Current Account Condition of Indonesia: Study Case Before Covid-19 Pandemic and During Covid-19 Pandemic

In 2020 the world is facing one of the most severe calamities in the 21st century, namely the Covid-19 Pandemic. With the Covid-19 Pandemic, the life order of the world community has changed drastically, with the imposition of social restrictions by various countries in the world. This of course had a major impact on world economic conditions, which were also shaken due to social restrictions to prevent transmission of the Covid-19 virus.

Among the countries affected by the economy in Indonesia. Since the Covid-19 Pandemic in Indonesia, economic activity has seemed like suspended animation. This is due to the decline in the performance of factors that affect the economy in Indonesia such as consumption and investment and this is evidenced by the recession in Indonesia which peaked at -5.32% in Q2 2020 and had an impact on decreasing demand for goods and services. This is reflected in the illustration of Indonesia's Current Account data for the 2018-2020 period.

Based on this illustration, Indonesia has consistently started towards a Current Account surplus since the Covid-19 Pandemic. In my opinion, this is due to various aspects, including export and import aspects. 

Based on this aspect, Indonesia's import value decreases and becomes lower than the value of its exports due to the behavior of the domestic people who have the principle of cash as king and prefer to keep it. Also, with the existence of social restrictions and handling of Covid-19 by policymakers that were not well controlled before vaccination in Indonesia, foreign direct investment from developed countries decreased. 

This is by following the Lucas Paradox theory which considers the institutional quality of a country to have a significant impact on investment decisions by developed countries in developing countries. From the external side, the world economy is also experiencing a downturn, making individual countries focus on allocating their economic resources to recover their country's economy first.

The occurrence of a Current Account surplus in Indonesia has a positive impact. The positive side from the Balance of Trade side is that the government's efforts to reduce dependence on imports are starting to show results, for example with the implementation of the B30 Policy for diesel fuel production which allows Indonesia to save US$ 8 billion in foreign exchange. 

Also, a positive impact came from the BI 7 Days Repo Rate due to the implementation of expansionary monetary policy by Bank Indonesia which continued to weaken and has now reached its lowest point at the level of 3.5%, this rate cut has become one of the successful instruments in helping increase the value of exports. in Indonesia after reaching its lowest point in 2020 based on the release of BPS at the level of US $ 10.45 billion.

But this current account surplus also has a negative side for Indonesia in the Balance of Trade (BoT) account, because this indicates that when the level of export increases, the domestic community saves more and causes the level of consumption of goods and services to fall. If this happens, the amount of money circulating in the community will also decrease, accompanied by a low inflation rate. 

A low inflation rate will hamper the rate of economic recovery in Indonesia amid the Covid-19 pandemic because imports of production inputs such as raw materials and other production inputs are reduced and can cause the level of investment to decline and increase the unemployment rate for employees who are not can be absorbed by existing employment opportunities. 

Also, the current account surplus on the Net Foreign Income (NFI) account indicates that foreign exchange reserves in Indonesia are increasing. This is evidenced by the increase in foreign exchange reserves on a Year on Year (YoY) basis in December 2019 at US$ 129.2 Billion until December 2020 at 135.9 Billion. If these foreign exchange reserves increase due to the sale of state bonds by the government, the debt in the State Budget (APBN) will increase because the government is obliged to pay returns in the form of interest on investment in state bonds by investors.