Economy: Indonesia is now officially categorized as an upper-middle income country. This is an upgrade from its previous status as lower-middle income, according to the World Bank’s latest country classifications by income level. The classifications are based on gross national income (GNI) per capita. Indonesia saw its GNI per capita rise to US$4,050 in 2019, surpassing the income threshold for upper-middle income. The GNI rose from US$3,840 in 2018. Under the World Bank criteria, upper-middle income status categorizes countries with a GNI per capita of US$4,046 to US$12,535. Meanwhile, lower-middle income status categorizes countries with a GNI per capita of US$1,036 to US$4,045. Countries with a GNI per capita of below US$1,036 are considered low income. Those with a GNI per capita of US$12,535 are considered high income.
Responding to the upgrade, finance minister said that Indonesia’s improved status is a proof of economic resiliency and maintained economic growth over the last few years. “This will strengthen the trust of investors and trading partners in Indonesia’s economy,” she added. Indonesia has made progress in poverty reduction over the past 15 years, with the poverty rate dropping below 10 per cent. Meanwhile, the middle-class population has grown from 7 per cent to 20 per cent of the population, with 52 million Indonesians currently belonging to the group, according to World Bank’s Aspiring Indonesia-Expanding the Middle-Class report. However, the report noted that 45 per cent of the population, or 115 million people, are still considered aspiring middle class. They are free from poverty but have yet to achieve full economic security.
Trade: The Comprehensive Economic Partnership Agreement between Indonesia and Australia (IA-CEPA) officially takes effect on Sunday 5 July 2020. The Indonesian trade minister said the IA-CEPA would benefit Indonesian exporters through the elimination of all Australian import duty tariffs. All Indonesian products entering the Australian market would enjoy a zero percent tariff. Indonesia’s export products that have the potential to increase exports include automotive, wood and its derivatives including wood and furniture, fisheries, textiles and textile products, shoes, communication equipment and electronic equipment. For this reason, the IA-CEPA preference tariff must be maximally utilized by Indonesian businesspeople so that Indonesian exports increase.
The minister further said that trade between Indonesia and Australia is complementary. Therefore, national industries also benefit from the availability of raw material sources at a more competitive price due to the zero percent import duty. The hotel restaurant and catering industry, as well as the food and beverage industry will get more competitive raw material prices so consumers can enjoy more variants and more affordable prices. The IA-CEPA is a comprehensive agreement with unlimited coverage on trade in goods, but also includes trade in services, investment, and economic cooperation. “The comprehensive IA-CEPA coverage will encourage Indonesia and Australia to become true partners in creating a global supply network, “the trade minister continued.
Finance: S&P Global Ratings was of the view that the Indonesian government’s plan to sell billions of dollars of bonds to the central bank to finance a widening fiscal deficit poses no immediate threat to the nation’s credit rating. S&P, which already has a negative outlook on Indonesia’s rating, makes no distinction between the debt issued by the government, be it to the central bank or to commercial investors, in assessing its fiscal impact. “Unless there are material and unforeseen economic or financial disruptions, we do not believe that this plan will affect the credit metrics more than we currently expect,” S&P said.
S&P recently downgraded its outlook on Indonesia’s BBB rating, the second-lowest investment grade score, because of the expected fiscal deterioration brought about by Covid-19. The so-called burden-sharing plan is under “tough discussion” by the government and Bank Indonesia to ensure a prudent plan that maintains both monetary independence and fiscal integrity. Under the deficit financing proposals, Bank Indonesia may buy bonds worth Rp574.4 trillion (US$40 billion) to fund the government’s pandemic response. President Joko Widodo’s administration needs to borrow Rp1.65 quadrillion this year to fund a budget deficit of 6.34% of gross domestic product and repay its debts.
Business: Meetings, Incentives, Conferences and Exhibitions (MICE) sector that rely on the crowds are being affected by Covid-19. The losses suffered has reached trillions of rupiah during the 3-month pandemic. The Ministry of Tourism and Creative Economy (Kemenparekraf) said that the number of losses from this sector valued at Rp2.69 to Rp6.94 trillion. There were 96.4 percent delays and 84.20 percent cancellations of various events in seventeen provinces. As a result, 90 thousand workers are adversely affected. Most of them have been laid off because the company is also in a difficult financial situation due to the absence of revenues.
There is no clear and positive signal when MICE activities will resume their operations. Meanwhile, the positive number of the Covid-19 case continues to grow day by day. This situation is expected to increase the duration of crisis suffered by the MICE industry. In addition, many corporate clients are also experiencing financial difficulties. The Event Organizers continues to look for ways to survive. They must do internal efficiency and at the same time try to find opportunities to generate income. One of them is organizing webinars, which are still performed by in corporate circles. The Organizers also expect that music events will be held sometime in the near future.