VOI - Voice of Indonesia | RRI - Radio Republik Indonesia

Feb. 19 - The economy of Indonesia remains resilient amid the COVID-19 pandemic, according to the 2020Annual Consultation Report on Indonesia, published by the ASEAN+3 Macroeconomic Research Office (AMRO) and received here on Thursday.

A prompt recalibration of the policy mix and the enactment of large stimulus measures have provided timely support to affected households, businesses, and the financial sector, as well as safeguarded macroeconomic and financial stability, the report stated.

The report was produced based on AMRO’s virtual 2020 annual consultation visit to Indonesia and data and information available as of December 31, 2020.

Recent economic developments

According to AMRO’s report on recent economic developments in Indonesia, the country's national economic activity has gradually turned around from a sharp contraction that was triggered by the imposition of large-scale social restrictions in the second quarter of 2020.

According to Statistics Indonesia data released on February 5 this year, the Indonesian economy for the whole of 2020 is expected to contract by 2.1 percent, which is modest relative to regional peers.

However, continued supportive policy synergy, together with the widespread availability of COVID-19 vaccines, are expected to underpin a rebound in growth to 4.9 percent in 2021.

An improvement in the current account balance and resumption of capital inflows have buttressed the external position and supported the rupiah. While imports have remained weak in the backdrop of muted domestic demand, exports have picked up due to a global economic rebound and a recovery in commodity prices.

Moreover, improved investor sentiment and rebalancing of global portfolios have sustained inflows into the government bond market in recent months, supporting the external position.

Meanwhile, strong capital buffers supported by regulatory forbearance have underpinned overall banking system resilience, although the economic downturn has affected banks’ asset quality to some extent.

To assist businesses affected by the pandemic, including micro, small, and medium-sized enterprises (MSMEs), loan quality assessment and restructuring criteria have been relaxed to allow banks to maintain their lending to the business sector.

Extraordinary policy responses

Bank Indonesia (BI) has actively recalibrated its policy mix to maintain stability and support recovery.

The measures it has employed include providing substantial liquidity support through quantitative easing and conducting triple interventions in the foreign exchange spot, domestic non-deliverable forward, and secondary government bond markets to provide a cushion against volatility shocks while maintaining rupiah flexibility.

In light of subdued inflation, the BI has lowered its benchmark rate, the seven-day reverse repo rate, by 125 basis points to 3.75 percent as of end-2020.

Macroprudential measures have also been eased to stimulate financing to priority sectors while maintaining financial system resilience to support national economic recovery.

The total amount of liquidity injected into the money market and banking system, notably through lowering the statutory reserve requirements, term repos, foreign exchange swaps, as well as purchase of government bonds in the secondary market, is estimated at Rp727 trillion, or 4.7 percent of the GDP (Gross Domestic Product), as of end-2020.

BI has also accelerated the implementation of the 2025 Payment System Blueprint initiatives to aid economic and financial digitalization.

Besides, sizable fiscal packages have been rolled out to support affected households and businesses.

The 2020 revised Budget introduced fiscal packages totaling Rp695 trillion, or about 4.4 percent of the GDP, to cover COVID-19 healthcare spending, social assistance to affected households, sectoral and regional aid (known as the public goods package), and support to businesses, including both MSMEs and bigger firms (non-public goods package).

As of the end of December last year, about 84.3 percent of the packages have been disbursed. Fiscal stimulus packages have also been approved for the 2021 Budget to ensure continued support to the healthcare sector, affected households and communities, and strengthen structural reforms for a sustainable recovery.

A forward-looking regulation, Perppu 1/2020 (converted into Law 2/2020), has been issued to suspend the fiscal deficit ceiling of 3 percent of the GDP between 2020 and 2022.

It also allows BI to purchase government bonds in the primary market, guided by prudent principles. BI has purchased government bonds through market-based mechanisms, in line with a joint decree between the Finance Minister and BI Governor dated April, 2020.

Under a one-off burden sharing agreement in July, 2020, BI has also agreed to finance the public goods package through private placements and absorb the entire interest cost of this package, as well as share part of the interest cost of the non-public goods package related to corporate support.

Last but not least, the recent passage of the Omnibus Law on Job Creation is expected to be a major breakthrough in improving the investment climate and facilitating job creation.

Risks, vulnerabilities, challenges

With rapid vaccine development lifting the economic outlook in 2021, downside risks stem mainly from ongoing uncertainties over the pandemic trajectory in the short-term, the AMRO report stated.

