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15 - Corporate Sector Performance during the COVID-19 Pandemic
- Edited by Sri Mulyani Indrawati, Suahasil Nazara, Titik Anas, Candra Fajri Ananda, Kiki Verico
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- Book:
- Keeping Indonesia Safe from the COVID-19 Pandemic
- Published by:
- ISEAS–Yusof Ishak Institute
- Published online:
- 30 June 2023
- Print publication:
- 31 October 2022, pp 495-518
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Summary
INTRODUCTION
The private sector accounts for more than 90 per cent of the total Indonesian GDP and plays an important role in the Indonesian economy and employment. This chapter focuses on non-financial large and medium businesses which are the main economic drivers of the private sector. Nonfinancial large and medium businesses account for approximately half of the total private sector contribution to real GDP. Following this introductory section, section 15.2 describes Indonesian corporate performance prior to COVID-19. Subsequently, section 15.3 discusses the economic impacts of COVID-19 that appeared in multiple non-financial sectors during 2020–21. Next, section 15.4 zooms in on the impact by looking at how financial pressure on corporates evolved within the 18-plus months from the beginning of the COVID-19 pandemic, which was subsequently followed by changes in government objectives and support. It is then followed by section 15.5 covering how the Government of Indonesia (GoI) has applied an adaptive policy approach with a better understanding of the COVID-19 pandemic and its impact on both the global and domestic economy. The last section summarizes the discussion as well as gives a reflective discussion on past policies and potential future interventions. Additionally, two case studies on Value Added Tax (Pajak Pertambahan Nilai, or VAT) are presented to provide evidence at a micro level to support the discussions at a macro level in the previous sections.
The COVID-19 pandemic hit the corporate sector hard, especially in 2020, as public authorities across the globe implemented unprecedented measures to contain the spread of the virus. Restrictions on mobility and social contact, school and business shutdowns, quarantine and border closures brought the economy to almost a standstill. Sales across many sectors were plummeting as demand fell sharply. While financial commitments with respect to workers, suppliers and lenders remained, firms had to face abrupt and sharp reversals in earnings. This situation has depleted the liquidity buffer of firms across many sectors. The risk caused by liquidity shortages in the corporate sector rose and potentially affected the stability of the financial system.
The impact of the pandemic was, nonetheless, heterogeneous across sectors, depending on each sector's reliance on social contact and mobility.
4 - Fiscal Policy in Managing the Economic Recovery
- Edited by Blane D. Lewis, Firman Witoelar
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- Book:
- Economic Dimensions of Covid-19 in Indonesia
- Published by:
- ISEAS–Yusof Ishak Institute
- Published online:
- 09 October 2021
- Print publication:
- 17 March 2021, pp 44-71
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Summary
Abstract
The COVID-19 pandemic has afflicted the Indonesian economy significantly. The first half of 2020 saw a sizeable GDP contraction on the back of disrupted economic activities exacerbated by strict social distancing measures domestically and overseas. Prolonged weaker real sector activities will eventually lead to further distress in the financial sector. Unlike in other episodes of economic downturn that focus on stimulating demand, this unprecedented crisis requires the government to boost resources for pandemic containment measures, health care, and an emergency lifeline for poor and vulnerable families as well as businesses. As a result, the government has to confront unprecedented fiscal pressures from both spending and revenue sides. The fiscal deficit is likely to widen to a historical record in five decades. In this chapter we highlight Indonesia's fiscal policy in responding to the pandemic crisis and managing the economic recovery. More specifically, we underscore three main issues: (1) heightening fiscal pressures on the back of underperformed revenue collection and rising fiscal needs to contain and mitigate the pandemic crisis, (2) government strategies to finance the cost of the pandemic crisis and (3) lessons learned for future reform.
Introduction
Indonesia's economic fundamentals were in relatively good shape at the end of 2019. Higher volatility emerged in the global financial market as the United States – China trade war put pressure on the global economy. At the same time, escalating geopolitical tension created uncertainty over oil prices. Yet global economic conditions stabilised towards the end of 2019, trade tensions eased somewhat, and capital flows started to return to emerging markets, including Indonesia.
Pressures to the financial market eased significantly in the last quarter of 2019. The rupiah appreciated by 5 per cent between 31 May 2019 and 31 January 2020 and the ten-year yield decreased by 138 basis points during the same period. A calmer global financial environment is an important factor for countries such as Indonesia that are highly dependent on foreign flows to push economic growth above its potential.
Several reforms were underway, aimed at higher economic growth to escape the middle income trap by 2045, the anniversary of Indonesia's 100 years of independence.
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