At the crossroad of coronavirus traffic
Indonesia is literally at the crossroad of coronavirus traffic. Surrounded by countries that have been affected by the virus, so far there have been no reports of coronavirus infections in Indonesia. This fact has cast a lot of doubt on the credibility of the Indonesian authorities because Chinese tourists to Indonesia reached over 1 million people in 2019, and there were also direct flights from Wuhan, the starting point of the virus, to Indonesia. At the same time, hundreds of thousands of Indonesians, tourists as well as business people, visited China. Yet, so far there are zero reports about the virus attack in the country.
This month, Indonesian authorities evacuated over 200 people from Wuhan, to be quarantined on the island of Natuna on the outskirts of Indonesia, and at the time they were released, there was no finding that the coronavirus had affected these people. It is true that there were reports of members of the Indonesian crew of the Diamond Princess Cruise who were affected by the virus and hospitalized in Japan. Yet, once again, nothing was found in Indonesia. In the past, H5N1, also known as the Bird Flu, caused the death of several hundred people. However, there were almost no casualties from corona-type viruses such as SARS and MERS. The millions of Indonesians who went on the Hajj pilgrimage to the Middle East would have been prone to the MERS attack. Yet by the time the epidemic was over, there were almost no victims at all from the virus.
However, the coronavirus is anticipated to affect the Indonesian economy. From the aspects of both trade and tourism, the Indonesian economy has a high dependency on China. Therefore, the intensity of the virus attack will lead to the loss of much economic activity in the tourist industry, as well as disruptions of the supply chain.
Meanwhile, before the coronavirus hit Wuhan, the Indonesian economy itself was actually in good shape, albeit gradually slowing down. The Central Board of Statistics released the National Accounts Data, which showed that in Q4 2019, the Indonesian economy grew by 4.97%, leading to 5.02% economic growth for full-year 2019. It is true that this rate of growth was slightly lower than the previous quarter. However, comparing this rate of growth with the global economic environment, it seems encouraging.
The growth of the economy took place amid a relatively stable external balance. The Indonesian current account deteriorated somewhat in Q4 2019 from the previous quarter. In Q3 2019, the deficit of the current account reached 2.66% of GDP, while in Q4, the current account deficit was 2.84% of GDP. However, the financial and capital account of the balance of payments recorded a significant surplus, so the overall balance of payments reported a surplus of approximately $4,279 million, leading the foreign exchange reserves of the Central Bank to increase significantly, to $129.2 billion, at the end of December 2019. The foreign exchange reserves of Bank Indonesia increased further, to $131.7 billion in January 2020, an increase of approximately $2.5 billion in the month.
The Central Board of Statistics also released the balance of trade data for January 2020. Exports declined by 7.16% month over month and reached $13,411.0 million in January, while imports fell by 1.6% and reached $14,275.2 million, resulting in a trade deficit of $864.2 million.
The Central Board of Statistics also released the inflation report, which showed relatively mild inflation for January at 0.39%. With that performance, year-over-year inflation stood at 2.68%, a level at the lower part of the target corridor of the Central Bank. To maintain growth momentum, and especially to dampen the effect of the coronavirus on the economy, the Central Bank decided to slash the bench mark interest rate by 25 basis points, to reach 4.75%.
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