Standing in good stead to forge extensive ties with Indonesia

09:00 | 13/06/2020
As ASEAN members, Vietnam and Indonesia will bring into full play the strategic partner spirit to maintain good economic ties between both sides, particularly in the context of the COVID-19 pandemic. Ibnu Hadi, Ambassador of Indonesia to Vietnam, delves deeper into the topic.
1495p4 standing in good stead to forge extensive ties with indonesia
Ibnu Hadi, Ambassador of Indonesia to Vietnam

The World Bank’s “Taking Stock of Recent Economic Developments 2019” predicted a global economic slowdown from 3 per cent in 2018 to 2.6, 2.7, and 2.8 per cent in 2019, 2020, and 2021, respectively. In its publication, the World Bank argued that the economic slowdown would affect many countries, including Indonesia and Vietnam.

Last year, the Indonesian economy slowed to 5.02 from 5.17 per cent in the previous year, lower than the government’s target which was set at 5.3 per cent. Nevertheless, in 2019, Indonesia achieved solid economic performance with household consumption recorded at 56.62 per cent, low inflation at 2.72 per cent (the lowest in two decades) and GDP per capita at $4,174, an increase from 2018’s $3,927.

On the other hand, the bank also predicted Vietnam’s GDP growth to fall to 6.6 per cent in 2019. However, in 2019, Vietnam grew at 7.02 per cent, albeit lower than the 7.08 per cent from the previous year, but higher than the Vietnamese National Assembly’s 6.6-6.8 per cent target. Vietnam’s GDP per capita in 2019 reached $2,800, an increase from $2,587 in 2018.

Meanwhile, Indonesia and Vietnam’s bilateral trade has been steadily progressing for the past couple of years. For three years in a row now, Indonesia achieved a trade surplus with Vietnam. In 2019, total trade between both nations hit more than $9 billion, a 7.1 per cent increase from 2018’s over $8.47 billion.

Indonesia’s export value to Vietnam in 2019 was $5.7 billion, a 15.52 per cent increase from 2018’s export value of $4.9 billion. Indonesia’s import value in 2019 was $3.7 billion – a 4.65 per cent decrease from 2018’s import value of $3.5 billion. This performance leads to a trade surplus for Indonesia in 2019 of $2.3 billion, an increase of 66.35 per cent as compared to Indonesia 2018’s trade surplus of $1.4 billion.

1495p4 standing in good stead to forge extensive ties with indonesia

Three Indonesia-to-Vietnam export commodities that indicate highest progressive growth in 2019 are in automotives, iron and steel, and fishery products (see box).

Foreign direct investment (FDI) realisation in Indonesia in 2019 sat at $28.2 billion with top five commitments that include investment in the sectors of electricity, gas, and water supply (646 projects for $5.9 billion), transportation, warehousing, and telecommunications (805 projects with $4.7 billion), base metal of non-machinery and non-equipment (983 projects at $3.5 billion), housing and industrial estate (1,308 projects with $2.8 billion) and mining (758 projects for $2.2 billion).

On the Vietnamese side, FDI commitment in 2019 rose to $38.12 billion from $35.46 billion in 2018 –with FDI disbursement of $20.38 billion in 2019. Indonesia is the 28th largest foreign investor in Vietnam with accumulated funding reaching $590.29 million in 93 projects, whilst Vietnam is the 116th investing country in Indonesia with accumulated capital of $257.7 million.

This year has seen the spread of COVID-19 all over the world. Both Indonesia and Vietnam have been impacted, especially on the economic side. From the beginning of the crisis, the Indonesian government has decided to suspend all flights to and from China, as well as to halt visa waivers for Chinese travellers.

This policy was further strengthened by suspension for free visa and visa-on-arrival for all foreign travellers since March 20. Emergency response teams have been established in each entry zone of national authority both in major airports and ports, and in cross-land border points to assure the permanent control of transport equipment, people, goods, and entire locations.

