In our last review of the Indonesian economy, we anticipated that the nation would “largely return to pre-COVID-19 conditions by 2022” - with the ‘bounce-back’ from the massive disruption caused by the pandemic being well advanced.
Our latest Wellington Perspective examines the current status of the economy - with a particular focus on the growth momentum that underlies the positive outlook for Indonesia and the ‘Vital Signs’ that signal the trajectory of overall economic performance.
We also cite three critical elements of the Government’s approach to driving Indonesia forward in the face of the immense socio-economic (and political) challenges of the past thirty months -triggered by the onset of the COVID-19 pandemic and exacerbated by the associated economic slowdown across the globe.
1) Engineering a commendable recovery from the COVID-19 pandemic
We asserted in a prior Wellington Perspective that “the ‘pandemic’ will soon transition to the status of ‘endemic’ throughout the country” and the latest reported statistics confirm this expectation.
The imposition and enforcement of nationwide Community Activity Restrictions (‘PPKM Darurat’) and the mass vaccination programs across all regions of Indonesia have been the two ‘pillars’ of the Government’s approach.
The outcome from these measures is impressive, particularly in view of the size and geographic dispersion of the Indonesian population – 3 out of 4 people in the targeted demographic groups have received a minimum of the one approved vaccine dose. And the overall COVID-19 recovery rate is recorded at 96.7%.
Moreover, the collective performance of the COVID-19 ‘eco-system’ – comprising multiple government ministries, Big Pharma enterprises, global supply chain partners and publicly-held/privately-owned healthcare providers - is now being showcased to the international investment community as testimony to the ability of Indonesia to plan, implement and execute large-scale ‘programmatic’ initiatives.
2) Executing an integrated monetary and fiscal policy framework
President Jokowi has spearheaded the policy approach adopted by the Government, to the extent that the term ‘Jokowinomics’ has been coined to characterize the nature of his leadership.
The policy platform has three primary thrusts – 1) sustainable macro-economic recovery; 2) robust social welfare provision and 3) continuing political stability.
The associated objectives are a) to boost purchasing power and consumption levels in the home market; b) to keep energy prices in check - via substantial Government subsidies and c) to stimulate positive sentiment within the international investor community.
Governor Perry Warjiyo (Bank Indonesia) and Ibu Sri Mulyani (Minister of Finance) have worked closely together in utilizing all available policy mechanisms to address the complex dual task of maintaining financial stability and long-term fiscal sustainability for Indonesia.
The recently-announced hike in the benchmark 7 Day Reverse Repo Rate (7DRRR) by 25 basis points (BPS) to 3.75 % - the first such increase since 2018 - signals the intention of Bank Indonesia to take decisive action on the economy as necessary.
Governor Perry Warjiyo and Ibu Sri Mulyani have also forged strong links with their counterparts within the inter-governmental Group of 20 (G20), which in turn is further enhancing the reputation and perceived image of Indonesia within the international investor community.
In co-chairing the recent meeting of G20 Finance Ministers and Central Bank Governors (FMCBG) in Bali, they facilitated open-ended and action-oriented discussions amongst their peers on a broad array of cross-border socio-economic issues including: 1) global health goals; 2) international financial architecture; 3) financial sector mechanics; 4) ‘Green economy’ finance; 5) critical infrastructure; and 6) international taxation.
3) Enhancing the international reputation and influence of Indonesia
In leveraging his position of leadership of the Group of 20 (G20), President Jokowi has engaged in extensive geo-political and economic diplomacy efforts during the months of June and July 2022.
President Jokowi and his Cabinet team visited Germany, Ukraine, and Russia in an effort to end the Russia-Ukraine conflict or as a minimum to mitigate the global impact. The ongoing crisis has stoked global commodity price inflation and monetary tightening, as well as causing catastrophic food and energy shortages - especially for many developing countries.
At a regional level, the Government is attempting to enhance economic cooperation within ASEAN and between Indonesia and its major trading partners of China, Japan and South Korea.
The official visit of President Jokowi to the three East Asia countries of China, Japan and South Korea in July - amid the increasing global economic uncertainty – underpinned the importance of these neighbouring nations as long-term strategic partners for Indonesia.
The trip yielded investment commitments for Indonesia totalling USD 11.9 Bn. from their hosts. The development of electric vehicles, the production of basic commodities (e.g. fertilizers, methanol), and the establishment of local manufacturing facilities (for steel, glass and automotive components) are all part of this newly-acquired investment portfolio.
In 2023, Indonesia will assume the Chair of the Association of Southeast Asian Nations (ASEAN). President Jokowi will be called upon to stimulate the further strengthening of economic ties – both across the ASEAN member states and between the ASEAN bloc and the neighbouring East Asian countries. Post COVID-19, this cohesion is seen as a ‘must-have’ factor for cushioning global-economic uncertainty.
We cover all of the above issues - and more! - in depth as part of the report pack available here
If you would like to discuss any aspect of this report, please feel free to contact us