Economy: Finance Minister said that the Indonesian economy is expected to grow by 2.3 percent in 2020, but the government has prepared for a worst-case scenario of a contraction of 0.4 percent. The upper end of the forecast is less than half the government’s earlier projection of 5.3 percent GDP growth this year. The scenarios also include the rupiah depreciating further to a range of between 17,500-20,000 to the US dollar, the weakest on record. During economic slowdown, fiscal and monetary and financial authorities reactivate the protocol of crisis as “extraordinary measures” and pledged authorities would adhere to careful governance.
The protocol gives room for BI to purchase sovereign bonds directly from the government, but such a move would be a last resort. Other provisions include allowing the government to lend to the Indonesia Deposit Insurance Corporation, easing rules on BI’s short-term liquidity lending and allowing the Financial Services Authority to restructure banks or even merge lenders if needed. Meanwhile, Bank Indonesia Governor pledges that the central bank will continue to stabilize financial markets, including the rupiah’s movement, and said the current exchange rate was “adequate”. The governor also said there was no plan for capital control but said the central bank may ask exporters to convert earnings into local currency.
Monetary: Bank Indonesia (BI) and the U.S. Federal Reserve have been “discussing intensively” for a potential currency swap and repurchase line. BI has also discussed using or increasing the U$30 billion equivalent bilateral swap line it has with China. Indonesia has swap lines with Japan and Singapore as well, and a regional swap initiative it also could use to bolster its foreign exchange reserves. However, BI Governor said that the current level of Indonesia’s reserves was still considered “adequate”.
On 18 November 2018, BI and the People’s Bank of China (PBC) renewed the bilateral swap agreement in local currency (Bilateral Currency Swap Arrangement – BCSA). The agreement reflects the strengthening of monetary and financial cooperation between BI and PBC, as well as demonstrating the commitment of the two central banks to maintain financial stability amid continuing uncertainty on global financial markets. PBC has agreed to increase the value of BCSA from CNY 100 billion equivalent to USD 15 billion to CNY 200 billion or equivalent to USD 30 billion, the agreement is valid for three years and can be extended based on mutual agreement.
Industry: The Ministry of Industry noticed that the Covid-19 outbreak suppressed the capacity utilization of the manufacturing industry by almost 50 percent. This is reflected in the decline in the manufacturing Purchasing Managers’ Index (PMI) from 51.9 in February to 45.3 in March. “Some industries experienced a decline in capacity (production) of nearly 50 percent, except for the machinery and equipment industries, medical devices and medicines. We continue to encourage the industry to operate as usual, but with strict health protocols so as to avoid the Covid-19,” the Industry Minister said in an official statement. Not only in Indonesia, manufacturing activity in Asia also contracted in March 2020 due to the impact of the spread of the corona virus (Covid-19) on the supply chain.
The Minister revealed that the stimulus that would be delivered to the domestic industry, for example is related to efforts to smoothening the flow of raw materials. In this case, the Ministry of Industry will coordinate with relevant ministries. Meanwhile, from the fiscal side, there will be a reduction in corporate taxes and the elimination of employee income tax. The incentive is aimed at easing the burden on the business world and employees within a certain period,” he added.
Agriculture: Rice harvest has been starting in several regions in Indonesia. According to the data of Area Sampling Framework (KSA) prepared by Central Statistics Agency, the predicted harvest area for April and May is wider than in March. In April the harvested area will be 1.73 million hectares equivalent to 5.27 million tons of rice and in May production will be 3.8 million tons of rice. For six days from 29 March to 3 April, 163 districts have reported the paddy fields being harvested. There will be a surplus of 2.8 million tons of rice in April. The estimated rice stock in April is 6.7 million tons and will reach 8 million tons in May.
The Association of Rice and Rice Milling Entrepreneurs (Perpadi) recognizes the improving rice production in Indonesia, which will record a surplus amid the Covid-19 pandemic and the Muslim month of Ramadan starting end of April. Perpadi asks the people not to worry about supply and availability of rice because good harvest peaked in April will support domestic stock. The Covid-19 pandemic does not prevent farmers from continuing rice harvest. However, one thing to be taken care is keeping the smooth rice production in rice mills and the distribution between regions. Based on the Minister of Trade Regulation 24/2020, the floor price of harvested unhusked rice is increased to Rp4,200 per kilogram.