Preparing for the “new normal”
Indonesia was “officially” hit by COVID-19 in early March 2020. In the period of three months after the official announcement, various efforts have been made by the government to mitigate the harsh consequences of the semi lockdown implemented to cut down on the spread of the virus. Many people lost their regular income, and many of them decided to move back to their hometowns.
The dilemma faced by the government is indeed difficult but real. On one hand, the Indonesian government realized that it should work hard to “flatten the curve” by conducting measures such as social distancing, keeping hands clean, promoting the use of face masks, and many other protocols. But having seen the rise of the total number of new cases and the mortality rate, the government finally imposed a form of semi lockdown in which the mobility of the people has been restrained without having to impose a total lockdown. However, at the same time the government must face the real consequences of the measures in the form of seeing people losing their regular income and jobs. The trade-off between health and the economy is indeed very real. In the end, the Indonesian government should move on from the current situation toward a level of compromise with the pandemic in order to revive the economy. The cost is too big for the government to continue with the policy of near lockdown.
With that situation in mind, the Indonesian government has started to educate people about the possibility of living with COVID-19, which is called “the new normal”. Certainly, that situation requires the people to abide by COVID-19 health protocols such as social distancing, hand sanitizing, as well as wearing face masks. Currently the tone of the new approach has been calibrated so that people will not be confused by it. From the information currently available, the month of June will be used to initiate the new approach, and July will become the start of the "new normal" more massively.
Given the restrictive situation, it is not surprising that for Q1 2020 the economy only grew by 2.97%, far below the 5% for the full year of 2019. The depressed situation of the economy helped the Indonesian current account for that quarter. If in Q4 2019, the current account deficit reached $8,082 million or 2.83% of GDP, it narrowed to $3,924 million or 1.42% of GDP in Q1 2020. Since the financial and capital account in the balance of payments recorded a significant deficit, the overall balance of payments reported a deficit of approximately $8,545 million, leading the foreign exchange reserves of the Central Bank to fall significantly, to $120.9 billion from $129.2 billion reached at the end of December 2019. However, foreign exchange reserves rebounded in April, to $127.9 billion, an increase of around $7 billion.
The Central Board of Statistics released the balance of trade data for the month of April 2020, which showed that exports declined by 13.33% month over month to reach $12,193.3 million, while imports also declined, by 6.10%, to reach $12,538 million, resulting in a trade deficit of $344.7 million.
The Central Board of Statistics also released the inflation report, which showed relatively mild inflation for the month of April at 0.08%. With that performance, year-over-year inflation stood at 2.67%, a level at the lower part of the target corridor of the Central Bank. To maintain the economy's growth momentum, and especially to dampen the effect of the coronavirus on the economy, the Central Bank decided to keep the benchmark interest rate at 4.50% at its meeting of May 19-20, 2020.
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