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Indonesia faces struggle to avoid recession: Finance minister

Indonesia faces struggle to avoid recession: Finance minister

A pedestrian walks across an elevated walkway over a main road in downtown Jakarta on Jun 17, 2020. (Photo: AFP/BAY ISMOYO)

JAKARTA: Indonesia's economic recovery was "very fragile" and could reverse as shown by tax revenue data in July, the country's finance minister said on Tuesday (Aug 25), warning that the economy faced a struggle to avoid a recession.

Revenues had improved temporarily in June after coronavirus-induced restrictions were eased, but the improvement stagnated in July and contributions from some sectors such as trade, mining and construction deteriorated, Minister Sri Mulyani Indrawati said, describing this as "a map that shows our economic recovery is very fragile and may reverse."

Indrawati said for Southeast Asia's largest economy to record flat growth of around 0 per cent in the third quarter would "require an extraordinary struggle". The economy contracted 5.3 per cent in the April to June quarter from a year earlier.

She expected the July to September GDP within a range of -2 per cent to 0 per cent, but maintained her 2020 outlook of between -1.1 per cent and 0.2 per cent.

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"We will see if the trend continues in August, whether we can stay in the zone of near 0 per cent and we can continue to guard against falling into recession," she said.

From January to July, total state revenue fell 12.4 per cent on year, while total spending rose 1.3 per cent.

Just over a quarter of the nearly US$50 billion fund set aside to ease the impact of the pandemic on businesses and households had been disbursed, she said.

READ: Endless first wave: How Indonesia failed to control COVID-19

Economists have criticised the government for spending too slowly and Indrawati said the government was working to accelerate expenditure, including by redesigning programmes that might not work.

She listed new programmes, such as additional cash transfers for low income workers and an additional 11.2 trillion rupiah (US$765 million) in government funds placed in provincial development banks, among efforts to prop up economic growth.

READ: Indonesia puts US$33 billion move of capital city on hold to tackle COVID-19 pandemic

The minister expects the country's fiscal deficit to be 6.34 per cent of GDP, with the government having earmarked US$187 billion for its 2020 budget.

"Our outlook depends very much on consumption and investment and the government will use our instruments to support the recovery," she said.

Source: Reuters/kv


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