SINGAPORE, October 29, 2020 – The economy of Indonesia remains resilient despite the COVID-19 pandemic. A prompt recalibration of the policy mix and the enactment of large stimulus measures have provided appropriate supports to the affected households, businesses, and financial sectors, as well as safeguarded Indonesia’s macroeconomic and financial stability. This is according to the preliminary assessment by the ASEAN+3 Macroeconomic Research Office (AMRO) after its virtual Annual Consultation with the Indonesian authorities from September 21 to October 7, 2020.

The AMRO team was led by Lead Economist, Dr. Sumio Ishikawa, while Director, Mr. Toshinori Doi, and Chief Economist, Dr. Hoe Ee Khor participated in the policy meetings. The discussions focused on the impact of the pandemic and policy responses to maintain stability and support recovery.


“The Indonesian economy is expected to contract by 1.7 percent in 2020 as mobility restriction measures to curb COVID-19 infections have suppressed domestic economic activity. That said, the degree of contraction has been moderate compared to regional peers, said Dr. Ishikawa. The authorities have responded promptly with policy mix recalibration and large stimulus packages to support the affected households and businesses, as well as the financial sector. Continued supportive policy synergy, together with the rapid development of COVID-19 vaccines, are expected to underpin a rebound in growth to 5.1 percent in 2021.”

Recent high-frequency data points to a gradual rebound in economic activity from a contraction in the second quarter, in tandem with a relaxation of large-scale social restrictions. A narrowing of the current account deficit and resumption of capital inflows, coupled with subdued inflation, have supported a broadly stable rupiah. The external position has been resilient with the gross international reserves reaching USD135.2 billion, as of September 2020. Furthermore, financial system stability remains solid during the pandemic, reflected in strong capital buffers, and contained non-performing loans. Meanwhile, the recent passage of an Omnibus Law on Job Creation is a breakthrough in improving the investment climate and facilitating job creation. With massive regulatory reforms and de-bureaucratization, the law is aimed at providing policy certainty for all stakeholders and enhancing Indonesia’s long-term competitiveness, hence supporting national economic recovery.

Policy responses

Bank Indonesia has recalibrated its policy mix to maintain stability and support economic recovery. These measures include providing substantial liquidity support to the markets and conducting triple interventions in the spot FX and domestic non-deliverable forward markets as well as purchasing government bonds in the secondary market, to ensure rupiah exchange rate stability. In light of a low inflationary environment, Bank Indonesia has lowered its policy rate by 100 basis points and eased macroprudential policies to support economic financing. Smooth payments for both cash and non-cash transactions have been maintained. The digitalization of payment systems based on the 2025 Indonesian Payment System Blueprint has been also accelerated.

The 2020 Budget introduced sizable fiscal packages of about 4.4 percent of GDP to increase healthcare spending and provide reliefs to affected households and businesses. An additional fiscal stimulus of about 2 percent of GDP has been approved for 2021. The loan restructuring criteria have also been relaxed to help borrowers, in particular micro, small, and medium-sized enterprises (MSME), affected by the pandemic.

A forward-looking regulation, Perppu 1/2020 (converted into Law 2/2020), was issued to lift the fiscal deficit limit of 3 percent of GDP between 2020 and 2022. It also allows Bank Indonesia to purchase government bonds in the primary market. Bank Indonesia has purchased government bonds through market-based mechanisms in line with the Joint Decree of the Minister of Finance and Governor of Bank Indonesia dated April 2020, including auctions, greenshoe options, and private placements.[1] In accordance with the Joint Decree of the Minister of Finance and Governor Bank Indonesia dated early July 2020, the central bank has also agreed to a burden-sharing scheme to fund the public goods package through private placements and to bear the entire interest cost of the public goods package and share part of the interest cost of the non-public goods (SME and non-SME corporation) package. The burden-sharing scheme is intended to be one-off. The extraordinary circumstances of the pandemic and the prudent framework applicable to Bank Indonesia’s purchase of government bonds have been reassuring to the markets.

Risks and vulnerabilities

A rising trend of COVID-19 infections in the country has posed risks to Indonesia’s economic recovery. Meanwhile, fears of renewed infection waves, together with the heightened U.S.-China trade tension, have cast a shadow on global prospects and could adversely affect Indonesia’s exports. On the upside, better-than-expected global economic conditions, especially for Indonesia’s main trading partners, and early availability of COVID-19 vaccines may facilitate a swift recovery for Indonesia.


Effective implementation of the current stimulus policy mix is expected to support economic activities and their recovery amid an ongoing pandemic situation. Recent efforts to accelerate the disbursement of fiscal packages are encouraging and could be further stepped up. Likewise, the restructuring of bank loans could be extended to mitigate the risk of default among households and businesses. Continued strong policy synergy and effective communication with the markets are essential.

A smooth exit from the extraordinary policy measures is necessary to avoid a cliff effect and to facilitate the transition to a full economic recovery. The government’s commitment to restore the fiscal rule from 2023 onwards will help to anchor market confidence and build up policy space, post-pandemic. The authorities could consider a fiscal consolidation plan through raising tax revenue and enhancing spending efficiency. Bank Indonesia should continue its close coordination with the government and other related authorities to accelerate economic recovery while pursuing its prudent policy mix of maintaining macroeconomic and financial stability. Continued reforms in the areas of economic diversification, investment climate, infrastructure, and human capital development would strengthen resilience against future shocks.

The AMRO team would like to thank the Indonesian authorities and other counterparts for their thoughtful comments and candid views. Due to the COVID-19 pandemic, all meetings for this year’s consultation were held in virtual space. AMRO wishes to express its appreciation for the support and coordination of this arrangement.

[1] An explanation on Bank Indonesia’s purchase of government bonds through market-based mechanisms in line with the Joint Decree of the Minister of Finance and Governor of Bank Indonesia dated April 2020 could be found in the following link:

About AMRO

The ASEAN+3 Macroeconomic Research Office (AMRO) is an international organization established to contribute toward securing macroeconomic and financial stability of the ASEAN+3 region, which includes 10 members of the Association of Southeast Asian Nations (ASEAN) and China; Hong Kong, China; Japan; and Korea. AMRO’s mandate is to conduct macroeconomic surveillance, support the implementation of the regional financial arrangement, the Chiang Mai Initiative Multilateralisation (CMIM), and provide technical assistance to the members.