Economy: In its latest World Economic Outlook titled “The Great Lockdown”, IMF estimates Indonesia’s economic growth to plunge to 0.5 per cent this year from a four-year low of 5.02 per cent last year. IMF also projects that the country’s unemployment rate will rise to 7.5 per cent this year, from last year’s 5.3 per cent as the pandemic has upended supply chains, forcing companies to lay off employees, and crushed demand for goods as consumers stay at home. “The significant downward revision to the 2020 growth projection reflects large anticipated domestic disruptions to economic activity from Covid-19,” the report says. IMF expects the virus to hit Indonesia’s economy as the country relies heavily on the export of commodities rather than finished goods. The report says, “Among developing economies, all countries face health crisis, severe external demand shock, dramatic tightening in global financial conditions, and a plunge in commodity prices. They will have a severe impact on economic activity in commodity exporters.” The IMF expects recovery to take place next year as the country’s economy may expand by 8.2 per cent. The global economy is projected to contract by three per cent this year, but growth is expected to recover next year with a projected rate of 5.8 per cent.

To some extent, the IMF projection is in line with the Indonesian government’s view. It estimates that 1.1 million to 3.78 million Indonesians will fall into poverty and 2.9 million to 5.2 million could lose their jobs during the downturn, with economic growth projected to be at the lowest level since the 1998 financial crisis. “Covid-19 has resulted in the global economy entering a recession,” she Finance Minister Sri Mulyani, adding that this prompted the government to use state funds to increase spending on health, social safety, and support for businesses. The minister added that there would be “support for business activity from the informal sector to micro, small and medium enterprises and the businesses because this is related to layoffs and social repercussions”.

Employment: Finance Minister estimates that unemployment in Indonesia is estimated to increase by five million over the economic pressure caused by the COVID-19 outbreak. The forecast aligns with Indonesia’s economic growth in its worst-case scenario that is expected to contract. Indonesia must be ready for the worst-case scenario wherein a minus growth is forecast. Under such a scenario, unemployment is expected to increase by over five million. In the baseline scenario, the economic growth would reach 2.3 percent, and this would result in an additional 2.9 million becoming jobless. Therefore, the government is performing all-out efforts to maintain economic stability amid pressure from the COVID-19 pandemic to address the impact on the nation’s unemployment rate. Other countries had also forecast a rise in unemployment owing to the coronavirus outbreak, including the United States, which has forecast a sharp rise, from 3.7 percent to 10.4 percent in 2020.

Industry: Three Indonesian state-owned companies that regularly become defense contractors for the government have agreed up to produce ventilators for Covid-19 patients, as the country’s outbreak remains nowhere near its peak. The three companies – arms producer PT Pindad, aerospace company PT Dirgantara Indonesia, and electronic technology company PT LEN Industri – will develop their own prototypes and produce thousands of ventilators per month once quality and safety requirements are met. President Joko Widodo has instructed domestic industries to produce the breathing machines due to a lack of global supplies, as demands are soaring amid the pandemic. When domestic supplies are secured, the manufacturers may aim for export sales in the future.

LEN Industri targets to produce 50 ventilators per day starting next month. LEN Industri, which has built military electronic equipment such as radars and tactical radios, is collaborating with the Technology Assessment and Application Agency (BPPT) to develop the prototype. Pindad, the main gun supplier for the Indonesian Military (TNI) and the National Police, plans to produce 40 mechanical ventilators per day using the company’s own resources. Dirgantara Indonesia, which produces military personnel aircraft, is working with the Bandung Institute of Technology (ITB) and the Surabaya Institute of Technology (ITS) to develop the prototype, aiming to produce 1,000 ventilators per week. The Health Ministry said there were 18 different research teams working on ventilator prototypes involving various universities, research centers and medical equipment companies across Indonesia.

Finance: The Indonesian Financial Services Authority (OJK) revealed that to date, domestic commercial banks have restructured Rp 56.5 trillion of loans to the debtors affected by Covid-19 pandemic. As many as 84 banks have announced a restructuring policy to the public, 43 banks have implemented restructuring worth Rp 56.5 trillion involves 262,966 debtors. The debt restructuring is an implementation of OJK Regulation 11/2020 concerning the National Economic Stimulus as a Countercyclical Policy. The regulation stipulates a restructuring for a maximum ceiling of Rp 10 billion for the Covid-19 affected sector, and MSMEs, including fishermen and online motorcycle taxis.

The restructuring scheme is in the form of a reduction in interest rates, extension of loan tenure, reduction of principal arrears, and interest, additional loan facilities, to the conversion of loans to temporary equity participation. The regulation stipulates a restructuring for a maximum ceiling of Rp 10 billion for the Covid-19 affected sectors, and MSMEs, including fishermen and online motorcycle taxis. Debt restructuring can be in the form of a reduction in interest rates, extension of loan tenure, reduction of principal arrears, and interest, additional loan facilities, up to the conversion of loans and temporary equity participation. Four state-owned banks are dominated the value of restructuring. Until end of March, the four banks had restructured loans worth Rp28.7 trillion from 168,569 debtors. Bank Rakyat Indonesia has performed debt restructuring worth Rp14.9 trillion from 134,258 debtors. PT Bank Mandiri (Rp4.1 trillion from 10,592 debtors), Bank Negara Indonesia (Rp6.9 trillion from 6,238 debtors), and Bank Tabungan Negara (Rp2.8 trillion from 17,481 debtors).

Free download The Indonesian Economic State of Play 4th edition April 2020

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