Despite global uncertainties, Indonesia has remained one of the best performing countries in Asia throughout 2019, in terms of maintaining an economic stability. The largest economy of Southeast Asia saw an economic growth rate of 5.02% during 2019, beating the 5% mark for the fourth consecutive year.
One of the key drivers of strengthening the economic resilience in Indonesia has been an effective combination of fiscal and monetary policies. During 2019, Bank Indonesia (BI) lowered its reference interest rate four times, in total with 100 basis points, to help boost the domestic economical growth. As of February 2020, the reference rate currently stands at 5%. Furthermore, the central bank also launched several macroprudential policies to help boost the growth in prioritized sectors, such as loosening the loan-to-value (LTV) ratio for housing and vehicle loans by 5-10%.
Additionally, BI decided to invest and strengthen the country’s digital payment infrastructure by introducing a Quick Response (QR) code standard. The standard is called QR Indonesian Standard (QRIS) and can be used for digital payments through server-based e-money applications. QRIS aims to enhance the ease of transaction efficiency, accelerate financial inclusion and help small and medium sized enterprises advance, and therefore further stimulating the economic growth of the country. Initially, QRIS will be implemented where merchant will have the opportunity to display a QR code to be scanned by the customer, giving smaller and medium sized companies a cash-free transaction alternative.
Despite the policy changes and investments, Indonesia has been struggling to attract foreign investors to the country. Today, Indonesia have a number of blacklisted sectors to which foreigners are not allowed to invest in. However, the government has eased these regulations and plans to change the negative list into a positive list, outlining attractive, available, sectors to invest in by foreign companies. Exactly which sectors the list will include is yet to be seen, but as of today, it is still being discussed. The preliminary plan is to release it in the form of a Presidential Regulation this month (February 2020), and if the time schedule holds up it will take effect in March 2020. The Indonesian government hopes the transformation from a negative to a positive list will contribute to creating a better image of Indonesia and build trust in foreign investors.
In summary, there is a positive outlook for economic growth in Indonesia due to BI’s effective policy mix and introduction of QRIS. Small and medium sized companies is given a great opportunity to introduce cash-free payments to their businesses, making transactions faster and more efficient. Lastly, the introduction of the foreign investment list is giving clear indications that the possibilities to invest in Indonesia is being welcomed by the government, and that the opportunities in the country are growing.
Read more about our consulting services.
The insights provided in this article are for general informational purposes only and do not constitute financial advice. We do not warrant the reliability, suitability, or correctness of the content. Readers are advised to conduct independent research and consult with a qualified financial advisor before making any investment decisions. Investing in financial markets carries risks, including the risk of loss of principal. Past performance does not guarantee future results.
The views expressed herein are those of the author(s) and do not necessarily reflect the company's official policy. We disclaim any liability for any loss or damage arising from the use of or reliance on this article or its content. ARC Group relies on reliable sources, data, and individuals for its analysis, but accuracy cannot be guaranteed. Forward-looking information is based on subjective judgments about the future and should be used cautiously. We cannot guarantee the fulfillment of forecasts and forward-looking estimates. Any investment decisions based on our information should be independently made by the investor.
Readers are encouraged to assess their financial situation, risk tolerance, and investment objectives before making any financial decisions, seeking professional advice as needed.
