Economy: Another bleak prospect of the Indonesian economy was conveyed by the Organization for Economic Cooperation and Development (OECD). The multilateral organization estimated Indonesia’s GDP would drop by 2.8 percent this year, or by 3.9 percent if a global second wave of Covid-19 infections occurs later in 2020. In 2021, Indonesia’s economy would grow by only 5.2 percent or by 2.6 percent, depending on the second wave scenario. The projection would result in what economists call a U-shaped recovery – when an economy fails to return to its original trajectory after a shock. A V-shaped trajectory, on the other hand, means the economy can brush off the shock and grow at a faster pace to return to its original path. According to the OECD, the recovery will be subdued, with employment and income losses holding back private consumption. “The socio-economic consequences of the recession will be severe, notably for lower-middle-class groups, which are at great risk of falling back into poverty,” the report said. The outlook was the most discouraging of the Indonesian economy so far.
According to the Indonesian government’s prediction, the worst-case scenario was for a 0.4 percent contraction in 2020. So far, the government has expanded its deficit spending, allocating Rp 599 trillion for its so-called national economic recovery (PEN) programs, providing support for the poor, unemployed and small-medium enterprises as well as bailing out state-owned enterprises. Bank Indonesia, the country’s central bank, has slashed its benchmark interest rate, while the Financial Services Authority (OJK) has issued regulations for loan restructuring. While lauding Indonesia’s “swift and substantial” policy response, the OECD urged the country to continue on its path to reform. “The pandemic emergency reinforces the importance of meeting the long-run targets of eradicating poverty and escaping the middle-income trap through inclusive growth,” the OECD said.
Trade: Indonesia recorded a trade surplus of US$2.1 billion in May 2020, according to the Central Bureau of Statistics (BPS). The country’s export value reached US$10.53 billion, while imports touched $8.44 billion last month. Subsequently, the surplus is actually less encouraging because exports drop, while imports continued slumping deeper. Indonesia’s export value reached US$10.53 billion in May, down 13.40 percent from that in April 2020 and a 28.95-percent decline in comparison with the export value in May 2019.
Meanwhile, the imports contracted 32.65 percent in May to reach US$8.44 billion compared with the imports in April 2020 and declined 42.20 percent from May 2019. The value of exports in May 2020 was the lowest since July 2016, at US$9.6 billion. This occurred since export destination countries experienced an economic slowdown and lowered social and economic activities owing to the COVID-19 pandemic. The statistical agency has cautioned to remain watchful for a further decline in exports and imports, particularly in the imports of raw materials and capital goods. The decline in the imports of raw materials and capital goods should be monitored because it could impact domestic industrial and trade activities.
Industry: Indonesia plans to build one of its largest industrial parks on the north coast of Java island in a renewed drive to attract manufacturers relocating out of China. However, despite its low wages and huge domestic market Indonesia must overcome decades-old hurdles including red tape, rigid labor laws, and poor infrastructure to be able to move up the global manufacturing value chain. The Indonesian government has been showing serious effort in bringing about change and is aiming to pass an ambitious ‘omnibus’ bill later this year to address some of the pressing foreign investor concerns. At the same time, it is pushing ahead with plans for a 4,000- hectare (9,884-acre) industrial park in Brebes, Central Java – mainly targeting supply chains relocating out of China.
In a bid to avoid problems securing land, the government would use a law to acquire land cheaply and ensure low rents at the park. Taiwan’s Foxconn Technology Group had reportedly been interested in building a factory in Indonesia in 2014 but scrapped plans due to land issues. The proposed park is located 270 km (168 miles) east of Jakarta in an area dotted with fish and shrimp farms and already has a road link to the capital and two nearby ports. The area’s low minimum wage of 1.9 million rupiah (US$135.14) a month is another selling point. The authority believes the park can compete with Vietnam and Thailand, the region’s winners in attracting investors during the U.S-China trade war. The park’s first phase is estimated would cost Rp3.8 trillion (around US$275 million).
Tourism: Indonesia plans to allow the resumption of travel to and from four countries in an effort towards economic recovery after the tourism sector has been hit especially hard by the coronavirus pandemic. The plan is to allow travel to and from four countries — China, South Korea, Japan, and Australia. Discussions have been ongoing to set up criteria for permitting travel between Indonesia and the four countries. Such exceptions to travel restrictions between countries have been referred to as travel bubbles, travel bridges or corona corridors. There have been many requests from countries seeking to resume travel on certain routes.
The arrangements with the four countries will be “prototypes” before other travel routes are opened. The four countries were selected because “their investment has helped Indonesia’s economy a lot.” Direct flights, such as from Seoul to Jakarta or Osaka to Bali, will be encouraged when the travel corridors are created, “because people now avoid transits” due to concern about transmission of the new coronavirus on multi-flight routes. The Indonesian government has slowly reopened some tourist destinations across the country despite the continued high risk of the new coronavirus spreading. Recovery of domestic tourism has been the first target before the country reopens to tourists from abroad. The tourism sector in Indonesia faces potential losses due to the drastic decline of foreign tourists and fewer domestic tourists from January to April.