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Indonesia’s Outlook: Addressing COVID-19, Capital Relocation

  • By Andrew Deichler
  • Published: 3/18/2020

Benny Joesoep2

Financial professionals in Indonesia face some unique challenges, not the least of which is the ongoing coronavirus pandemic, and the likely relocation of the nation’s capital from Jakarta to East Kalimantan.

To get a better perspective, we spoke with Benny Joesoep, CFO and executive vice president of ISS Indonesia. Based in Jabodetabek, Joesoep has more than 20 years of experience in finance and business development. He will moderate a panel on Indonesia’s economic outlook at CFO Innovation Indonesia this summer.

AFP: So your discussion at CFOi is on Indonesia's economic outlook. Can you provide our readers with a preview? How is the outlook for Indonesia? What policies are impacting financial professionals like yourself who operate in the region?

Benny Joesoep: Initially—before the COVID-19 outbreak—Indonesia's economic outlook was projected to grow between 5.1-5.3% mainly supported by domestic consumption and policies by the government to stimulate capital expenditures and household spending through subsidies. The policies of the Indonesian Central Bank remain dovish and as expected recently cut the interest rate to 4.75%. These, coupled with the government's investment in infrastructure, would secure the growth target.

Investment growth is a key factor to accelerate the economic growth. This could, however, only be achieved if the government manages to simplify, trim and align the complex and overlapped policies and regulations. We wait, cautiously and anxiously, the overdue Omnibus Reform Bill submitted by President Joko Widodo’s administration to the Parliament on job creation and tax deregulation to attract more investment and to create jobs.

AFP: How is the impending relocation of the capital from Jakarta to East Kalimantan impacting business? What changes are you making at your organization?

Joesoep: Currently, the relocation plan has yet to be approved by the parliament and if it is approved, the construction would begin in 2021. The project itself is to be financed heavily by state own enterprises and private sectors. This mega-project will present opportunities for companies in soft and hard infrastructure—i.e. urban development, utilities, ports, environmental consulting, as well as those in the business of designing smart cities.

Whilst Jakarta would lose its status as capital city, it would remain Indonesia's economic hub and the government would continue to invest in urban regeneration projects in Jakarta going forward. We currently seeking to develop a base understanding of the move and assessing factors that may impact our business.

AFP: Your upcoming session also looks at the potential global slowdown that's coming. How do you see Indonesia being affected? What industries would be hurt the most and how would they compensate?

Joesoep: The global pressure stemming from the slowdown in China's economic growth has affected almost all developing countries, including Indonesia. The export/import trade from and to China and Chinese investment are key drivers for Indonesian economic growth. Indonesia's economic slowdown is expected to continue, amid failure to improve investment, climate and household consumption.

The slowdown in economic growth is affected by the weakening of the purchasing power of the people, plus the COVID-19 outbreak. COVID-19 is affecting the Indonesian economy through tourism, trade and investment, as China is Indonesia’s largest market for non-oil and gas trade and tourism. China is also the main supplier of raw materials and capital goods for Indonesia's manufacturing sector. Should the accumulated impact of COVID-19 reduce China’s growth, it would lower Indonesian growth.

The government is continuing to monitor the global economic slowdown and COVID-19’s impact on the economy and has prepared measures to counter the downturn that might come with it through investment in infrastructure, the Omnibus Reform Bill and the rate cut by the Central Bank. Though it is believed that the government would revise GDP Growth by 20-30 basis points.

AFP: ISS Group operates in more than 70 countries... have your services been disrupted by the coronavirus? If so, has it led you to rethink your business continuity plan or operational strategy?

Joesoep: As of now there has not been any disruption in our services in Indonesia due to coronavirus. However, we stand ready to assist our customers in addressing coronavirus-related challenges and have a role to play in directly and positively impacting customer business continuity plans—specifically related to their people and facilities.

For tools and resources to help treasury and finance professionals in this difficult time, visit AFP’s Coronavirus Resource Center.

 Like you, your peers are also making adjustments to their operations during the coronavirus crisis. Continue the conversation with them at AFP Collaborate.

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