Since the beginning of March, foreign investors have pulled out more than Rp100 trillion (>$6.187 billion) from the Indonesian financial market, the highest dump Indonesia ever recorded per Financial Services Authority (OJK) report.

“We are dealing with a global pandemic. First, our government is not fully prepared to face the new coronavirus. Second, our healthcare system is not adequate. Once investors are aware of these sentiments, they assume Indonesia is not ready to face this pandemic so they pull out,” said Junior Analyst at OJK Surveillance Department Haekal Affandi.

Although this is not the first time infectious disease has roamed the Earth, the current situation is incomparable to the SARS outbreak back in 2003 or the MERS outbreak in 2009 in terms of economic impact.

“Hong Kong is a financial hub and it only accounts for 1.3% of the world’s GDP. China is the supply chain hub of the world. When China shuts down, every country will take the toll. China accounts for 17% of the world’s GDP.”

Most businesses in Indonesia rely on import to fulfil demand. Manufacturing is concentrated in China even for big corporations like Apple.

Aside from COVID-19 and inadequate healthcare, lower demand and weaker fundamentals in the past few years lead to the country’s economic slowdown. “The slowdown didn’t happen overnight,” said Haekal.

The solution to this problem, according to Haekal, depends on how fast the government manages to contain the COVID-19 outbreak.

“China’s economy dropped in Q1 (January-March) 2020 and recovered in Q2 (April-June). If we use the same projection for Indonesia, our economy could recover in Q3 (July-September) because we are currently experiencing the second wave of COVID-19 as we enter Q2.”

However, the recovery in Q3 will only happen if the government can completely eliminate the COVID-19 outbreak in Indonesia. “Investors will assess how our government tackles the pandemic. The better the government handles the outbreak, the quicker our economy recovers.”

On the other hand, he noted that the government is facing a dilemma. 60% of businesses are SMEs, while 70% of workers are informal workers relying on daily wage. If the government imposes lockdown, they could fall into the poverty line. On top of that, the epicentre of the outbreak is Java, which makes up 70% of Indonesia’s economic activities.

“Some projected Indonesia COVID-19 cases to peak around Idul Fitri. But if people are still going to work, taking public transport, we will take longer to recover. We are not sure if we can be like China who managed to contain the outbreak in eight weeks.”

While lockdown is not the option, there are another measures to keep the economy afloat: financial and fiscal stimulus.

Financial or monetary stimulus refers to steps taken by the central bank (Bank Indonesia) or financial authority (OJK) that have direct impact on the banking industry.

For instance, President Joko Widodo on 24 March announced that the Finance Ministry will extend loan payment deadlines for micro, small and medium sized enterprises (MSME) and informal workers. The OJK also extends leniency for MSMEs that borrow money from banks.

Easing loan payment is a form of financial or monetary stimulus, meaning MSMEs and informal workers are granted more time to pay their loans. Another example is financial aid or allowance of up to Rp1,000,000 per month for employees who have been laid off.

Fiscal stimulus refers to policy made by the government without involving central bank or financial authority. For instance, the allocation of state budget to curb the COVID-19 outbreak.

Both fiscal and financial stimulus are aimed at boosting the economy, but since we are dealing with a pandemic, Haekal explained that financial stimulus might not affect the economy that much because it will take a while to work.

“Financial stimulus doesn’t have any direct impact on the healthcare system because it only eases loan payment, not slowing down the spread of the virus,” he added.

To solve the problem, he stated, the government has to go straight to the roots of the problem. “Fiscal stimulus that has direct contribution to our healthcare system will be more effective. For example, free COVID-19 test for the public. If the pandemic is over, business will recover, people can go back to work and consumption will increase, which will automatically drive the stock and financial markets.”

Read the article in Bahasa Indonesia