MM5006 BUSINESS ECONOMICS

FINAL EXAM
ONLINE HOME TEST

By:
YUMNA SABILA
29119466

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MASTER OF BUSINESS ADMINISTRATION PROGRAM

SCHOOL OF BUSINESS AND MANAGEMENT
INSTITUT TEKNOLOGI BANDUNG
2020

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 1. To what extent Covid 19 Pandemic affecting the Macroeconomy in Indonesia?
® The pandemic that occurred in the first quarter of 2020 and the lockdown policies
implemented in several countries, resulted in a massive reduction in activity. Several
countries reported an economic contraction this quarter. Meanwhile, Indonesia still grew
positively by 2.97 percent (YoY). This condition is mainly due to slowing household
consumption. Consumption of clothing, footwear, and care services as well as
transportation and communication contracted during January-March 2020 due to calls to
reduce activities outside and work from home.
Although Indonesia's economic data slowed down in the first quarter of 2020 and
increased unemployment, it seems that investors still have confidence in the resilience of
the domestic economy. This is indicated by developments in financial markets that are
moving in a fairly stable range. The policies taken by the government and related

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authorities have so far been able to stabilize the panic that had occurred in the financial

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market.

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Most of the foreign capital flows back into Indonesia are invested through Government

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Securities (SBN). During the period 20-23 April 2020, foreign investors made net
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purchases amounting to Rp1.4 trillion. Meanwhile, in the stock market, there was net
selling of Rp1.6 trillion. However, the movement of the Composite Stock Price Index
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(JCI) in April was more stable than the previous month, which moved in the range of
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4,466-4,812.
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Figure 1. The Movement of IHSG

Foreign capital inflows that returned to Indonesia prompted the strengthening of the
Rupiah exchange rate during April 2020. The Rupiah exchange rate showed a stronger
trend until the end of the current month. The rupiah exchange rate has moved back below
Rp. 16,000 per USD. The exchange rate movement was also reinforced by the quite high
number of bids for SBN auctions, which amounted to Rp44.4 trillion. In addition, stronger
stock futures in the United States and Europe had an indirect positive impact. On the last
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 trading day in April 2020, the Rupiah exchange rate was IDR 15,157 per USD. Based on
developments, the exchange rate was stable and tended to strengthen towards Rp15,000
per USD.

Figure 2. Rupiah Exchange Rate

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The position of Indonesia's foreign exchange reserves in April also increased to

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USD127.9 billion. The reserve is even higher compared to the position in April 2019

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which amounted to USD124.3 billion. The increase in foreign exchange reserves in April

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was mainly driven by the issuance of government global bonds. Previously, the
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Indonesian government issued the largest global bonds reaching USD 4.3 billion in the
form of global securities through three series of Government Securities (SBN). The
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position of foreign exchange reserves as of April was equivalent to financing 7.5 months
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of imports and servicing foreign debt of the government.

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Figure 3. Foreign Reserve Position

Based on developments in the value of exports and imports, the April 2020 trade
balance was a deficit of USD0.3 billion. Although export and import performance fell,
the deficit was better than that in 2019. The cumulative balance until April was a surplus
of USD2.3 billion.

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 Figure 4. Balance of Trade (in USD milliard)
• Monetary Policy
In response to severe economic disruptions, BI has eased monetary policy and used
unconventional measures such as asset purchase programs to stabilize the rupiah and

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the financial system. One idea is for BI to buy government bonds in the primary

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market. This is currently a popular idea, but Indonesia needs to exercise caution.
Conceptually, in a recession or depression (Keynesian range), in which the economy

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is far from full employment, ‘printing money’ by having BI buy government bonds
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will increase the money supply and fund the budget deficit without triggering
significant inflation. But it must be remembered that Covid-19 is creating both a
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demand shock and a supply shock. BI also adjusted the seven-day reverse repo rate to
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a lower level of 4.5 percent and relaxed the reserve requirement to bolster credit
growth. Thus, if government bonds are bought in too high a volume, or continually,
when production (aggregate supply) declines, inflation will increase.
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• Fiscal Policy
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The Indonesian government has announced several packages of fiscal stimulus for
health care, a social safety net for “blue-collar” and informal workers, and incentives
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for affected businesses and industries. The Finance Ministry also estimated the fiscal
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deficit was up to as high as 5 percent of gross domestic product. Those measures,

however, are essential for combating COVID-19 and its economic consequences.
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Fiscal stimulus is hugely important to ensure a stronger long-term economy. The

government initially allocated Rp 641 trillion (about 4% of GDP) to fighting Covid-
19. This included allocations for health care, social safety net programs and economic
recovery. With a stimulus of 4% of GDP, the state budget deficit is expected to
increase to about 6% of GDP. Indonesian law stipulates that the budget deficit cannot
exceed 3% of GDP. As the 2020 budget deficit is predicted to break this rule, the
government has been authorized to run a budget deficit above 3% until 2023. After
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 2023, the 3% threshold must be reintroduced. Indonesia’s policy mirrors that of other
countries, but the size of the funding requires scrutiny.

