Economy: S&P Global Ratings revised Indonesia’s credit rating outlook to “negative” from “stable”, indicating the rising financial risks the country faces as it ramps up government spending in response to the Covid-19 pandemic. Previously, S&P had raised Indonesia’s debt rating to BBB in May 2019, on a par with ratings awarded by two other major credit rating agencies Fitch and Moody’s. A n outlook revision to negative means an expectation that a credit issuer’s finances may worsen, and the agency may downgrade its rating as its next move. “Indonesia’s external position has weakened following considerable depreciation of the rupiah, and the government’s debt burden will be materially higher over the next few years owing to strong counter-cyclical fiscal measures,” S&P said. The country’s rating would be downgraded if the economy suffers a deeper or more prolonged slowdown over the next two years, or if fiscal or external positions deteriorate more than expected, though it would revise the outlook back to stable if they improve. S&P projects that Indonesia’s economic growth falling to 1.8% this year, the lowest rate since 1999, before it will rebound in the one or two years after.

In response to S&P assessment, Governor of Bank Indonesia remarked, “This negative outlook is believed not to be a reflection of fundamental economic problems, but rather triggered by S&P’s concern over the risk of worsening of external and fiscal condition due to the temporary Covid-19 pandemic”. This conviction is based on the fact that, up to sometime before the pandemic expanded worldwide, investor and international rating agencies’ confidence on the prospects and resilience of Indonesia’s economy were still very high. Supported by the consistency of the Government and Bank Indonesia in implementing fiscal, monetary, and structural reform policies, this trust can be seen among others in the massive inflows of foreign capital and the successive series of rating upgrades given to Indonesia by various leading rating agencies in the world.

Monetary: Bank Indonesia’s Board of Governors agreed on 13 and 14 April to hold the BI 7-Day Reverse Repo Rate at 4.50%, while also maintaining the Deposit Facility (DF) and Lending Facility (LF) rates at 3.75% and 5.25%. The decision considers the need to maintain external stability amidst heightened global financial market uncertainty, while Bank Indonesia perceives adequate space to lower the policy rate due to mild inflationary pressures and the urgent need to stimulate economic growth. At the same time, the central bank cut the reserve requirement ratio for conventional commercial banks by 200 basis points (bps) and 50 bps for Islamic banks, while also tweaking other liquidity rules, effective on 1 May.

Bank Indonesia’s policy mix is part of the policy synergy coordinated closely with the Government and under the Financial System Stability Committee as well as other relevant authorities to maintain macroeconomic and financial system stability, while striving to recover the national economy from Covid-19. Bank Indonesia will continue to monitor economic and global financial market dynamics as well as the pandemic and its economic impact on Indonesia over time, while implementing the coordinated follow-up policies required with the Government and Financial System Stability Committee to maintain macroeconomic and financial system stability, and supporting the national economic recovery.

Trade: Indonesia’s trade surplus narrowed in March mostly due to higher imports of machinery. The Southeast Asia’s largest economy posted a trade surplus of US$740 million, narrower than its surplus of US$2.34 billion in February. commodities exports to China, the country’s main trading partner, picked up after the world’s second-largest economy resume economic activity following weeks of lockdown to contain Covid-19 pandemic. Exports to China rose by US$103.6 million to US$1.98 billion from US$1.87 billion in February. The main commodities exported to China include mineral fuels, iron, and steel, then vegetable fats and oils.
Import from China also increased by 66 percent from February to US$2.98 billion, mostly in transmission apparatus, portable receivers, laptops, and fruits.

The overall exports in March rose 0.2% from the previous month, driven mostly by exports of iron and steel. Imports rose 15.6% on month due to imports of machinery and mechanical parts. From a year earlier, exports edged 0.2% lower to US$14.09 billion in March, while imports declined 0.8% to US$13.35 billion. Trade balance over the period of January-March 2020 registered a surplus of US$2.62 billion, with an export value of US$41.79 billion and imports, US$39.17 billion. This balance is far better compared with the same period of 2019 when trade suffered a US$62.8 million deficit. However, an attention should be paid on the imports decrease during January-March when raw material imports plunged 2.82 percent and imports of capital goods plummeted by 13.07 percent, which likely to reflect the slowdown of domestic industry and investment.

Business: One and a half months after Covid-19 pandemic entering Indonesia, a lot of economic damages have been done. According to Ministry of Finance, 34 provinces have been exposed to virus, meaning that the pandemic happened countrywide. The economic impact is getting more serious, especially in the hardest hit sectors of tourism and transportation. Over the period of January-February, as much as 2,703 flights had been canceled in at 15 major airports and covering 11,680 domestic flights and 1,023 international flights. More flights cancellation is predicted afterward until today.

The impact caused the airlines to suffer losses, since April two airlines have stopped operations temporarily and total losses suffered by domestic airlines valued at Rp207 billion. At the same time, hotels must also bear the losses. According to the Indonesian Hotel & Restaurant Association, a 50 percent drop in occupancy rates is recorded in 6,000 hotels in Indonesia. At least 1,600 hotels have closed because there were no visitors as a result of social restrictions to combat Covid-19. According to Ministry of Finance, until 11 April there were 1.5 million workers have been laid off. Meanwhile, according to data from the Ministry of Manpower and Social Insurance for the Workers (Jamsostek), the number has reached 2.8 million in various economic sectors excluding manufacturing.

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