The government is working hard to mitigate the impact of the coronavirus disease 2019 (COVID-19) outbreak on the national economy. Both the real and financial sectors are affected.
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KOMPAS/HERU SRI KUMORO
Bank Indonesia (BI) Governor Perry Warjiyo (left to right), Coordinating Economic Minister Airlangga Hartarto and Financial Services Agency (OJK) Board of Commissioners Chairman Wimboh Santoso walk after meeting President Joko “Jokowi” Widodo at the Presidential Palace in Jakarta on Monday (2/3/2020). The meeting was related to tackling the economic impact of the coronavirus outbreak.
JAKARTA, KOMPAS —The government is working hard to mitigate the impact of the coronavirus disease 2019 (COVID-19) outbreak on the national economy. Both the real and financial sectors are affected.
The capital market has taken a hit and the rupiah’s exchange rate against the US dollar has been plummeting since last week due to investors’ concerns about the economic impacts of COVID-19. These concerns are exacerbated by investment trends in China’s manufacturing sector, as reflected in the country’s Purchasing Managers Index (PMI) for manufacturing, which dropped to 35.7 points in February 2020 – lower than during the 2008 financial crisis.
The Jakarta Composite Index (JCI) dropped after President Joko “Jokowi” Widodo announced the first two confirmed COVID-19 cases in Indonesia on Monday (2/3/2020). At closing time on Monday, the JCI was at 5,361.25 points, or down by 1.68 percent. Since the start of the year, the JCI has dropped by 14.89 percent, just a little below the Stock Exchange of Thailand (SET) Index’s 15.46 percent drop. Since the start of the year, foreign investors have booked Rp 5,014 trillion (US$356.35 million) in net sales.
Binaartha Sekuritas analyst Nafan Aji Gusta said investors had sold their stocks in response to the government’s announcement of the first two confirmed COVID-19 cases. “Panic selling ensued, weakening the JCI,” he said.
Indonesia Stock Exchange (IDX) president director Inarno Djajadi said that, thus far, the policy to eliminate a list of stocks eligible for short selling was still deemed adequate
KOMPAS/LASTI KURNIA
Men walk in front of screens displaying stock prices at the Indonesian stock exchange in Jakarta on Monday (2/3/2020). After the government announced that two Indonesian citizens had tested positive for the coronavirus, the main stock market index fell to 5,361 points at the close of trade on Monday (2/3), down 1.68 percent from last week\'s close.
Market intervention
The rupiah’s exchange rate based on the Jakarta Interbank Spot Dollar Rate (JISDOR) on Monday was at its lowest point since May 29, 2019, namely at Rp 14,417 per US dollar. In the cash market, as quoted by Bloomberg on Monday evening, the rupiah was exchanged at Rp 14,265 per US dollar.
Bank Indonesia (BI) Governor Perry Warjiyo said financial market intervention would be intensified to maintain market trust that the situation was under control. “We have been doing this. We only need to intensify it,” he said.
The monetary policy strategy includes intervention on cash market transactions by selling foreign exchange and controlling the rupiah’s weakening. BI would intervene on forward transactions through a domestic non-delivery forward (DNDF) hedging instrument policy. Furthermore, BI would purchase government bonds (SBN) sold by foreign investors.
Of this amount, around Rp 80 trillion was purchased in late February, amid heightened concerns over the COVID-19 outbreak.
Thus far this year, BI has purchased Rp 103 trillion worth of SBN from the secondary market. Of this amount, around Rp 80 trillion was purchased in late February, amid heightened concerns over the COVID-19 outbreak.
Perry said that, starting on April 1, the rupiah primary reserve requirement (GWM) rate for banks financing industrial exports and imports would be reduced by 50 basis points (bps). From 16 March on,
foreign exchange GWM for conventional and sharia banks would be loosened from 8 percent to 4 percent. It is hoped that this would strengthen the banks’ foreign exchange liquidity. “The policy is aimed to further strengthen the stability of the rupiah’s exchange rate,” he said.
Coordination
Finance Minister Sri Mulyani Indrawati said global financial markets were in turmoil in the wake of the COVID-19 outbreak. The Financial System Stability Committee – which has the Finance Ministry, BI, the Financial Services Authority (OJK) and the Deposit Insurance Corporation (LPS) as members – will coordinate to observe the dynamics thoroughly and prepare anticipatory steps.
So, we will see the steps that we can take to accelerate imports of raw materials of which the stocks are depleting in the manufacturing industry.
The city of Wuhan, the original epicenter of COVID-19, is a manufacturing hub in China that supplies plastics, textiles, footwear, steel and chemicals to a number of countries, including Indonesia. “If they delay production due to the coronavirus, Indonesia will surely be affected. So, we will see the steps that we can take to accelerate imports of raw materials of which the stocks are depleting in the manufacturing industry,” Sri Mulyani said.
Coordinating Economic Minister Airlangga Hartarto said the government was preparing several additional stimulus programs. Meanwhile, Indonesian Food and Beverage Producers Association (Gapmmi) chair Adhi S Lukman said food and beverage stocks nationwide were still adequate. (AGE/DIM/LAS/INA/CAS)
