to 2.5% of GDP. At the same time, GDP growth forecasts fall to 4.8%, 0.3 points lower than the previous estimate of 5.1%. Net exports expected to contribute to growth in 2020 at only 0.3 pts, compared to 1.4 pts last year.
“13% of government revenue comes directly from royalties from the raw materials sector. We have therefore revised our budget deficit forecast down from 2.5% of GDP to 2.8% of GDP,” said the report.
Fitch believes the government may be close to challenging the constitutionally imposed deficit limit of 3% of GDP this year. It would make spending cuts more likely later in the year.
The collapse in oil prices could also hurt government spending and its ability to support the economy. The difficulties of the external sector due to the global pandemic could also lead to a decline in GDP.
This could affect the monetary policy of the Bank of Indonesia. It is trying to defend the currency while supporting growth. The bank’s liquidation will limit its ability to support the economy through monetary easing.
The archipelago expected to remain vulnerable, with an increasing number of cases. Investors also remain nervous about the government’s ability to contain the virus. President also admitted that the government had deliberately withheld information about the extent of the virus spread. It had only recently intensified its response to contain the virus.
Indonesia’s National Islamic Economy Committee Budget Slashed
22 April, 2020 The confirmed coronavirus cases in Indonesia have risen to 7,135, and 616 people have died from the disease. The Indonesian National Sharia Economy and Finance Committee (KNEKS) will suspend non-emergency programs this year after its budget has cut by a third. Moreover, the government allocates resources to fight coronavirus. KNEKS director of education and research, Dr Sutan Emir Hidayat, told Salaam Gateway that the most expensive project in his department had been cut first. “In my department, for example, everything is already set up for the new data centre. It includes the user interface, the design, the data from almost every region except Jakarta and East Java, for the report on the economy of Shariah. We will keep it until the last month of this year or even a few months after. “
KNEKS will focus on helping the government fight the coronavirus pandemic instead of fully implementing Islamic economic development plans this year, said Dr Sutan. Other plans have been put on the back burner. The development of halal industrial zones attract more businesses and increase halal exports, research in halal applied sciences to trigger more R&D activities, and an image exercise of mark to position the Indonesian Islamic economy outside, according to Dr Sutan.
Digital Economy Can Chart a Path Toward Recovery
21 April, 2020 The confirmed cases of Coronavirus in Indonesia have increased to 7,135, while the number of deaths has risen to 616. The Indonesian finance minister said the best scenario for Indonesia is economic growth of 2.3%, the weakest in 21 years. In the worst case, the economy would contract by 0.4%. While an economic downturn seems inevitable, it is an opportunity to leverage the power of the internet and accelerate the pace of digitalization to help mitigate risk. Indonesia’s largest digital economy in Asia valued at $ 40 billion. By 2025, that number could reach $ 133 billion, a jump from $ 8 billion five years ago.
Maintaining this growth trajectory will be crucial to allow a rapid economic rebound when the threat of a pandemic is over. A recent report on the digital economy highlighted that online travel, ride-hailing and e-commerce are the greatest assets of the Indonesian economy on the internet. Indonesian e-commerce itself is expected to reach a total value of $ 21 billion this year, or 52% of the $ 40 billion currently represented by the Indonesian digital economy. By 2025, electronic commerce is expected to account for two-thirds of the country’s digital economy.
Fitch Solutions Slashes Indonesia’s Economic Growth Projection
20 April, 2020 The number of confirmed cases in Indonesia has increased to 6,575, and the total deaths has risen to 582. Fitch Solutions has lowered Indonesia’s economic growth forecasts to 2.8% from 4.2%. Consumption and investment growth are expected to slow amid weakening economic conditions during the COVID-19 pandemic. “The government has taken strong measures to stimulate the economy. But, we believe that these efforts will not be enough to offset the devastating effects on employment and public health”, wrote the Fitch Solutions researchers. They predict that private consumption in Indonesia will slow to 1.2% in 2020, from 5% in 2019, due to rising unemployment.
Over 2.8 million people lost their jobs last Monday, according to data from the Ministry of Manpower and the Social Security Workers Agency (BPJS Ketenagakerjaan). More than half of them were laid off and placed on paid or unpaid leave. “We also expect capital formation to slow to just 1.5% in 2020 after posting 4.5% growth in 2019,” said Fitch. It added that this would be mainly due to the significant delays that large-scale infrastructure projects were likely to suffer due to the crisis. The government expects the country’s economy to grow 2.3% this year. It would be the lowest rate in 21 years, in a baseline scenario, and even contract 0.4% in the worst case.
Bank Indonesia Reduces Credit Card Regulations
17 April, 2020 The number of confirmed cases in Indonesia has increased to 5,516, while the total number of deaths has risen to 496. Bank of Indonesia (BI) will reduce rules on credit cards, including the interest rate and late payment penalties. It boost cashless transactions and fuel economic activity during the coronavirus pandemic. BI Governor Perry Warjiyo said the regulations would provide a stimulus to credit card holders and businesses to boost the economy affected by the virus. The easing will take effect from May 1 and will remain in place until the end of the year.