So as to address the country’s financial policy to deal with the health crisis, the Indonesian government had enacted two regulations. The first was a government regulation on state financial policy and stability of financial systems during the pandemic. The total budget for this huge financial programme is around 405.1 trillion rupiah (about $24.8 billion).

The second was a presidential regulation on the revision of allocation and details in income and expenses of the 2020 state budget. The spending will go to various policies designed in view to mitigate economic effects of the COVID-19 pandemic.

Several measures have been adopted in the economic, social, and commercial sectors of the country to support the population addressing the crisis including:

- The simplification of the existing rules governing prohibitions and restrictions on imports and exports;

- Specific measures to help micro-, small-, and medium-sized enterprises (MSMEs), including: (i) restructuring and acceleration of the credits programme; (ii) a new payment scheme more flexible and more accessible particularly for regions highly affected by the crisis; (iii) small enterprises and micro-enterprises will be included in the social assistance programme so that they can receive additional aids such as the provision of staple food. The budget for these measures is estimated at 150 trillion rupiah ($9.2 billion);

- The adoption of a number of measures with the purpose to help the most deprived persons such as providing logistical aid and staple food;

- The exemption of electricity costs for three months for the 24 million customers with 450 Volt-Ampere group and a 50 per cent payment reduction for the other seven million customers of 900VA group;

- Certain taxes will be exempted, such as those relating to 19 specific sectors in the field of imports. Other taxes will be substantially reduced by up to 30 per cent. Companies heavily affected by the health crisis will be able to ask for the right to defer their interest payments; and

- The Indonesian government also issued three global bond series with a total value of $4.3 billion. The main purpose of these bonds is to maintain financing and increase foreign exchange reserves for the Indonesian Central Bank or Bank Indonesia. As a result, Indonesia became the first country in Asia to issue sovereign bonds since the global health crisis occurred.

In the context of regional co-operation, two key events marked the important role of Indonesia in the fight against the pandemic.

First, Indonesia initiated the Special ASEAN Summit on COVID-19 on April 14 which resulted in closer co-operation among ASEAN member states. The summit resulted a few important commitments within the ASEAN. These included:

- Enhancing effective and transparent public communication;

- Reaffirming commitment to take collective action and co-ordinate policies;

- Stressing the importance of a multi-stakeholder, multi-sectoral, and comprehensive approach by the ASEAN to effectively respond to COVID-19 and future public health emergencies;

- Tasking economic ministers and officials to explore an arrangement to preserve supply chain connectivity; and

- Supporting the reallocation of existing available funds and encouraging technical and financial support from the ASEAN’s partners to facilitate co-operation against COVID-19, including the proposed establishment of the COVID-19 ASEAN Response Fund.

The second key event was the ASEAN+3 Special Summit that took place virtually on April 14 and was attended by heads of 10 ASEAN countries plus China, Japan, and South Korea. The key message coming out of this summit was the importance of unity, solidarity, and joint co-operation in the face of a common health crisis.

During the summit, Indonesian President Joko Widodo stressed several aspects. The first was the need to rapidly break the coronavirus transmission chain in each ASEAN country and in the border areas. Second, preventing traffic barriers to goods, primarily staple food, medicines, and medical equipment circulation in view to preserve the sustainability of regional supply chains. And third was providing protection to ASEAN nationals, particularly vulnerable ones including the nearly seven million migrant workers within the ASEAN countries through joint co-operation.

Furthermore, President Widodo called for strengthened co-operation to ensure the procurement of medicines and medical equipment; reinforcement of medical professionals and healthcare workers’ expertise and skills through the ASEAN+3 Field Epidemiology Training Network. He also committed to reviving existing mechanisms and the new proposal on the ASEAN Response Fund.

Indonesia and Vietnam signed a strategic partnership in 2013. The two countries further recommitted themselves by signing a plan of action of strategic partnership in September 2018. Now it is time for the two countries to work hand-in-hand in the spirit of the strategic partnership to combat the spread of COVID-19 and reactivate economic relations that have been hampered by the disease.

By Ibnu Hadi

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