Economy: Considering that the impact of Covid-19 pandemic would continue, the Indonesian government, through the Fiscal Policy Agency (BKF) of Finance Ministry, is preparing the National Economic Recovery (PEN) Program for 2021. According to BKF, allocation for the 2021 PEN Program involves a focus on social protection, MSMEs, as well as sectoral ministries and institutions and local governments. The cost for social protection is estimated to not decrease significantly from the budget allotment for the 2020 PEN valued at Rp203.9 trillion.
The large allocation for social protection was based on an estimation that unemployment and poverty would still be prevalent in 2021. The government will also support MSMEs especially the labor-intensive ones. With the continuation of the PEN program, the 2021 state budget deficit is estimated still above three percent. In the macroeconomic assumption for the drafting of 2021 state budget, the government proposed a budget deficit of up to 4.17 percent of the gross domestic product (GDP). However, BKF estimates that the deficit will wider after consultation with the House of Representatives. This year, fiscal expenditure to handling the pandemic and its economic impact, including the 2020 PEN, reached Rp695.20 trillion that would make deficit enlarge to 6.34 percent.
Finance: Indonesia’s Financial Services Authority (FSA/OJK) has revised the country’s credit growth down to just 4 percent (y-o-y) this year fall from the initial target of 11 percent. The bank lending was hampered by Covid-19 pandemic and was reflected in bank credit growth in May, which was only 3.04 percent year-on-year. Despite slowing down, OJK optimistic that bank loans will gradually improve and return to normal in the beginning of 2021.
The latest Banking Survey conducted by Bank Indonesia also pointed out declines in new loan growth in the second quarter of 2020, with the weighted net balance of demand for new loans deteriorating significantly, charted negative growth of 33.9 percent compared with 23.7 percent in the previous quarter and 78.3 percent in the same period last year. Respondents confirmed the declining growth of all loan types, investment loans in particular. They expect new loan growth to rebound in the third quarter, though not at the same rate with previous years. The survey also indicates slower credit growth in 2020, at 2.5 percent – much lower than the credit realization in 2019 of 6.1 percent and the 5.5 percent predicted in the previous survey.
Industry: The government set a target of earning US$10 billion from iron and steel exports this year. Although the value was relatively small, the amount would significantly help export performance. During the COVID-19 pandemic, exports of iron and steel had grown higher than the exports of vehicles. In 2014, Indonesia’s raw material exports valued at US$1.1 billion, while the value of car exports reached US$5.2 billion US dollars. In 2019, after building smelters, Indonesia exported iron and steel at the total value of US$7.4 billion, and car exports at US$8.1 billion. During the first quarter of this year, Indonesia exported iron and steel worth US$2.3 billion. As of 25 July 2020, the iron and steel exports reached US$4 billion, and vehicle exports worth US$2.3 billion.
The Indonesia Iron and Steel Industry Association (IISIA) revealed that the increase in steel export during the first semester came from new investment in steel industry. The increase in exports in the metal industry was actually driven by nickel production in Morowali. Previously, the Industry Ministry informed that the highest export growth came from steel thanked to companies in the Morowali Industrial Estate with the main market destination to China and several other countries. Investment in the Morowali Industrial Estate continues to show an increase, from US$3.4 billion in 2017 to US$5 billion throughout 2018. The number of labor absorption reached 30,000 people.
Business: Traditional market in Indonesia has become one of locations for spreading Covid-19. The number of traders who are now positively infected by Covid-19 reaching more than 1,000 people. However, a survey conducted by Nielsen Media Research Indonesia revealed that 58 percent of people still choose traditional markets to shop for fresh food. As many as 71 percent of people still shop fresh foods every day, 26 percent choose to shop once a week, and the rest twice a week or once a month. The majority of consumers still choose to shop for daily vegetable, fish and meat needs through vegetable vendors, food stalls and traditional markets.
Nielsen survey also revealed that people are more likely to buy fresh food at vegetable and traditional markets. This is indicated by 70 percent respondents buy fresh food at a food stall or vegetable seller, followed by 58% of respondents buy directly at the market, only 9% choose to buy at supermarkets or hypermarkets. Meanwhile, people prefer to purchase household purchases in modern retailers. As many as 67 percent respondents choose to shop at supermarkets, 40% at stalls or vegetable vendors and 16% buy directly at the market. Visits to the majority of modern retail outlets are conducted by the majority of consumers once a month to buy fast moving consumer goods products. Even though non-cash payments are recommended to prevent the spread of Covid-19, 98 percent respondents still use cash payments. Only 17 respondents used electronic wallets, and 16 percent banks payment (credit or debit cards)