BI Governor at MM FEB UI General Lecture: Unite, Prevail, Revive the Economy
Nino Eka Putra ~ FEB UI Public Relations Officer
DEPOK – The Master’s Degree Program in Management at the Faculty of Economics and Business, Universitas Indonesia (MM FEB UI), organized an online general lecture delivered by Bank Indonesia Governor Perry Warjiyo, Ph.D. The lecture, entitled Unite, Prevail, Revive the Economy: Coordination of National Policies to Mitigate Covid-19, was hosted by Rofikoh Rokhim, Ph.D., the head of MM FEB UI, Friday (5/6/2020).
Perry explained that global economic growth during the Covid-19 pandemic is predicted to be lower than previous assumptions, at -2.2% in 2020, to increase to 5.2% in 2021. Minas crude price averages US$31 per barrel and Indonesia’s export commodity prices (HKEI) fell by 14.2% before increasing by 12.9% in 2021. Meanwhile, the US Fed funds rate is expected to remain at 0.25% in 2020 and 2021.
The implementation of the PSBB in various regions is assumed to affect about 70% of the national economy. Economic policy responses are particularly focused on fiscal stimulus given a larger fiscal deficit, and the government’s national economic recovery program, Bank Indonesia’s monetary and macroprudential stimulus, as well as credit restructuring and relaxation of a number of macroprudential regulations by the OJK.
GDP prospects in 2020 are at risk of becoming 2.3% lower than originally estimated. With policy responses, the economy is expected to grow around 2.3% in 2020, although there is a risk of a lower growth than the initial estimate of 2.97% in Q1-2020. The impact of Covid-19 will be felt mostly in Q2 and Q3, before things improve in Q4-2020. Inflation is predicted to be low and stable in 2020, within the target range of 3.0 + -1%. Meanwhile, the rupiah exchange rate strengthened to around Rp14,100 per US dollar today, from around Rp16,200 in early April 2020 due to large capital outflows triggered by global financial market panic over the Covid-19 pandemic.
Meanwhile, GDP will increase sharply in 2021 to 6-7%. Economic growth will increase rapidly in 2021 as the global economy picks up pace in addition to policy responses and the base effect. Inflation rate is also predicted to remain under control in the 3 + -1% range while the rupiah exchange rate is expected to remain stable with the possibility to strengthen in 2021.
Policies to break the chain of Covid-19 infections across the globe, including in Indonesia, have been implemented, such as lockdown, rapid and massive tests, travel ban/social restriction and physical distancing, work from home, study from home, ban on mass gatherings, and penalties/ fines or sanctions.
“To ensure the success of these policies, a large economic stimulus is needed, including fiscal stimulus, by increasing the health budget, household assistance, workers and social safety nets, as well as an economic recovery program; and monetary and financial stimuli by lowering interest rates, quantitative easing, extention of loan and credit payment extension, loan and business restructuring, and financing facilities,” said Perry.
Perry went on to say that Bank Indonesia’s policy mix for Covid-19 mitigation was directed at supporting the national economic recovery in terms of strengthening stability, such as the rupiah exchange rate, adequacy of foreign exchange reserves, current account deficit, systemic surveillance and resilience, as well as supporting the recovery of activities and economic growth, such as interest rates, quantitative easing, statutory reserves (GWM), macroprudential relaxation, and payment systems.
Currently, Indonesia’s foreign exchange reserves are more than adequate to finance imports, government debt payments and rupiah stabilization. As a “second line of defense”, Bank Indonesia has bilateral swap cooperation with various central banks, namely China, Japan, South Korea and Singapore. This helped the rupiah exchange rate to strengthen from Rp16,200 on April 8, 2020 to Rp14,095 in June 2020. Foreign portfolio investment in government securities (SBN) resumed on April 14, 2020 to reach Rp15.4 trillion on June 3, 2020. Foreign exchange reserves increased from US$120.4 billion at the end of March 2020 to around US$130 billion today, and a standby repo-line facility worth US$60 billion from the US Fed has been secured.
In entering the new normal, Indonesia can take advantage of the digital-based economy and finance. MSMEs and the halal economy need to be an important driver of economic growth going forward. The national economy is more resilient to global turmoil with large and inclusive job creation. Affirmative policies through empowerment, corporatization and financing are needed, regulated in the 2025 Indonesian Payment System Blueprint (SPI).
The blueprint has 5 visions: (1) supporting the integration of the national digital economy-finance, (2) supporting banking digitalization, (3) interlinking fintech and banking, (4) ensuring a balance between innovation and consumer protection, (5) ensuring national interests in international digital economy-finance. This requires support and collaboration with industry and regulators (government, OJK, banking, fintech, e-commerce) to create a digitalized payment system for an integration of digital national economy and finance.
“There are three keys to a successful new normal, namely to be strong, meaning that we must be more resilient and strong by utilizing domestic resources; to be creative, meaning that we must bring about change in accordance with the spirit of the times, and to be prepared for new civilization, meaning that we must be ready to become fully digital,” Perry said.
In the future, Perry added, Bank Indonesia will continue to closely monitor the dynamics and global financial markets as well as the spread of Covid-19 and its impact on Indonesia’s economy from time to time, and take further policy steps needed in close coordination with the government and the Financial System Stability Committee (KSSK) to maintain macroeconomic and financial system stability as well as national economic recovery.
“It is hoped that MM FEB UI graduates will have ambitions to create ventures so that they can contribute to the national economy,” Perry said at the end of his presentation. (hjtp)
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