Economy: The Asian Infrastructure Investment Bank (AIIB) said that the Indonesian economy has huge potential to recover from the impacts the Covid-19 pandemic. Indonesia is not the only nation to be reeling from the unprecedented pressure since nearly all countries worldwide are also facing a similar situation, elicited by the novel pandemic. Indonesia has its owned strength as the 16th largest economy in the world.
However, it depends on the Indonesian government and people to optimally capitalize on this strength to drive economic recovery. The global pandemic of this deadly virus has disrupted various economic sectors, and Indonesia should be able to flatten the curve of its Covid-19 cases to enable swifter economic recovery. It is suggested that the Indonesian government to be accurate in selecting the most prioritized economic sectors for its recovery program by taking into account budget availability.
Trade: Indonesia and New Zealand set an ambitious Rp40-trillion target for bilateral trade by 2024 amid the COVID-19 pandemic. “I emphasize that it is not easy to achieve this target in the midst of this situation. We must work extra hard. We are also keen to witness a more balanced trade,” Foreign Minister Retno Marsudi stated after holding a virtual Joint Commission Meeting (JCM) with her counterpart from New Zealand, Winston Peters, on Wednesday 29 July. Indonesia is especially upbeat about New Zealand simplifying the import health standards (IHS) as a prerequisite for exporting fruits to the country.
In 2019, Indonesia’s exports to New Zealand had risen to US$745.33 million, up 11 percent, while the value of imports plunged to US$772.19 million. Thus, the bilateral trade balance is getting narrower, to US$26.85 million. The Indonesian Embassy in Wellington noted that the rise in exports to New Zealand was contributed by five leading export commodities of palm oil, chemicals, wood floors, television, and rubber tire products. In addition, coffee from Indonesia is also a favorite among New Zealanders. In the investment sector, the Indonesian government recorded a substantial increase from New Zealand in the first half of 2020, reaching US$9 million, compared with US$3.25 million during the corresponding period last year.
Industry: The Ministry of Industry continues to improve the competitiveness of national industries, among others by developing domestic industries to be able to substitute imported products. According to the Minister of Industry this aims to reduce dependence on capital goods and raw materials and to complement the structure of industrial trees in the country. “We are in the process of formulating a road map for the import substitution program, so that later the output and outcome will be import substitution which is encouraged to reach 35 percent by 2022,” said the Minister of Industry.
Steps to be taken to realize the policy include import substitution in industries that have recorded large import values in 2019. The sector includes machinery, chemical, metal, electronics, food, electrical equipment, textiles, motor vehicles, metal goods , and rubber and rubber goods. The Ministry believes this effort will encourage the deepening of industrial structures, increased investment, and job creation. Furthermore, in order to achieve the target of 35 percent import substitution by 2020, the ministry will also take steps to increase production utilization of all manufacturing industry sectors, with a gradual increase target in 2020, 2021 and 2022 by 60%, 75% and 85%. Industrial sector utilization prior to Covid-19 reached 75%. At present, the utilization has fallen dramatically to 40%.
Finance: The Indonesian government has launched a Rp 100 trillion (US$6.92 billion) loan guarantee scheme targeting businesses in priority sectors as part of efforts to help companies stay afloat during the coronavirus pandemic. The program will offer guarantee for working capital loans of between 10 billion rupiah to 1 trillion rupiah for a period of up to a year to help businesses with their cashflow. The guarantee is expected to restore the risk appetite from banks as well as companies amid the banks cautious in channeling loans despite having ample liquidity.
The government is offering a guarantee for up to 80 percent of loans for companies in priority sectors such as tourism, automotive, textile and garment, and electronics. The scheme is an expansion of a previously announced initiative to help small businesses recover from the impact of the pandemic. Companies eligible for the program are those affected by the pandemic employing at least 300 people and seen as having potential to support the country’s economic growth. According to the Indonesian chamber of commerce (Kadin), businesses in the priority sectors needed as much as Rp303.76 trillion in working capital over the next six month to meet operational costs after cash flows had dried up due to social restrictions to curb the virus.