Economy: Indonesia’s economy in the second quarter of 2020 worsened than the previous quarter but started to improve in June, according to Finance Minister. The economy in June started to rebound and with positive sentiment and trends. Several indicators of the economic recovery included a rebound in consumer confidence index, manufacturing Purchasing Managers Index (PMI), consumption index, business and industry consumption, as well as exports and imports. Tax revenues, customs revenues, capital expenditure, and expansive government liquidity also increased.
On the fiscal side, the performance of taxation was still weakening due to the large-scale social restrictions (PSBB) yet improving in certain sectors following a more relaxed PSBB and recovering international trade. In the real sector, public consumption was seen to recover, while domestic production started to grow. Given the situation, the minister claimed the country’s economic activity had started to recover. However, uncertainties remained high so that caution was still necessary. The government spending would be a vital capital to mitigate the negative impacts of the Covid-19 pandemic. Effective implementation of national economic recovery will be the main driver of economic growth.
Fiscal: President Joko Widodo emphasized the importance of quick disbursement of the state budget for the benefit of the people, especially during the current health and economic crises. “It is useless to have a budget but the disbursement cannot be done quickly for the people, while they are waiting, they are in need,” said the President in his speech during the submission of the 2019 audit reports of the National Procurement Agency (LKPP) at the State Palace, Jakarta, 20 July 20.
The resident underlined that there should be good and proper governance, management, and targets of the use of the State Budget (APBN). These must be carried out by using simple and concise procedures to bring about a swift process and maximum benefits for the people. “Speed is vital, especially in these health and economic crises,” he remarked. Joko Widodo said the government must take extraordinary measures for the interest of the people, the nation, and the state in the current crises due to the Covid-19 pandemic.
Investment: Indonesia recorded a further decline in foreign direct investment (FDI) realization in the second quarter this year, as the Covid-19 pandemic hits domestic and global economy. The Investment Coordinating Board (BKPM) announced on 25 July that FDI fell 6.9 percent year-on-year (y-o-y) to Rp97.6 trillion (US$6.67 billion) in the second quarter. It continued the downward trend recorded in the first three months of the year, which fell 9.2 percent y-o-y. The Head of BKPM said that the second quarter was an exceedingly difficult period. BKPM had not anticipated it yet and the target was to attract Rp200 trillion in the second quarter.
FDI contributes to more than 30 percent of Indonesia’s gross domestic product (GDP), making it the second-largest contributor after household spending. However, the pandemic has hit investment in the country as growth plunged to 1.7 percent y-o-y in the first quarter from 5.03 percent in the first three months of 2019. Indonesia’s economy grew by 2.97 percent in the first quarter, the slowest in 19 years. The BKPM reported that domestic direct investment (DDI) was also down, declining by 1.4 percent to Rp94.3 trillion in the April-June period from the same three months last year. Overall, total investment in the second quarter fell 4.3 percent y-o-y to Rp191.9 trillion, putting the half-year figure at Rp402.6 trillion.
Tourism: The government is discussing the concept of a travel bubble or limited travel corridor for local countries in order to accelerate the economic recovery after the Covid-19 pandemic. In this regard, the focus of the government’s travel corridor is not yet for tourists but prioritizing official and diplomatic visits for essential businesses or business people and investors who do need a physical visit to be able to carry out their investments or to expand operations in each business. To meet strong health protocol standards, there is now exchanges of the protocol process from Indonesia with certain countries. The matters are being finalized and hopefully can begin to implement business essential travel corridor in the next one to two weeks.
Earlier last month, the Indonesian Foreign Affairs Minister said that travel corridors were considered important for the acceleration of economic recovery in regional countries. “ASEAN needs to start carefully making arrangements for the ASEAN travel corridor in a measured and gradual manner. The president has said that ASEAN leaders should assign ministers to discuss the ASEAN travel corridor,” foreign minister said. Previously, the travel bubble concept has been pioneered by New Zealand and Australia. The concept regulates cross-country travel applies only between countries that have agreements. This corridor will facilitate traffic for residents to travel in and out of a country that is a part of the agreement, therefore independent quarantine upon arrival in the destination country would not be required.