Ramadan in the midst of pandemic
The fourth week of April 2020 was the start of the month of Ramadan, the fasting month for the people of the Islamic religion. Under normal circumstances, this is the peak of the business cycle for most companies in Indonesia. Two to three months prior to Ramadan, imports usually surge in order for companies to stockpile raw material to be used for the peak in their production. This surge in imports usually leads to a large trade deficit. At the end of Ramadan, people start flocking to their home towns for a week or two for what they believe is the most festive season of the year. They carry their yearly savings to spend in their home towns. During this time, sales at retail stores in the secondary cities to the villages peak. When the money is deposited by the stores to the banks, deposits in the secondary cities and villages increase significantly. This is what happens every year.
The month of Ramadan this year is significantly different. Due to the pandemic, there has been a significant drop in people’s income. Therefore, retail sales activity will certainly be different. People who work in big cities who have lost their jobs have already started to move back to their home towns. Luckily this took place in an orderly fashion. The government prohibited people from returning to their hometowns to celebrate the end of Ramadan, and that regulation started during the fourth week of April in order to reduce the spread of the virus. My personal observation is that this seems to be an effective regulation because in the secondary cities and villages, there is big resistance to welcoming these people home. Most are afraid that people coming from the big cities will carry the virus to their villages.
So far, with that approach, the spread of the COVID-19 can more or less be contained. The rise of the number of infected people was mostly due to a few clusters of super spreaders, especially religious gatherings, Islamic as well as Christian. However, the people who attended those gatherings have been largely traced, so the main sources of spread have been largely contained. Although at the end of the month, total positive cases had already reached 10,000 cases, the number of new cases appears to be stabilizing.
On the economics front, the Central Board of Statistics reported that the trade balance in March 2020 registered a considerable surplus. Exports for that month reached $14,093.5 million while imports reached $13,350.1 million. The trade surplus for the month stood at $743.4 million. Cumulative exports from January to March 2020 reached $41,786.4 million while cumulative imports for the same period reached $39,166.9 million. Therefore, the cumulative surplus for the year to date is $2,619.5 million. The trade balance underscores how far below normal imports are at this time, reflecting disruptions in the supply chain as well as depressed demand.
The Central Board of Statistics also reported the Consumer Price Index for March 2020, which showed inflation of 0.10%. With that monthly inflation, year-over-year inflation reached 2.96%, a level still at the lower part of the inflation corridor. Given the level of year-over-year inflation, Bank Indonesia decided to keep the bench mark rate at 4.50% at its Monetary Policy Meeting in April. This policy, together with the intervention by the Central Bank, has succeeded in strengthening market sentiment on Indonesia.
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