2. To what extent Covid 19 Pandemic affecting the Digital Economy in Indonesia?

® Industrial Revolution 4.0 has brought significant changes to various areas of life. One
of them is digital transformation innovation carried out in line with business
competencies and involving digital technology in the implementation stage
(Kemensetneg 2019). The digitalization era is now growing rapidly by blurring the
boundaries between networks. This was followed by collaboration that was able to give
birth to the concept of sharing economy, internet of things, e-commerce, and financial
technology in the economic field.
In Indonesia, the use of digital services has increased during the period of social

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distancing. Consumers decide to buy daily necessities through an online platform in the

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form of e-commerce. Based on research, the development of e-commerce in Indonesia is

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able to penetrate the figure of 40 billion in 2019 which makes Indonesia the country with

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the largest digital economic value in Southeast Asia and is predicted to be able to increase
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to 130 billion by 2025.
Economic digitization has proven to have a positive impact related to efficiency,
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productivity, reduced production costs and agility of excellence by quickly connecting

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one party to another. Digital technology is able to optimize activities so that they are more
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focused and reduce waste of resources. In addition, the instruction of international

institutions to carry out WFH (Work from Home) is able to maximize labor productivity
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while maintaining company credibility. And last but not least, the application of data-
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based technology has flexibility for customers so that they are able to make or change
decisions more quickly. So that the digital economy has succeeded in becoming a key
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role in stabilizing the trade sector, both micro and macro.

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3. Related to the current Covid 19 Pandemic, to what extent Indonesia’s Fiscal and
Monetary Policy align with the reasoning and theory of modern macroeconomic.
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® Current Covid 19 Pandemic in Indonesia, President Joko Widodo (Jokowi) estimates

that the 2020 State Budget (APBN) deficit could reach 5.07% of gross domestic product
(GDP). This projection is the basis for the government to issue a government regulation
that issues a law (Perppu), so that the APBN deficit does not exceed the limit set in the
Law on State Finance of 3% of GDP. President Jokowi will immediately sign the Perppu
so that he can immediately execute the fiscal stimulus policy in order to provide certainty

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 for the community amid the Covid-19 outbreak. Jokowi ensured that the relaxation was
only given for 3 years from the 2020 to 2022 fiscal year. After that, the government will
again use the 3% deficit limit. The monetary policy undertaken is that Bank Indonesia
injects funds (with a Countercyclical Buffer) into the government when the economy is
expanding, on the other hand Bank Indonesia will reduce the amount of CCB when the
economy is in contraction.
Relate to theory of modern economy, according to Keynes (2013) the appropriate
fiscal policy is to increase government spending and/or decrease taxes. From this policy,
the government seeks to shift the AD curve to the right by spending and lowering taxes
so that output returns to potential output YP and prices rise to P1.

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Figure 5. Expansionary Fiscal Policy in the AD/AS Model

If economic activities are able to quickly return to normal and the government budget
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is balanced, the government does not need to take any action (sound finance). But if the
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Covid-19 crisis is prolonged, and deep disruptions to production continue, recovery will
be significantly longer, and it is quite possible that recovery will follow a U-shaped curve.
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References:
1. Kementerian PPN/Bappenas. April 2020. “Perkembangan Ekonomi Makro April 2020”.
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http://www1.bappenas.go.id/files/1615/8977/3890/Laporan_Perkembangan_Ekonomi_
Makro_Bulan_April_2020.pdf. Tanggal Akses: 12 Oktober 2020.
2. https://www.cnbcindonesia.com/news/20200331160819-4-148819/jokowi-segera-
minta-restu-dpr-sebar-stimulus-rp-4051-t
3. https://www.bi.go.id/id/perbankan/Countercyclical-Buffer
4. Susan Olivia, John Gibson & Rus’an Nasrudin. Agustus 2020. “Indonesia in the time of
Covid-19”. https://www.tandfonline.com/loi/cbie20. Tanggal Akses: 12 Oktober 2020.

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