While economic recovery is expected to gain further momentum under continued supportive monetary and fiscal policies, the pace of the rebound may be weighed down by current elevated infection rates and tightened social restrictions, it added.

Against the backdrop of recent progress in vaccine development, possible delays in inoculation or weaker-than-expected vaccine efficacy could trigger renewed lockdowns in major economies and cast a shadow on global economic prospects, which would in turn affect Indonesia’s exports and growth outlook.

On the upside, a swift and effective vaccination program conducted on a large-scale will enable a stronger recovery for Indonesia.

The government’s gross financing needs rose sharply in 2020, and will remain elevated in 2021, due to the allocation of sizable fiscal packages to support the economy.

An increase in precautionary savings, weaker demand for credit, and BI financing under the burden sharing scheme have allowed the higher budget deficit to be financed without pushing up bond yields in 2020.

In addition, improved investor sentiment and rebalancing of global portfolios have sustained inflows to the government bond market in recent months. That said, financing pressure may tighten when savings behavior and credit demand normalizes in tandem with economic recovery, the report stated.

The pandemic has underscored the importance of rebuilding policy space in the medium term. The implementation of a consistently sound monetary and fiscal policy framework has enabled Indonesia to build up policy space over the years and gain credibility in the markets.

However, with the implementation of large fiscal packages in 2020 and 2021, the policy space is estimated to have shrunk against the backdrop of rising debt levels. This could be further aggravated by a decline in tax revenue due to a planned reduction in the corporate income tax rate.

Future policy considerations

Effective implementation of the current stimulus policy mix, on both monetary and fiscal fronts, is expected to support economic recovery in 2021.

Policy synergy is aimed at achieving a smooth exit from the stimulus measures. The phasing out of BI’s exceptional budget financing should be done in conjunction with the implementation of a credible fiscal consolidation plan, the AMRO report said.

In that regard, the government’s commitment to restore the fiscal rules from 2023 onwards will help to anchor market confidence. The authorities should consider consolidating the fiscal position through raising tax revenue and enhancing spending efficiency, the AMRO report stated.

The pace and timing of Indonesia’s exit from extraordinary stimulus measures should also be calibrated within the broader context of policy developments in advanced economies, in particular the US, it added.

In the longer run, efforts on financial deepening, in particular, broadening the domestic investor base, will increase the resilience of the bond market against capital flow volatility shocks, the report said.

In addition, recent initiatives such as the Blueprint for Money Market Development 2025 that aim to build a conducive ecosystem for foreign exchange and money markets, are expected to accelerate financial market developments in the years ahead.

Continued reforms in the areas of economic diversification, investment climate, infrastructure and human capital development, and digital economy, would also increase Indonesia’s resilience against future shocks, the report said. (Antaranews)

Feb. 19 - The Ministry of Environment and Forestry said it is keen to support the waste management sector and help strengthen the implementation of circular economy in Indonesia.

"Waste management has been one of the most resilient business sectors during the COVID-19 pandemic," said director general of waste management at the ministry, Rosa Vivien Ratnawati, at an online press conference on National Waste Awareness Day 2021 originating from Jakarta on Thursday.

For that reason, steps need to be taken to strengthen the sector as a supporting factor to Indonesia's economic growth, as well as to materialize the 'waste to resource' principle, through the implementation of a circular economy and use of waste as an energy source, she observed.

With this aim, the government has adopted the theme ‘Economic Raw Material Waste in the Time of Pandemic’ for the 2021 Garbage Awareness Day and is commemorating it with efforts to shift to waste management, which can make a real contribution to economic growth, she noted.

She said several stages of waste management can be turned into economic drivers, including waste collection, transportation, waste processing equipment and machinery industry, recycling industry, compost and biogas industry, and the industry turning waste into alternative energy.

The move is expected to start a new chapter of waste management in Indonesia, she added.

"So we have left the paradigm of garbage collecting, transporting, and disposing," she stated.

Meanwhile, director of waste management at the ministry, Novrizal Tahar, said waste can be used as a source of economic growth.

There already is potential in Indonesia, where 60 percent of waste production is organic, and Black Soldier Fly (BSF) waste processing technology can be used to obtain derivative products of maggots (larvae) for animal feed, liquid fertilizers, and solid fertilizers, Tahar pointed out.

"We can turn this (BSF) into a massive initiative by having 514 districts / cities with 60 percent organic waste, so that protein needs can be fulfilled from the maggots, and then generate domestic and more competitive economic growth. More importantly, it can solve our waste problem," he said.

If the technology can be utilized on a massive scale, then there will no longer be any need for sending waste to landfills, he added. (Antaranews)