Economy: Morgan Stanley predicted that Indonesia would suffer a low impact on the global recession due to the Covid-19 pandemic. The country might exit from the crisis quickly because the fairly small dependence on exports compared to other countries in the region. In its research, Morgan Stanley analyzed which countries will return to the GDP growth sooner after the pandemic and divided them into four groups from the fastest to the slowest order. The first group is China, the country where the Covid-19 case was first discovered, has an economic structure oriented towards domestic demand. The ongoing policy easing in China is expected to accelerate the earliest economic recovery in AxJ [Asian countries other than Japan] in the third quarter/2020. The second group are the Philippines, Indonesia, and India. This group is expected to be affected by global recession at lower level thanks to the high structural growth due to the domestic sector, and hence are considered to be able to return to pre-Covid-19 levels after China. However, the risk for these countries would be if the pandemic peak in the II / 2020 quarter. If so, [there is a peak of Covid-19 in the second quarter], the second group will be behind the third group at the time of recovery. The third group are South Korea and Taiwan. These two countries have a medium export-oriented economy and will be affected by the global recession. However, because the institutional response in handling Covid-19 domestically is very effective and several indicators of domestic demand have begun to improve, the recovery of Korean and Taiwan economies would be accelerated. The fourth group are Thailand, Malaysia, Hong Kong and Singapore, which have the largest level of export-oriented economies in the AxJ.
Balance of Payment: The Indonesian current account deficit in Q1/2020 declined due to drops in imports in line with slowing domestic economy. The deficit stood at US$3.9 billion (1.4% of GDP), lower than US$8.1 billion (2.8% of GDP) deficit in the previous quarter. Improved current account deficit was influenced by improving the surplus of trade in goods, accompanied by decreasing deficits of trade in services and primary income. The improvement of trade in goods surplus was prompted by declining imports in line with slowing domestic demand, which reduce the impact of declining exports due to world economic growth contraction. The deficit of services account narrowed due to a decrease in the transportation services deficit in line with the decline in goods imports, amid a decrease in travel services surplus as inbound traveler decreased. The narrowing current account deficit was also driven by smaller deficit of primary income account. Capital and financial account subdued significantly, amid high uncertainty on global financial markets, and recorded a deficit of US$2.9 billion, mainly influenced by the deficit of portfolio investment, after posting a surplus of US$12.6 billion in the previous quarter. This portfolio investment deficit is triggered by a surge in capital outflows in response to the global financial market panic towards the Covid-19 pandemic.
Fiscal: Indonesia will require big internet companies to pay value-added tax on sales of digital products and services from July this year, a move that other countries may also adopt as they seek to boost revenues following the Covid-19 pandemic. Indonesia will impose a 10 percent VAT on digital products sold by nonresident internet companies with a significant presence in the Indonesian market, including streaming services, applications and digital games. The Indonesian authorities have previously said services by streaming platforms like Spotify and Netflix would be among those subject to the new tax. the COVID-19 pandemic has accentuated a push by governments around the world to tax internet giants, who could see a boost in revenues as people stay at home during global lockdowns. Nearly 140 countries from the Organization for Economic Cooperation and Development (OECD) are negotiating the first major rewriting of tax rules to take better account of the rise of big tech companies such as Amazon, Facebook, Apple and Google that often book profit in low-tax countries. Indonesia has aimed to get internet companies to pay their fair share of taxes for years, the move to impose VAT was announced in March under emergency measures outlined by President Joko Widodo to help the country weather the pandemic. With a population of nearly 270 million, the country’s digital economy is booming and is expected to reach US$130 billion by 2025, according to a study by Google, Temasek Holdings and Bain & Company.
Industry: A joint petrochemical complex planned by Taiwan’s state-owned oil company CPC Corp. and its Indonesian partner PT Pertamina will be located in Balongan, West Java. The state-run Indonesian oil and gas company, and Taiwan’s CPC have entered into the final stage of talks about the investment. The two sides are finalizing the details of the plan which is one of the 245 national strategic projects under President Joko Widodo’s government, including toll roads, railroads, airports, harbors, refineries, gas distribution and irrigation projects. While Indonesia is among the countries hit by the COVID-19 pandemic, work on the 245 national strategic projects continues, paving the way for national economic growth. After CPC closed its fifth naphtha cracker project in Kaohsiung in 2015, the Taiwanese oil refinery operator decided to relocate its decommissioned plant to Indonesia. CPC and PT Pertamina held many talks over an earlier plan but that was scrapped after negotiations failed to make progress. Pertamina argued that it was not worth the cost and the money would be better spent building a new plant. However, in October 2018, the two companies signed an agreement on a framework for a joint petrochemical zone after talks resumed. In January 2020, the Indonesian Minister of Industry, said CPC is expected to invest US$8.6 billion in the joint investment project with an unnamed Indonesian official saying the location of the new investment could be Balongan.