This expands the use of cashless transactions to mitigate the effects of COVID-19, Perry told after the BI’s board of governors’ meeting.” We are trying to maintain the stability of the macroeconomic and financial system, as well as ensuring economic recovery. ” The central bank has decided to lower the interest rate on credit cards from 2.25% to 2% per month. It reduces the minimum credit card payment from 10% to 5% of total outstanding credit. It also reduced the late payment penalty from 3% of the total amount of the credit.
COVID-19 Crises Set to Overwhelm Indonesia
16 April, 2020 There were 5,136 confirmed cases of coronavirus and 469 deaths in Indonesia. The vast majority of Indonesian workers face the economic downside and the massive loss of productivity. A US $ 25 billion financial relief package announced earlier this month put in place with minimal impact. It caused massive confusion about who stands to benefit. Indonesia must quickly strengthen its national crisis management capacity. The country should provide it with experienced professionals who know how to deal with a national disaster and an economic crisis simultaneously.
The vast majority of the 134 million Indonesian workers live in absolute poverty. They come from low-income families or are part of a fragile and aspiring middle class. The Indonesian economy still depends on its “fighters” who are struggling to join both ends. Indonesian President Joko Widodo realizes that he is facing a massive loss of productivity. He has limited fiscal capacity. His $ 25 billion economic assistance plan has so far had a muted impact. Finance Minister Sri Mulyani Indrawati reassured the wary markets by saying: “We must be cautious to avoid moral hazard”.
Millions Lose Jobs, Fall Into Poverty in Indonesia
15 April, 2020 There were 4,839 confirmed cases of coronavirus and 459 deaths in Indonesia. The IMF released its new global economic outlook, “The Great Lockdown”, on Tuesday. It said Indonesia’s economic growth would decline by 0.5% in 2020 from 5.02% in 2019. The IMF also predicts the country’s unemployment rate will rise to 7.5% this year, up from 5.3% last year. The pandemic disrupted supply chains. It is forcing companies to lay off workers and crushing demand for goods, with consumers staying at home.
Up to 2.8 million people lost their jobs, according to data from the Manpower Ministry and the Social Security Workers Agency (BPJS Ketenagakerjaan). More than half of them laid off and placed on paid or unpaid leave. “The significant downward revision of growth projections for 2020 reflects the significant disruption of economic activity forecast by COVID-19,” said the report. The IMF expects the virus to hit the Indonesian economy. The country is heavily dependent on the export of raw materials rather than finished products.
Indonesian President Says Economy, Social Stability Equally Important
14 April, 2020 The number of confirmed coronavirus cases in Indonesia has risen to 4,557. Moreover, 399 people have died from the disease. Indonesian President Joko Widodo said that economy and social stability are essential to fight the coronavirus epidemic. Joko pointed out that the government has seriously tackled the COVID-19 crisis from the start. He also said that equal attention should pay to both the health and socio-economic aspects of the problem.
“The coronavirus and the economy are closely linked. They are both important. If people do not eat, the economy will collapse,” said Joko. The government has taken an extraordinary step to register a budget deficit of 5% of GDP this year, above the normal threshold of 3%. It tries to mitigate the effects of the pandemic. Joko said that if the crisis continues beyond six months, the government may have to accept an even higher budget deficit.
Indonesia to Finance Coronavirus Battle Mostly Through Debt
13 April, 2020 Indonesia has reported 399 new cases of coronavirus, the largest daily jump to date. It brings the total number of infections in the country to 4,241, according to data provided by a ministry of health official, Achmad Yurianto. Yurianto said there were also 46 new coronavirus-related deaths, bringing the total to 373. Indonesia’s revised 2020 state budget highlights the decline in income and increased spending in the context of the coronavirus epidemic. To cope with the widening deficit, the government has tripled the national debt. It stands at Rp 1 quadrillion (US $ 63 billion).
Tax revenues expected to decline as businesses paralyzed and households losing their income during the pandemic. State spending expected to increase by almost 3% to Rp 2.6 quadrillion. Revenue expected to drop 21% to Rp 1.7 billion. “The first line of government funding will come from an endowment and accumulated cash surplus, but it will not be enough,” told Finance Minister Sri Mulyani Indrawati. “We must issue government debt papers to seek the best sources of financing. We will be cautious when sailing in these unknown waters”. As a result, debt issues tripled to Rp 1 quadrillion in the revised 2020 state budget. It consists of new pandemic bonds of Rp 449 trillion and government debt papers of Rp 549 trillion.
Indonesia’s Annual Economic Growth Decline
10 April, 2020 Indonesia has confirmed 40 more deaths. Its death toll is almost half of the more than 590 deaths in Southeast Asia. More than 16,500 cases have reported across the region. According to Achmad Yurianto, an official with the Indonesian Ministry of Health, the country recorded 337 new infections. It represents a new daily high, bringing the total to 3,293.
The annual economic growth expected to weaken by 1.1% in Q2. It is before growth picks up slightly in the following quarters, said the governor of the central bank. The annual economic growth decline is due to measures to control the spread of the new coronavirus. Governor Perry Warjiyo said that GDP growth in the first three months of 2020 was likely 4.7%. Growth was 1.3% in the third quarter and 2.4% in the fourth quarter. The forecast was based on the virus epidemic which peaked in May, with economic activity stabilizing in the third quarter and recovering in the fourth quarter, said Warjiyo. The Bank of Indonesia’s GDP growth forecasts for 2020 and 2021 are 2.3% and 5.2%, respectively.
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