Coordinating Minister for the Economy Airlangga Hartarto at the parliament on Monday. (Antara Photo/Nova Wahyudi)

Indonesian Economy Resilient and Strong: Chief Economy Minister


FEBRUARY 03, 2020

Jakarta. The Indonesian economy managed to steer clear of global economic turbulence last year and is in a much stronger position to repeat the feat this year, Coordinating Minister for the Economy Airlangga Hartarto said on Monday. 

Southeast Asia's largest economy expanded by more than 5 percent in 2019, the minister pointed out, despite a deepening of conflicts in the US-China trade war and political uncertainties after the 2019 presidential and general elections.


"In general, our economic growth has remained relatively stable," Airlangga said. 

"Household consumption is on the up... as well as government spending, investment and export growth in the fourth quarter of 2019," he said. 

Welfare also improved with the number of people living below the absolute poverty line – living off an income of $150 per family per month – dropping to 25.1 million or 9.4 percent of the country's total population.

The Gini ratio – a measure of wealth distribution – also declined to 0.382 as the inequality gap narrowed. 

Farmers and farmworkers, which account for 29 percent of Indonesia's workforce, saw their income increase by 0.3 percent in December. As a result, their terms of trade (NTP), which reflect the price they earn from selling their commodities compared to the prices of goods they need to buy, rose 1.03 percent to 104. 

Confidence also returned to the manufacturing sector. The purchasing manager index was at 51.5 in the fourth quarter of last year and is expected to increase to 52.7 percent in the first quarter of 2020, Airlangga said. A reading above 50 reflects optimism. 

Indonesia's balance of payments continued to improve in the fourth quarter of 2019 thanks to a narrowing trade deficit and increased investment flow. The country's foreign exchange reserves sat at $129 billion in December, the highest level in 2019.

"Our current account deficit was under control at $ 0.03 billion in December, a sharp decrease from $1.39 billion in the previous month," Airlangga said. 

Foreign direct investment also showed signs of improvement. Meanwhile, local banks remained awash with liquidity which would enable them to support loan expansion.

The lenders' capital adequacy ratio (CAR) was at 23.6 percent in November 2019 and gross non-performing loans (NPL) were low at 2.77 percent.

"The rupiah's exchange rate has also strengthened 4.21 percent in the past three months and is now one of the strongest currencies in Asia," Airlangga said. 

Meanwhile, investment risks in Indonesia have fallen. The country's 5-year credit default swap (CDS) has declined 23.7 percent in the past six months, reflecting investors' rising confidence in the government's ability to pay back its debt. 

The yield on 10-year government securities is now at 6.62 percent, its lowest since April 2018. The yield moves inversely to the bond's price.

Inflation was low and stable at 2.72 percent last year, down from 3.13 percent in 2018. 

"The improved economic conditions were a result of the government's efforts in building market optimism, by delivering results in some priority programs – quick wins – in the past three months," Airlangga said.

Coronavirus Impact

The minister, however, was concerned about the coronavirus outbreak, which the World Health Organization (WHO) declared a global health emergency on Jan. 30, and its potential impact on the Indonesian economy.

The first sector to be hit by the coronavirus impact was tourism, which generates $2 billion of its annual revenue from Chinese tourists.

"Chinese tourists are very popular in areas such as North Sulawesi and the Riau Islands. Tourism was the first sector that felt the impact of the coronavirus outbreak," Airlangga said.

Indonesia has banned all travelers from China from coming to Indonesia until the outbreak subsides.  

Nevertheless, the minister said, Indonesia was quite fortunate because the country's automotive industry did not rely on spare parts from Wuhan, the epicenter of the novel coronavirus outbreak. 

"Also, Indonesia's food and beverage sector would be quite resilient since we don't get our raw materials from China," he said.