Economy: Indonesia’s economy contracted for the first time in over two decades in the second quarter of 2020 by a bigger than expected 5.32% from a year ago. It was the first contraction since 1999. The data showed a broad-based fallout from the Covid-19 pandemic and restrictions to contain its spread. Households curbed spending and businesses delayed investments, while exports were hit by lower global demand and commodity prices. The economy also shrank 4.19% quarter-on-quarter in the April-June period, on a non-seasonally adjusted basis, after a 2.41% contraction in the first quarter. Household consumption, which makes up around half of the country’s GDP, fell by 5.5% in the second quarter compared to last year, while investment was down 8.61%. Export and imports were down 11.7% and 16.9% respectively over that period. Indonesia started easing social restrictions in parts of the country in June, but the number of coronavirus cases accelerated in July, raising concerns about fresh restrictions.
The government has budgeted Rp695.2 trillion (US$47.88 billion) worth of stimulus for 2020 to protect the economy from the fallout of the outbreak including subsidized loans for small businesses and cash assistance for low-income families. Yet, the data showed government spending falling 6.9% annually. Meanwhile, Indonesia’s central bank has cut its key interest rates four times this year by a total of 100 basis points to the lowest since at least 2016, when it adopted the rate as its benchmark. Bank Indonesia and the government also unveiled earlier this month a US$40 billion debt monetization scheme, with the central bank pledging to buy US$28 billion of bonds while relinquishing interest payments.
Energy: Oil and gas investors in Indonesia will have more flexibility when choosing their contract options for exploration. The flexibility is granted through the revisions of the 2017 energy minister regulation, which came into effect on 16 July 2020, allow contractors to choose between different sharing contracts including the “cost recovery” and “gross split” systems in an effort to boost investment. Indonesia adopted the “gross split” scheme for oil and gas production deals in 2017, in which contractors borne the exploration and production costs in exchange for retaining a bigger portion of the oil and gas they recover. That represented a shift from the “cost recovery” scheme used previously, in which the government reimbursed the exploration and production costs borne by the contractors in exchange for a higher share of companies’ oil and gas earnings.
With the amendment of the 2017 regulation, the government, through the Ministry of Energy and Mineral Resources, is officially allowing flexibility for investors to choose the form of oil and gas cooperation contracts. “This change is to provide legal certainty and increase investment in upstream oil and gas business activities,” according to the ministry, referring to the exploration and drilling of new wells. Under the revised law, expiring contracts no longer have to be converted to gross split production sharing contracts from cost recovery contracts. In the case where state oil company PT Pertamina or its affiliates are appointed, the ministry will determine the cooperation contract.
Tourism: Indonesia recorded 160,280 foreign tourist arrivals in June 2020, dropping 2.06 percent from May 2020, or a drop of 88.82 percent as compared to the corresponding period last year, the Central Statistics Agency (BPS) stated. The COVID-19 pandemic has had a tremendous impact on the tourism sector. However, following the relaxation of large-scale social distancing (PSBB) measures, tourism has picked up, albeit still far from normal. Over the first semester of 2020, the total number of foreign tourists visiting Indonesia had reached 3.09 million, dropping 59.96 percent from 7.72 million registered during the corresponding period last year.
The number of foreign air travelers landing in Indonesia reached 1.60 million, while 746.02 thousand came aboard sea vessels, and 741.33 thousand by land. During June, the number of Middle East tourist arrival fell 99.53 percent as compared to June 2019, and the number of foreign tourists from ASEAN member countries dropped 80.33 percent. Based on nationality, most foreign tourists visiting Indonesia in June were from East Timor, reaching 82,480, or 51.46 percent, followed by 62,760 visits, or 39.15 percent from Malaysia, and 2,060 visits, or 1.29 percent, from China. The number of foreign tourist arrivals at the Soekarno-Hatta Airport increased by 130.13 percent in June 2020 as compared to that in May 2020.
Finance: Indonesia’s loan growth plummeted in the first semester this year along with a huge debt restructuring as the novel coronavirus pandemic nearly grounded business activities to a halt. The Indonesian Financial Services Authority (OJK) said that the loan growth settled at 1.49 percent from January to June, compared with 9.92 percent in the same period of last year. Most of the decline occurred in working capital loans followed by those for constructions. The partial lockdown and physical distancing policies applied to rein the Covid-19 transmission have ravaged business activities across the country. Consequently, banks have to restructure Rp784.36 trillion rupiahs (around US$53.37 billion) loans by 20 July.
Recently, the government has injected about US$2.13 billion funds in four state-owned banks to help them expand lending and shore up the economy. As the economy was expected to rebound in the third quarter amid the hope of reliability of the vaccine for COVID-19 for usage early next year, the OJK has forecast that the country’s loan growth would creep up by 7 to 9 percent in 2021, picking up from this year’s target of 1 to 2 percent.