February 04, 2021 | Invest Indonesia

Expediting Indonesia’s economic recovery process

Source from: Antara News

Original News HERE

Global economic activity will continue to increase, as various countries roll out COVID-19 vaccinations, coupled with the ongoing fiscal and monetary policy stimuli.

Global economic recovery will primarily be driven by China and the United States, several advanced economies, such as Europe and Japan, as well as developing economies, including India and the ASEAN.

Several early indicators in December 2020 pointed to ongoing global economic improvements. The Manufacturing and Services Purchasing Managers Index (PMI) remain in an expansionary phase.

In addition, consumer confidence, especially in China and Europe, continues to grow along with business confidence in various jurisdictions.

Recent global economic gains have increased the world trade volume and international commodity prices.

Meanwhile, global financial market uncertainty is expected to subside in line with expectations of global economic improvements, including the fiscal policy direction pursued by the new US administration, against a backdrop of abundant global liquidity and persistently low interest rates.

In response, an influx of capital has flowed to developing economies, leading to currency appreciation in various countries, including Indonesia, Head of the Bank Indonesia (BI) Communication Department Erwin Haryono stated.

At home, Haryono remarked that domestic economic growth, which improved through to the end of 2020, is expected to gradually gain momentum in 2021.

Although lower than earlier projected, several indicators in December 2020 revealed ongoing improvements, including the export and import activity, Manufacturing PMI, as well as sales and consumer expectations, Haryono stated.

The BI Communication Department head expounded that the national vaccination program, which began in earnest in January 2021, coupled with discipline in terms of implementing COVID-19 protocols, will accelerate the domestic economic recovery process.

Furthermore, Haryono shed light on the five policy measures formulated to support the promising domestic economic outlook: (i) reopening productive and safe sectors nationally and in each respective region; (ii) accelerating fiscal stimuli; (iii) stimulating bank lending on the supply and demand sides; (iv) maintaining monetary and macroprudential stimuli; and (v) accelerating economic and financial digitalization, particularly in terms of SME development.

Under such conditions, BI is projecting stronger national economic growth in 2021.

Haryono stated that BI will continue to bolster synergy with the government and other relevant authorities to implement the follow-up policy measures necessary to effectively stimulate economic recovery.

Meanwhile, Indonesia’s Balance of Payments (BOP) remains solid, thereby reinforcing external sector resilience, he stated.

Haryono noted that positive current account performance persisted in the fourth quarter of 2020, primarily supported by a larger goods trade surplus.

In the fourth quarter of 2020, the trade balance recorded a surplus of US$8.3 billion, up from US$8.0 billion in the previous period, he stated.

Moreover, export activity recorded its largest increment in December 2020 since 2013, reaching US$16.5 billion, or growing 14.6 percent (yoy), in line with the rising commodity prices and increasing demand, primarily in China, the US, and the ASEAN.

Hence, for the year, the current account deficit is projected at approximately 0.5 percent of the gross domestic product (GDP) in 2020.

Meanwhile, Haryono stated that foreign capital inflows to domestic financial markets have been maintained, as reflected by a net inflow of portfolio investment, totaling US$2.1 billion in the fourth quarter of 2020, thus reversing the US$1.7 billion net outflow recorded during the previous period.

Entering 2021, foreign capital inflows to domestic financial markets have been maintained, totaling US$5.1 billion, on January 19, 2021, including global bond issuances by the government.

Consequently, the position of reserve assets remained high towards the end of December 2020 at US$135.9 billion, equivalent to 10.2 months of imports or 9.8 months of imports and servicing government external debt, which is well above the international adequacy standard of three months, he stated.

Looking forward, BI projects the current account deficit at 1.0-2.0 percent of the GDP in 2021, thereby supporting external sector resilience in Indonesia.

Meanwhile, Minister of Finance Sri Mulyani Indrawati, as chair of the Financial System Stability Committee (KSSK), pointed to five policy steps that support the prospects for Indonesia’s economic recovery this year.

“There are five policy steps that support the prospects for economic recovery,” Indrawati noted at a press conference in Jakarta, Monday.

The minister remarked that the first policy was the opening of productive and safe sectors, both nationally and in each region.

“Sectors that can be opened and started to work, including manufacturing, are carried out both nationally and regionally,” Indrawati noted.

The second policy aims to accelerate the realization of fiscal policy, especially in terms of state spending, while the third policy pertains to increasing and growing bank credit from the demand and supply side.

The fourth policy is the continuation of monetary and macroprudential stimulus and the fifth policy is the acceleration of economic and financial digitization, especially related to the development of MSMEs.

“This economic prospect will require policy support to accelerate recovery and improve the fundamental or structural condition of the economy,” the minister remarked.

Furthermore, the improvement and implementation of the Job Creation Law can potentially create new sources of growth and accelerate existing growth through increased productivity.

“It will also increase the added value of production sectors as well as integration between sectors and between regions that will create more inclusive economic growth,” Indrawati stated.

The minister ensured that the KSSK will continue to support and encourage the acceleration of economic recovery through coordination and synergy of policies and instruments.

“Of course, those steps are taken, so that COVID-19 can continue to be controlled and managed properly,” she stated.


By Azis Kumala
Editor: Suharto, Ine