A rebound, as expected

INDONESIA - Report 30 Aug 2021 by Cyrillus Harinowo

As expected, Indonesia has seen a rebound in its economic growth. In Q2 2021, the Indonesian economy reported an increase of 7.07% year over year. Compared to the previous quarter, the Indonesian economy grew by 3.31%. This is the first positive growth in the economy since the start of the Covid-19 pandemic in March 2020.

The improvement of the economy was accompanied by a larger deficit in the current account for that quarter. While in Q1 2021 the Indonesian current account registered a deficit of $1,057 million or 0.38% of GDP, in Q2 the current account balance resulted in a deficit of $2,231 million or 0.77% of GDP. During the second quarter, the financial and capital account in the balance of payments also recorded a much smaller surplus than in the preceding quarter, so that the overall balance of payments reported a small deficit of approximately $450 million, leading the foreign exchange reserves of the Central Bank to a level of $137,093 million in June 2021. However, in July, foreign exchange reserves increased again somewhat, to $137,343 million.

The Central Board of Statistics also released the balance of trade data for July 2021. Exports declined slightly, by 4.53% month over month, to reach $17,703.2 million. Non-oil exports also declined slightly, by 3.46% to $16,712.0 million. Imports also declined, but more sharply, by 12.22%, to reach $15,114.3 million, resulting in a large trade surplus of $2,588.9 million. The declines in exports and imports were due to the mobility restrictions in the month of July due to the second wave of the pandemic. The trade surplus is predicted to continue in the coming months.

The Central Board of Statistics also released the inflation report, which showed mild inflation for the month of July at 0.08%. With that performance, year-over-year inflation stood at 1.52%, a level below the target corridor of the Central Bank. The Central Bank was of the view that the economy is improving steadily. Therefore, with inflation subdued and the exchange rate and foreign exchange reserves at comfortable levels, Bank Indonesia decided to keep the benchmark rate at 3.50% at its monetary policy meeting in August.

Based on the current state of affairs, the Indonesian government is worthy of praise because of its good management of the pandemic and the likely impact of its management on the economy. The current situation is a strong foundation for the country's prosperity in the medium and long term.

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