Moody's lauds Indonesia's economic response but virus containment efforts lag
Indonesia's response to support the COVID-19 outbreak has been slower weighed against some other countries in the region despite policies to limit the financial and financial shock being introduced in a relatively coordinated manner, a credit rating agency has said.
"Indonesia's response to contain the coronavirus outbreak has lagged various other countries in the region. But its policies to limit the related economical and financial shock have already been introduced in a comparatively coordinated manner," Moody’s Investor Service wrote in a study note published on Friday.
An unprecedented upsurge in the deficit ceiling by the government allows for more fiscal headroom, although the effectiveness with which additional budgetary space was used would determine the extent of support for domestic demand, according to Moody's.
“We expect that such measures will at best buffer the impact of the [economic] shock instead of reverse or resolve it,” the study note reads.
President Joko “Jokowi” Widodo signed on Tuesday a government regulation instead of law (Perppu) that, among other things, allows the government to widen the state budget deficit to beyond the 3 percent of GDP legal limit since it plans to include Rp 405.1 trillion (US$24.3 billion) to its spending this year to supply more funds for the healthcare system, social welfare safety nets and business-recovery programs.
The federal government expects the country’s economy to grow by 2.3 percent this year beneath the baseline scenario, which would be the lowest level since 1999, or contract by 0.4 percent in the worst-case scenario as the pandemic hits business activity.
Moody’s forecasts Indonesia’s GDP growth to slow to 3 percent, the cheapest rate since the 1998 Asian financial meltdown, before recovering to 4.3 percent in 2021.
“Although growth in the first quarter is only going to slow modestly, partial shutdowns across Jakarta and other parts of Java - the epicenter of Indonesia's economic activity - indicate that the deceleration will be relatively rapid,” Moody’s vice president Anushka Shah said.
“Meanwhile, the 20 percent drop in the rupiah against the dollar since early February and the spike in bond yields will have economy-wide effects, especially if prolonged,” Shah added.
The government’s and Bank Indonesia’s (BI) various economical scenarios also include the rupiah exchange rate weakening to between Rp 17,500 and Rp 20,000 per US dollar, that may surpass the Rp 16,950 level recorded through the 1998 crisis.
The neighborhood currency, already the worst performer in Asia, traded at Rp 16,430 per US dollar by 4.42 p.m. in Jakarta, according to Bloomberg data. It has depreciated a lot more than 18 percent because the start of the year. The 10-year government bond yield, meanwhile, stood at 8.37 percent on Friday, an increase greater than 100 basis points (bps) since the start of year.
Sizeable nonresident investment in Indonesia exposes the united states to swings in capital inflows, which are then amplified during episodes of global financial market stress, Moody’s says.
“It has economy-wide effects, particularly for the fiscal and external accounts, also for local businesses. Weaker corporate credit profiles because of higher debt servicing and roll-over costs hurt bank asset quality.”
Indonesia’s capital outflows reach a total of Rp 145.1 trillion (US$8.78 billion) in the bond and stock markets since the beginning of the year, BI data show.
Jokowi has declared a public health emergency that imposes large-scale social restrictions in order to support the highly contagious COVID-19 disease. As of Friday afternoon, a lot more than 1,900 people in the united states were infected with 180 deaths, according to official data.
Source: www.thejakartapost.com
