As the COVID-19 hit many countries worldwide, Indonesia also faced various bans and restrictions for it. The government went under lockdown, and there were stricter border control restrictions that did not allow anyone who is not a native to return to the country.
The tourism industry took a hit because of the restrictions as many people each year visit Bali’s serene island to enjoy the quiet beaches and clear sea breeze.
In the second half of 2020, Indonesia’s economy had already faced a contraction of 5.32% compared to the numbers of 2019. For the third quarter, the country again faced a decline of 3.49%, which caused the economy to spiral into recession for the first time in over two decades.
In the 1990s, the country faces a prolonged recession. They saw a fall in GDP growth for five consecutive quarters for the years 1998 until 1999, as claimed by the Organization for Economic Cooperation and Development data.
The contraction in 2020 was expected a little over 3%, said the president Joko Widodo. He noted that it was expected that the third quarter GDP would decrease by over 3% as the pandemic still prevails.
According to the details of this year’s GDP reports, the private consumption decreased by a factor of 4.04%, and the gross fixed capital formation contracted by 6.48%. In terms of exports and trades, they have declined to a massive 10.82% while the only thing seen on the rise in government spending was over 9.76% for 2020, until the 3rd quarter.
Growth benefited from a pick-up in government consumption and weak imports, which reflects the ongoing weakness in private consumption and investment,” Oxford Economics’ Priyanka Kishore wrote in her note in a research paper. “This keeps us cautious about the pace of recovery in the future.” She further clarified.
The Bank of Indonesia is optimistic about the future, though, and sees room for lowering interest rates even more. They are confident that they can maintain an accommodative monetary policy throughout the year 2021. The bank’s central command has cut the rates by 100 points based on 2020, and the interest rates are kept on hold for the last three meetings.
Indonesian Finance Minister Sri Mulyani Indrawati spoke at a conference on Thursday and said that the data shows “the worst is over” for the country’s economy. “We have already passed the worst impact of COVID-19 that occurred in Q2 and now we are in the recovery stage,” she elaborated further.
How COVID-19 Has Destroyed The Indonesian Economy
Indonesia is one of the worse hit countries during the COVID-19 pandemic. With over 421,731 cases to report and over 14,259 deaths, the government has failed to contain its widespread disease. Jakarta, the country’s capital and a significant tourist destination, counts for about a quarter of these cases.
Joseph Incalcaterra, the chief economist at ASEAN at HSBC, said, “The problem is that Indonesia has yet to effectively contain COVID-19 domestically. There is a risk that Indonesia’s recovery is further curtailed due to uncertainty surrounding the spread of COVID-19 and the fact that a vaccine does not appear imminent. The continuing spread of COVID-19 will hinder a more robust recovery in private consumption and fixed investment going into next year.”
He further said, “Indonesian policy makers deserve credit for using a broad toolkit to combat the pandemic and provide support for the economy. However, external constraints suggest the outlook for the Indonesian economy remains dependent on factors outside of its control. This is why speedy and firm implementation of Indonesia’s landmark investment and labor reform is absolutely crucial.”
As of August 2020, it is estimated that over 2 million people have lost their jobs in Indonesia and now struggle to make ends meet every day. Added to this is a new controversial law signed by the President on Monday, which has caused several protests throughout the country.
The law is seemingly dangerous for religious freedom and workers’ rights of Muslims and laborers in the country, causing them to protest even in these trying times.
The coordinating Minister for Economic Affairs Airlangga Hartarto claimed in a briefing that this quarter the GDP would face 1.6% contraction and around 0.6% expansion.
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