Finance Minister Sri Mulyani Indrawati. (Antara Photo/Puspa Perwitasari)

Gov't Moves to Address Lingering Demand Weakness as Trade Data Underwhelm

BY :NOVY LUMANAUW, MUHAMMAD GHAFUR FADILLAH, TRIYAN PANGASTUTI

FEBRUARY 16, 2021

Jakarta. The government has increased the Covid-19 and national economic recovery (PC-PEN) fund by 19 percent and provided tax cuts for new car purchases to encourage consumers to spend, following an underwhelming trade data pointed to lingering weakness in domestic demand.

While Indonesia has booked a trade surplus for the ninth straight month in January due to robust demand for its natural commodities, still-depressed imports numbers signaled that recovery from the Covid-19 pandemic slump remains limited.

The largest economy in Southeast Asia booked $1.96 billion in trade surplus last month, a swing from $640 million deficits in the same month last year albeit slightly lower from $2.1 billion surpluses in December, according to data from the Central Statistics Agency (BPS) on Monday.  

Indonesia exported $15.3 billion worth of merchandise, up 12.2 percent from the same month a year ago. Mining exports rose the fastest, up 16.9 percent to $2.1 billion in January, followed by agriculture, which increased 13.9 percent to $337 million, and manufacturing, which grew 11.7 percent to $12 billion. 

The country imported $13.3 billion worth of merchandise, including $1.5 billion worth of oil and gas, the data showed. The total import was still down 6.5 percent compared to January 2020. 

 

A hefty surplus in the trade balance should provide support for Indonesia's economic recovery from now on.

However, weak imports of machinery and raw materials suggested the local manufactures have yet to expand production. Machinery imports were down 10.7 percent in January to $1.9 billion from $2.2 billion in the same month last year. Meanwhile, the raw material imports were still down by 6.1 percent to $9.9 billion from $10.6 billion. 

BRI Danareksa Sekuritas, a brokerage subsidiary of Indonesia's largest bank by asset Bank Rakyat Indonesia (BRI), said that while the export data was in line with its expectation, but imports "was contracted deeper than estimations."

The import data reflected January's low inflation rate, which suggested lethargic consumer demand. The consumer price index (CPI), an encompassing measure of goods and services prices in the country, only inched up 1.55 percent in January, slowing down from the 1.68 percent pace in December.

Data from Bank Indonesia, the country's central bank, showed consumer confidence index declined 11.6 points from the previous month to 84.9  in January, the lowest reading since October. Consumers' confidence in the current economic condition and outlook deteriorated, as well as their expectations for job availability and income for the next six months, according to the data published last week.

Finance Minister Sri Mulyani Indrawati said separately that the government pared the protection for Indonesia's economic growth this year to 4.5 to 5.3 percent from its earlier estimate of 4.5 to 5.5 percent. Still, the government were adamant about increasing its spending to prop up the economy, 

"We continue to work on recovery in 2021," Sri Mulyani said on Monday. 

"Vaccination is expected to be a positive factor to suppress the spread of Covid-19 and return the public's confidence to return to their normal activities," she said. 

Since last month, the country has vaccinated close to 1.1 million medical workers and planned to start vaccination on public services workers on Wednesday. The number of Covid-19 cases has also declined n the past week. The seven-day rolling average of daily new cases fell to 8,264 on Monday from its peak of 12,865 on Feb 1. 

 

More stimulus

This year, the government decided to increase the PC-PEN stimulus fund to Rp 688.3 trillion ($49 billion), up 18.7 percent from last year's Rp 579.8 trillion.

The government almost tripled healthcare spending to Rp 173 trillion, up 173 percent from last year's Rp 63.5 trillion, for funding the Covid-19 vaccination program,  tracing and testing, patients treatment, incentives for healthcare workers and facilities, among others. 

The fund for UMKM support and corporate financing was at Rp. 187.2 trillion, up 8 percent from  Rp 173.2 trillion to provide more subsidized loans, electricity bill exemptions, as well as capital injections to state-owned companies like contractor Hutama Karya, tourism management company Pengembangan Pariwisata Indonesia, or Indonesia Tourism Development Corporation (ITDC), port operator Pelabuhan Indonesia (Pelindo) II and industrial complex Kawasan Industri Wijayakusuma (KIW).

The fund also covers business incentives in various tax cuts, amounting to Rp 53.86 trillion, down from last year's Rp 60.7 trillion. 

The government cut the social protection budget to Rp 150.2 trillion, down 31.8 percent from last year's realization of Rp 220.4 trillion. 

Some would fund the priority programs, including tourism support, food security or food estate, ICT development, loans to regions and regional loan subsidies, labor-intensive government projects, and industrial estates, amounting to Rp 123.8 trillion.

Tax cuts

The government has also issued several policies to boost the economy. To increase the automotive sector, a big part of Indonesia's manufacturing sector, the government has decided to weave luxury sales for cars with less than 1,500 cc car engines, starting next month. 

From March until June the government would give 100 percent discount for the cars new purchase, folwed by 50 percent discount in July to August and 25 percent discount in September and November. 

Coordinating Minister for Economic Affairs Airlangga Hartarto said the stimulus was part of an effort "to increase car sales and production." He said car manufacturing was an important part of Indonesia's manufacturing sector, which accounts for about 20 percent of Indonesia's GDP.

Pilarmas Sekuritas, a Jakarta-based brokerage, said the government tax stimulus would encourage the automotive sector. But, a long-term impact on the consumer decision to buy a new car would rest on "a well-executed Covid-19 mitigation effort."

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