Jakarta 17 February 2022 – The Covid-19 pandemic has left a deep scarring effect on the global economy, including Indonesia. Well calibrated, planned and communicated policies are required in each country to heal the scarring effect, particularly in terms of increasing productivity and fostering investment, together with sound strategies in terms of employment and capital reallocation. That was the key takeaway of Bank Indonesia Governor, Perry Warjiyo, at the strategic G20 event entitled Exit Strategy and Scarring Effects Post Covid-19 (17/02). The event was organised as part of the fourth day of side events of the 2nd Finance and Central Bank Deputies Meeting (FCBD) and 1st Finance Ministers and Central Bank Governors Meeting (FMCBG) of Indonesia’s G20 Presidency, held 14-19th February 2022 in Jakarta.
Governor Perry Warjiyo went on to outline strategies to anticipate policy normalisation and the scarring effect. Developing economies (DEs) must strengthen their resilience to the impact of policy normalisation in order to maintain economic recovery and stability. In addition, international cooperation must also be strengthened through Bilateral Currency Swap Arrangements (BCSA) and broader use of Local Currency Settlement (LCS) to promote trade and investment.
The strategy to overcome the scarring effect urges synergy and collaborative measures among all relevant parties. From a corporate perspective, the contribution includes strengthening business and banking strategies by participating in disbursing loans/financing to the real sector. Regarding the Financial System Stability Committee, all institutional members can contribute through policies to revive loans and financing to priority sectors. Meanwhile, the Government’s role includes structural reforms to provide a climate conducive to investment, trade, taxes, infrastructure, financial digitalisation and implementation of the Job Creation Act. To that end, Indonesia has implemented structural reforms in the financial markets, while accelerating financial market deepening and payment system digitalisation as well as supporting economic financing efforts to diminish the scarring effect.
Bank Indonesia Deputy Governor, Juda Agung, added that global uncertainty, such as high inflation in some jurisdictions, is influencing normalisation in advanced economies (AEs). Policies, therefore, are required to maintain market perception. Concerning the scarring effect, it is vital for the global and domestic economies to contain the Covid-19 pandemic and prevent deeper economic harm. Furthermore, the pandemic has created more awareness regarding the issues of digitalisation and climate change, for which Bank Indonesia has instituted supportive measures.
Head of the Fiscal Policy Agency, Ministry of Finance, Febrio Kacaribu, took the opportunity to reiterate the three priority agendas of the Indonesian President with respect to Indonesia’s G20 presidency in 2022, namely the global health architecture, digital economy and energy transition, which demand a coordinated global policy response. Meanwhile, according to Hendri Saparini, an economist and Founder of the Centre of Reform on Economics (CORE) Indonesia, policy normalisation will impact developing economies, including Indonesia. Similarly, Cornell University Professor and Research Scholar at the BI Institute, Iwan Jaya Azis, stated that the scarring effect will have a permanent effect on productivity. In anticipation of the long-term impact of the scarring effect, therefore, it is necessary to boost the manufacturing industry by enhancing the competencies of the workforce.
Today’s session was organised in collaboration with the Indonesian Economist Association (ISEI) as well as the Alumni of the Faculty of Economics and Business, Gadjah Mada University (Kafegama) to bolster optimism and increase understanding concerning the G20 priority agenda during the succession of Indonesia’s G20 presidency.