​Indonesia: Maintaining the social fabric during the pandemic

INDONESIA - Report 29 Jun 2020 by Cyrillus Harinowo

Covid-19 has hit not only​ the health of the people, but also their welfare. Particularly in Indonesia, where the informal economy remains large, the implementation of restrictions on people's mobility in various areas resulted in a significant hit to their income. With the prospect of their income lost, many informal workers decided to move back to their villages to survive. It is with this situation in mind that the government is treading carefully to keep the social fabric intact. Another real complication was the fasting month for the Islamic people, which ended with the Big Holiday. Under normal circumstances, the Big Holiday would be celebrated by huge numbers of people traveling to their hometowns for about a week before returning to the places they live and work. Mindful of the potential spread of the virus, the Indonesian government made a serious effort to keep people in their original cities, but at the same time also feed them well.

The efforts of the government in balancing these two objectives produced good results. On one hand, people have been provided with cash transfers as well as their basic needs, while on the other hand, restrictions on mobility were firmly imposed. From my experience of the past few months I can testify that, in general, while life has been difficult, political stability can be maintained. If in the United States racial issues can burn cities, there is the potential of similar riots in Indonesia because of the large disparities in income. Therefore, President Joko Widodo's administration must be lauded for keeping the social fabric in Indonesia intact while at the same time making a serious effort to prevent the rapid spread of the virus. Given its relative success in achieving these two objectives, the government has started gradually to reduce restrictions so that the economy can slowly move forward.

In the midst of this situation, the Indonesian balance of trade for the month of May 2020 registered a large surplus. Exports in May reached $10,533.8 million, down by 13.40% month over month and by 28.95% year over year. Meanwhile, imports reached $8,442.1 million, down a significant 32.65% month over month and 42.20% year over year. The decline in imports underscores the slowdown of the domestic economy. The trade balance for May, with its surplus of $2,016.7 million, was a significant reversal from that of April, which reported a deficit of $372.1 million. With the results for May, the trade balance for the first five months of 2020 stands at a surplus of $4,311.5 million.

The Central Board of Statistics also released the inflation report, which showed inflation of 0.07% in May. With that performance, year-over-year inflation stood at 2.19%, a level at the lower part of the target corridor of the Central Bank. However, in light of maintaining the stability of the exchange rate (which is central in maintaining business confidence) while still providing stimulus to the economy, the Central Bank decided to keep the benchmark interest rate at 4.50% at its monetary policy meeting in June 2020.

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