You might have heard the bad news already: Indonesia’s economy has just entered its first recession since the 1998 Asian financial crisis, bringing two decades of economic expansion to an end as the coronavirus pandemic has caused a sharp economic slowdown, throwing millions into poverty and out of jobs.
Economically speaking, a recession is defined as contractions in two consecutive quarters, causing a significant decline in economic activity to spread across the economy, resulting in fewer jobs, people earning and spending less, as well as businesses grinding their expansions to a halt or even ceasing their operations altogether.
As a result of the pandemic, the Indonesian economy shrank 3.49 percent in the third quarter after contracting 5.32 percent in the second quarter.
In plain terms, recessions impact businesses and individuals badly.
With most businesses having to limit their operations and cut costs by cutting workers’ salaries or laying them off, as a consequence, a lot of people might lose their jobs, have their salaries cut, withhold their monthly installments or take some personal fiscal austerity measures.
Indeed, the situation sounds scary.
Therefore, to buffer the negative impacts of the economic recession, the Indonesian government is currently trying hard to push for economic recovery by attracting foreign direct investment (FDI).
When you look at the declining FDI realization in Indonesia in the second quarter this year, it does not look so encouraging: the Investment Coordinating Board (BKPM) revealed in July 2020 that FDI fell 6.9 percent year-on-year (yoy) to Rp 97.6 trillion (US$6,93 billion) in the April-June period, continuing the downward trend that had started in the first three months of the year.
Yet, amid such a gloomy picture, it turns out that global firms are still quite upbeat about the potential of the Indonesian digital economy, particularly that of local e-commerce and financial technology (fintech) platforms.
For instance, recently Google and Temasek Holdings Singapore have just injected local Indonesian technology company Tokopedia with additional capital to help with the platform’s business expansion after the COVID-19 pandemic. Therefore, both global firms have by now become Tokopedia shareholders.
In response to the investment realization, Tokopedia founder and chief executive officer William Tanuwijaya posted the following content on his Instagram account on Nov. 16: “We are deeply honored and grateful for the support they have lent to Tokopedia and Indonesia.”
Commenting on Indonesia’s current recession, William said that in each of Indonesia’s defining national crises, there would always be members of the respective generation who would stand up to the challenge and turn the situation around.
This was true for the 1945 Independence, the dawn of the Reform Era in 1998 and this is going to be true again during the current COVID-19 pandemic and the corresponding multidimensional crises that happen alongside it.
Bhima Yudhistira, an economist with the Institute for the Development of Economics and Finance (Indef), said Indonesia’s e-commerce and fintech industries showed the most promising growth compared to other sectors of the digital economy, even amid the pandemic.
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