In this webinar, Dr Muhamad Chatib Basri shared his observations on the current economic trends in Indonesia and provided insights on Indonesia’s economic recovery from the effects of COVID-19 pandemic.
INDONESIA STUDIES PROGRAMME WEBINAR
Wednesday, 21 April 2021 – ISEAS – Yusof Ishak Institute invited Dr Muhamad Chatib Basri (Former Minister of Finance of Indonesia, Chairman of PT Bank Mandiri Tbk and PT XL-Axiata) to speak in a webinar titled “Indonesia’s Economy 2021: Recovery or Stagnation”. Moderated by Dr Siwage Dharma Negara (Senior Fellow and Co-Coordinator of Indonesia Studies Programme, ISEAS – Yusof Ishak Institute), Dr Muhamad Chatib Basri elaborated on how the pandemic had affected Indonesia’s economy and the general population in terms of consumption behaviours. He also discussed the strategies put forth by the government to kick start Indonesia’s economic recovery for 2021.
Dr Muhamad Chatib Basri began the webinar by comparing Indonesia’s economy in 2020 with other countries in the Southeast Asia region. While Indonesia’s economic performance had a contraction of 2.1% in 2020, it was observed to have done relatively better as compared to other ASEAN countries such as Singapore, Malaysia, Philippines and Thailand, whose contractions ranged around 5% to 9%. Dr Basri attributed this relatively better economic performance to the fact that the government imposed a large-scale social restriction (PSBB) for the country instead of a lockdown. This could have reduced the contraction of the economy as compared to countries who had adopted a strict lockdown policy and economic activities were forced to slow down during that period. As such, while the economy seemed to have relatively good prospects in 2020, Dr Basri believed it would be too early to tell if this trend would continue to 2021. Nonetheless, Dr Basri highlighted that Indonesia’s economy is starting to show signs of improving in 2021, with GDP growth and investments all showing upward trends after the huge contraction in 2020. He therefore projected that Indonesia would experience a growth in the 2nd quarter of 2021.
Dr Muhamad Chatib Basri further elaborated on the impacts of the COVID-19 pandemic on both consumers’ consumption patterns and income level. Informal sector was observed to have experienced the greatest loss in income during the pandemic, with a drop of at least 30% while employees with fixed salary had little changes to their incomes. Based on that, Dr Basri argued that the pandemic had developed a social inequality between the income groups, with the middle- and upper-income groups being in a better position to tie through the pandemic as compared to the lower income group. As for consumption patterns, Dr Basri highlighted that spending power for all income groups have actually resumed back to normal rates about two months after the pandemic. However, the spending amount had significantly decreased, especially for lower- and middle-income groups. The types of goods and services purchased had also differed, with the lower- and middle-income spending more on food products while the higher income group was observed to have spent more on electronics and hobbies.
Dr Muhamad Chatib Basri believed that in order for Indonesia’s economy to recover, there is a need to first, boost consumption. For that to happen, mobility needs to be present among the population so that they can consume goods and services, thus driving up demands. In the case of the COVID-19 pandemic, the implementation of PSBB had restricted the mobility needed to drive the economy. As such, in order to induce mobility and still keep COVID-19 transmission low, vaccinating the population would be the key solution to this issue. This was backed with data that showed an increase in spending for retail and recreational activities when vaccination increases among the population. This is mainly due to the fact that vaccinated people are more inclined to travel out to purchase goods and services, thus increasing consumption. Apart from that, Dr Basri also proposed that the country should focus on disaster relief measures such as providing cash transfer or financial support to the lower income group who would use it to increase their own consumptions of products. This would boost demands and businesses will then be able to expand production to cater to the increased demands, bringing about more revenues and subsequently, employment opportunities to the people. That being said, Dr Basri qualified that these strategies could only be effective if vaccines are made available for everyone in country. As such, apart from vaccination and boosting consumption, fiscal expansion through fiscal stimulus would be the other strategy employed by the government to jump start the recovery of the economy.
The webinar drew an audience of 158 participants from both Singapore and abroad. The panel then discussed on a range of topics during the Question-and-Answer segment which included topics such as the effects of the Sovereign wealth Fund (SWF) and Omnibus Law in attracting Foreign Direct Investment (FDI), the impact of fiscal stimulus toward debt deficit issue, the role of Bank Indonesia in Indonesia’s economic recovery and the possible benefits of the Regional Comprehensive Economic Partnership (RCEP) and other trade agreements in boosting Indonesia’s economic recovery.