The collapse of guest numbers in Indonesia gives a glimpse of how the Covid-19 pandemic devastated the economy. In 2020, the country saw a 75% decline in foreign tourists. Indonesia plans to reopen Bali, its tourist hotspot, to foreigns in June 2021 as it recovers with the rest of the country.  

Following more than two decades of consistent growth, the Indonesia economy entered recession in the third quarter of 2020. It contracted by 5.32% in the second quarter and 3.49% in the third quarter. While it eased slightly in the fourth quarter, the country still registered a 2.1% decline year-on-year. 

Given the government’s economic revitalisation plan, analysts expect Indonesia to recover from the recession by the second quarter of 2021. Meanwhile, the government forecasts growth of between 4.5% to 5.3%. 

Indonesia Economy Overview 

The latest Economic Survey of Indonesia conducted by the Organisation for Economic Co-operation and Development (OECD), forecasts recovery from the economic impact of the pandemic would be gradual for the country and that government support for households and businesses should continue as needed.

Prior to the pandemic, the steady economic growth in Indonesia has seen GDP per capita increase from OECD average of 19% in 2001 to 29% in 2019. The country’s contribution to the ASEAN GDP has also gone up two-fold to 35% from 17% during the period. However, the devastation from the pandemic in 2020 could potentially increase the number of people in poverty from 26 million to 36 million.

Last year’s recession is expected to negatively affect informal workers because they have no social safety net. The OECD is calling for increased efforts to transition more workers into the formal economy, enhance skills, improve the business and investment climate. 

Finance minister Sri Mulyani Indrawati says that the GDP is projected to contract by around 1.0% to 0.1% year-on-year in the first quarter, but the second-quarter GDP could reach over 7% year-on-year. DBS economist Radhika Rao explained that while economic activity in the first three months may remain slow, it should improve now on back of Covid cases moderation, the timely rollout of vaccines, easy financial conditions, and a commodity price upcycle. 

Currency and Central Bank

Indonesia’s official currency is the rupiah, whose name comes from the Sanskrit word rupyakam, meaning silver. It is divided into 100 sen, but due to high inflation, all coins and banknotes in sen have been rendered obsolete. 

Bank Indonesia serves as the country’s central bank and is currently headed by its governor, Perry Warjiyo. The bank was founded in 1953 after the private Dutch bank, De Javasche Bank or Bank of Java, was nationalised three years post the country’s independence from the Netherlands. 

Since the pandemic began last year, Bank Indonesia has cut interest rates by a cumulative 150 basis points and plans to control inflation at 3 ± 1%. Last December, Bank Indonesia announced five policy response strategies to help the country’s economic recovery this year.  

These strategies included opening productive and safe sectors of the economy, accelerating fiscal stimulus, boosting credit from the demand and supply side, creating monetary stimulus and macroprudential policies, and pushing for economic and financial digitalisation, particularly with micro, small and medium enterprises (MSMEs).

Industry and Trade

The country has a young population of 274.8 million with a workforce of 136.7 million people as of 2020. Over the years, Indonesia has transformed from being an agricultural economy into a more balanced one, detaching from its previous dependency on primary exports.

Indonesia’s agricultural sector comprises 12.7% of the country’s GDP while providing employment to 27% of the labour force. It is the secondlargest producer of natural rubber globally. Other major agricultural products include rice, sugarcane, coffee, tea, tobacco, palm oil, coconuts, and spices. 

Meanwhile, the industrial sector contributes to about 38.9% of the GDP and employs 22.7% of the workforce. Products manufactured in Indonesia include textiles, cement, chemical fertilisers, electronic products, rubber tyres, clothing, and shoes. 

Indonesia’s service sector has grown to be the biggest contributor to the country’s GDP at 44.2% and employs 49.6% of the workforce. Banking and tourism are two of the largest service sectors in the country.  

The country’s top five export products are coal, palm oil, petroleum gas, motor vehicles, and gold. On the other hand, the main products imported into the country are petroleum oils, electrical apparatus for line telephony, motor vehicle parts, and wheat and meslin. 

Survey and Rankings 

In the World Bank’s Ease of Doing Business 2020 rankings, Indonesia’s economy maintained last year’s position at 73rd among 190 countries with a score of 69.6. The World Economic Forum’s Global Competitiveness Index (GCI) rankings have been paused for 2020, but in 2019, the country fell by places to the 50th spot with a score of 64.6. 

Additionally, the country also went down by two places in the Heritage Foundation’s 2021 Index of Economic Freedom from the 54th to 56th in the world and is currently 10th among Asia-Pacific countries. The country also remained in the “moderately free” category. 

Stock Exchanges and Capital Markets 

The Indonesia Stock Exchange was formed when the Jakarta Stock Exchange and the Surabaya Stock Exchange merged in 2007 and has 656 listed companies in December 2019, with around 1.1 million total stock investors. 

The Jakarta Composite Index (JCI) and the Jakarta Islamic Index (JII) are the two primary stock market indices used to measure the performance of the Indonesia Stock Exchange. As of March 2021, the Indonesia Stock Exchange is ranked 1st in ASEAN, 4th in Asia, 9th in Asia-Pacific, and 25th globally in terms of year-to-date change based on the JCI. 

Bond Market 

The bond market in Indonesia has experienced steady growth over the past few years. Currently, it offers a diverse selection of debt instruments that cater to both local and foreign investors. Bonds may come in the form of the Bank Indonesia-issued Certificate of Central Bank or Sertifikat Bank Indonesia (SBI), government bonds or government debt securities, and corporate bonds. 

The government remains the largest issuer of bonds in the country and has issued $18.8 billion worth of bonds in 2020, excluding buybacks and short-term treasury bills.

Real Estate Market

Despite the pandemic, real estate prices in Indonesia have remained relatively steady. However, although price increases may be on a downtrend at only 1.77% in 2019 compared with 2.95% in 2018 and 3.5% in 2017. 

Sales of the residential property went down by 30.9% year-on-year in the third quarter of 2020, after declining by 25.6% and 43.2% year-on-year in the first and second quarters, respectively.

Last year, the government introduced a $53.26 billion stimulus package, which included $107.3 million in funds for the subsidised housing program to build 175,000 new homes.