Indonesian economy believed to grow positively despite dismal trends

Source: Xinhua | 2020-04-12

Despite discouraging economic trends, Indonesia remains optimistic that its economy will grow positively, especially during the further spread of the COVID-19 which has claimed 306 lives (till Friday) in this archipelagic nation.

Such economic indications include the central bank's current foreign exchange reserves which dropped 9.4 billion U.S. dollars to 121 billion U.S. dollars last month (March, 2020) as the lender has intensified intervention in the financial market to strengthen Indonesian currency rupiah.

According to the central bank, Bank Indonesia, the decline in the reserves in March 2020 was caused by the payment of foreign debts and an effort to stabilize rupiah amid an extraordinary situation due to the panic in the financial market because of the COVID-19 pandemic.

The COVID-19 pandemic has worsened the global economy, making investors prefer holding the greenback as a safe haven, and this condition has raised pressures on the emerging market's currencies, including the Indonesian currency.

The value of rupiah continues to depreciate at least since Indonesian President Joko Widodo on March 2 announced that two Indonesians tested positive for COVID-19. On that date, the value of the Indonesian currency was recorded at 14,318 per U.S. dollar.

Rupiah has since then been fluctuating although the central bank has intervened in the financial market to back up the Indonesian currency.

The weakening rupiah is feared to make people worry about further increase in prices of basic commodities as according to the Indonesian Central Agency of Statistics, the inflation rate in March 2020 was recorded at 0.10 percent.

The agency said that the inflation was due to the increase in several commodities including eggs, onions and sugar which are among basic commodities consumed by Indonesian people who are mostly Muslims.

If the rate of rupiah continues to drop, it might affect the psychology of Indonesian people, especially Muslims, who will face the fasting month that will take place from April 23 to May 23 during which prices of basic commodities will usually be soaring.

In addition to those indications on the slowing down of the Indonesian economy, Bank Indonesia showed that during the current COVID-19 pandemic, the country's consumer confidence index also fell in March when it edged down by 113.8 from 117.7 in February.

Due to such a difficult time, Indonesian President Joko Widodo announced a 24.75 billion U.S. dollar spending to curb the COVID-19 outbreak, widening the national development budget deficit in 2020 to 5.07 percent of the gross domestic product (GDP).

Despite those economic indications, officials have however continued to convince the people that the country's economic growth would remain in the positive zone amid the COVID-19 pandemic as the government has taken measures to contain the outbreak.

Indonesian Finance Minister Sri Mulyani Indrawati said this week she was optimistic that the country's economic growth will still grow positively although it is slowing down amid mounting COVID-19 fallout.

The growth conforms with the projections of international financial institutions such as the Asian Development Bank (ADB) in April 2020 which said that Indonesia's economic growth this year reached by 2.5 percent, the minister said, adding that the World Bank projects Indonesia's economic growth to range from negative 3.5 percent to 2.1 percent.

Meanwhile, Indrawati herself projected that Indonesia's economy to decelerate by 2.3 percent this year from 5.02 last year.

Among measures to maintain the country's positive economic growth amid the COVID-19 pandemic, Indonesia has raised 4.3 billion U.S. dollars from the issuance of dollar-dominated bonds, including the longest maturation bonds ever issued in Asia, the minister said on Tuesday (April 7).

Indrawati pointed out that the cash raised will be used to help finance COVID-19 relief and recovery efforts and boost the foreign exchange reserves of the central bank which has been aggressively conducting intervention in the financial market as the economic fallout from the pandemic has pushed investors to hold the greenback in cash as safe haven.

Following the central bank's intervention in the financial market rupiah strengthened significantly on Thursday (April 9) as Indonesia's efforts to boost U.S. dollar supply has been appreciated by investors.

Rupiah has firmed against the greenback since the last several days and on Thursday it strongly appreciated by 1.99 percent to 15,880 against one U.S. dollar, compared to 16,326.23 on Wednesday, according to data from a dealer.

Bank Indonesia's Governor Perry Warjiyo told a press conference on Thursday that investors are confident on the policy taken by the Indonesian government, Bank Indonesia, and Indonesia's Financial Services Authority.

With the recent days' appreciation, Warjiyo was sanguine that rupiah will further strengthen to 15,000 per one U.S. dollar by the end of the year.

The Indonesian central bank has vowed to safeguard rupiah volatility and was ready to apply more stimulus packages on economy to help cushion risks of the COVID-19 on the economy.