Economy: Finance Minister frankly conveyed a pessimistic estimation that Indonesian economy will be increasingly depressed in the second quarter of 2020 when the economy would start contracting. In the quarter economic growth is expected to decline to -3.1 percent, far below the growth in the first quarter of 2020 of 2.97 percent. The increasingly depressed economic conditions were due to the effective implementation of the Large-Scale Social Restrictions (PSBB) in that period, which caused the stagnation on economic and social activities. Moreover, the PSBB was implemented in major regions that contribute the largest source of growth such as DKI Jakarta, including Bogor, Depok, Tangerang, and Bekasi to West Java and East Java.
According to the Central Statistics Agency, regions that contribute the largest economy to Indonesia are still originating from Java island. In the first quarter of 2020, 59.41 percent of the Indonesian economy was contributed by Java, followed by Sumatra of 21.40 percent. The government projects a contraction in the second quarter due to the full PSBB being implemented in various places that have a large national economic contribution. Therefore, it is now making endeavors to reactivate the economy in the third and fourth quarters. The target to avoid negative economic growth but it can lead to zero percent until it returns positive. The minister said that the government’s current effort is to implement policy for mitigating or managing with a very deep downside so that it does not deteriorate or can be restrained at levels in the positive zone.
Monetary: The Board of Governors of Bank Indonesia (BI) agreed on 17th and 18th June 2020 to lower the BI 7-day Reverse Repo Rate (BI Rate) by 25 bps to 4,25%, Deposit Facility (DF) rates lowered 25 bps to 3,50% and Lending Facility (LF) rates lowered 25 bps to 5,00%. The decision is consistent with efforts to maintain economic stability and nurture economic recovery momentum in the COVID-19 era. Moving forward, Bank Indonesia still perceives space to lower interest rates in line with mild inflationary pressures, maintained external stability and the need to stimulate economic growth. Policy to stabilize rupiah exchange rates and quantitative easing will be continued. Furthermore, Bank Indonesia has decided to implement reserve requirement remuneration for banks meeting daily and average rupiah reserve requirements of 1.5% per year based on 3% of deposits, effective 1st August 2020.
BI Governor revealed that from July 2017 to June 2020, the Indonesian central bank had reduced BI Rate as the benchmark interest rate by 175 basis points to the current level of 4.25%. This reduction has been reducing the cost of capital or the cost of capital, both for lending rates, yields on government bonds, and yields on corporate bond issues. In the same period, from July 1999 to June 2020, overnight interbank money market (PUAB) interest rates fell 152 basis points (bps). Not only that, JIBOR or the average of the indicated interest rate on loans without also dropping 125 bps. This means that a decrease in the benchmark interest rate is also followed by checks on the money market, “explained the Governor.
Trade: The Association of Indonesian Palm Oil Entrepreneurs (Gapki) informed that countries in African region is a potential market as an alternative destination for palm oil (CPO) exports. The countries are attractive markets because of the high growth of exports, although they mostly demand CPO in small packages. The demand turned out to be a small pack the form of 200 tons, 500 tons, but with an increasing trend. There are 32 kinds of Indonesian palm oil products, both CPO and their derivatives that were exported to Africa. One product, namely processed palm oil in liquid form with no more than 25 kilograms of packaging, accounts for 41 percent of total palm oil exports to Africa.
Developing a potential new market in Africa is one of the efforts undertaken by Indonesia during the weakening world demand for palm oil amid pandemic conditions. The African region, especially eastern Africa, has become a potential market for palm oil commodities with a population of nearly 380 million people in 18 countries. The problem there, they do not have large tanks at the port. Therefore, they prefer to get oil in packages under 25 kilograms.
Finance: The Financial Services Authority (OJK) has confirmed that one of South Korea’s largest banks, KB Kookmin Bank, is currently finalizing its acquisition of publicly listed Bank Bukopin, which had been struggling with liquidity issues for years. Kookmin Bank, which currently owns 22 percent of Bank Bukopin, deposited US$200 million into an escrow account as part of its commitment to acquiring the Indonesian bank’s shares. At the moment, Kookmin Bank is finalizing the legal and administrative part of the acquisition, after gaining principal approval from the OJK for it to become the majority shareholder of Bank Bukopin. As the next step, Bank Bukopin will hold a general shareholders meeting to officiate Kookmin Bank as its majority shareholder. Holding company PT Bosowa Corporindo currently owns a majority stake in Bank Bukopin with 23.39 percent of total shares.
Bank Bukopin’s third-party deposits stood at Rp 80.81 trillion by the end of 2019, a 6.12 percent increase from the previous year, before declining by Rp 4 trillion in March 2020. Meanwhile, its non-performing loans (NPL) ratio stood at 5.39 percent as of March 31, higher than that of Indonesia’s overall banking industry, which recorded an NPL rate of 2.77 percent during the same period. Over the years, the bank continued to book an NPL rate higher than the industry average. By the end of 2019, its NPL was recorded at 5.99 percent and in 2018, 6.67 percent. The banking industry’s NPL was at 2.53 percent and 2.37 percent, respectively. The bank’s capital adequacy ratio, which measures a bank’s financial strength, fell from 13.41 percent in 2018 to 12.59 percent in 2019, lower than the banking industry’s 23.40 percent.