Since 2020, the Covid-19 pandemic has disrupted economic activities around the world, including the ASEAN region. In early 2022, despite signs of economic recovery in ASEAN, the global economic outlook is still shrouded in high uncertainty. “Current development challenges cannot be handled by individual countries. Collaboration at the global level, such as at the G20 forum and regional cooperation in ASEAN, needs to be strengthened and consistently continued," said the Minister of Finance of the Republic of Indonesia, Sri Mulyani Indrawati in a series of meetings between the Minister of Finance and the Governor of the ASEAN Central Bank on 7-8 April 2022 which this year is at the helm of Cambodia. ASEAN is a resilient region in the midst of a pandemic and Indonesia has contributed to this positive achievement. ASEAN's economic growth is positive by 2.9% (year on year) in 2021, along with that Indonesia is able to grow positively 3.69% in 2021. Both ASEAN and Indonesia are also holding back a deep contraction in 2020 where most of the region and countries experience more intense contractions. This is inseparable from the government's policy response in handling the pandemic and economic recovery.
Following this achievement, the Indonesian Minister of Finance was invited to present Indonesia's strategy as an example for ASEAN countries at the Showcase Event on "Sustainable Finance: Mobilizing Financial Resources for Post-Covid-19 Economic Recovery". On this occasion, the Minister of Finance conveyed how the progress of fiscal policy since the pandemic occurred, namely (i) widening the deficit above 3% of GDP for 3 years, after the last 15 years discipline was under it, (ii) the flexibility of the State Budget so that the State Budget can be responsive to funding needs that need to be met. very priority during the pandemic, namely health and social, as well as (iii) mutual cooperation (burden sharing) with other parties such as local governments related to the implementation of social assistance programs and Bank Indonesia regarding funding for handling the pandemic. In the context of mobilizing tax revenues, which is a challenge for the developing ASEAN region, the Minister of Finance said that tax policy is not directed at revenue but relaxation during the pandemic. Business incentives in order to maintain the sustainability of the business world in order to survive and not experience bankruptcy as happened during the 1997/1998 Asian Financial Crisis. Not only that, the fiscal authority also encourages collaboration from other sectors to further assist the business world, such as the financial sector in the form of credit relief and revolving fund schemes. With the cooperation of all parties, Indonesia was able to recover faster with a deficit that was maintained and better than other countries. Going forward, along with the recovery, the Government of Indonesia will design fiscal consolidation carefully and measured so as not to disrupt the economic recovery. The tax reform package is a key policy to support this target, namely (i) Law Number 2 of 2020 (emergency law), (ii) the Job Creation Law, (iii) the Harmonization of Tax Regulations (HPP), and (iv) the Financial Relations Law. Center and Region. This tax reform package complements other strategies such as improving the quality of state spending. On the occasion, the Minister of Finance also conveyed Indonesia's commitment to climate control which is getting stronger. Indonesia has integrated the Nationally Determined Contribution (NDC) to reduce greenhouse gas emissions and net zero emissions by 2060. Various efforts have also been made, both through the use of public funds and introducing a market-based Carbon Economic Value (NEK) approach through Presidential Decree No. 98 of 2021. In the NEK scheme, the Government tries to take advantage of the carbon market and carbon tax. The carbon tax regulation itself was strengthened through the ratification of the HPP Law. In its implementation, the Government will start in the coal-based power generation sector (PLTU Batu Bara). Currently, Indonesia is still preparing technical regulations, institutional arrangements, as well as the competencies and knowledge needed for policy makers, academics, and entrepreneurs who will be directly affected by the carbon tax.
In addition, Indonesia and ADB are designing the Energy Transition Mechanism (ETM) to prematurely retire coal-fired power plants and shift them to New and Renewable Energy (EBT). “In the context of ETM, the Government of Indonesia encourages collaboration with related institutions to create a framework that can minimize risks and costs. This is to ensure a fair and affordable transition, for the community, PT PLN and the state budget,” explained the Minister of Finance. The financing mix of the Multilateral Development Bank, the private sector, bilateral partners, etc. is also expected to further support a just and affordable transition. Furthermore, the Minister of Finance revealed the geopolitical challenges that will challenge ASEAN's recovery in the future at the ASEAN Finance Ministers' Meeting (AFMM). This is a formidable challenge for policy makers around the world, including the ASEAN region. Nevertheless, ASEAN and Indonesia in particular still have good resilience. To maintain this performance, fiscal policy must continue to be directed at protecting people who are still affected by the pandemic and helping the economy to recover. In addition to maintaining recovery, it is also necessary to maintain the health of the APBN so that it remains sustainable and continues to create stability. “In this case, as a country that is still exporting commodities, the increase in commodity prices has benefited Indonesia's tax revenues which reached 40% (yoy). This is expected to help accelerate fiscal consolidation,” continued the Minister of Finance. At the ASEAN Finance Ministers' and Central Bank Governors' Meeting (AFMGM), the Minister of Finance focused on the agenda of sustainable finance and digitalization of financial services. “Sustainable finance is increasingly becoming a new effort to attract investment in many countries. Indonesia needs to take advantage of this opportunity by pushing a green agenda both at the regional and national levels. With the role that will be carried out as chairman of ASEAN in 2023, Indonesia will continue to support climate mainstreaming efforts and invite all ASEAN member countries to play an important role in achieving this agenda," said the Minister of Finance. This sustainable finance agenda is in line with the priorities of Indonesia's chairmanship of the G20 and the global finance ministers' climate coalition.
Regarding digitalization in the financial services sector, along with current technological developments, ASEAN is expected to be able to adapt to the development of digital financial services, ranging from the technology used to the development of new financial products. ASEAN financial cooperation to integrate finance in the region also needs to be strengthened by exchanging views on related regulations and better coordination among ASEAN working committees. The Minister of Finance also appreciated the progress on the financial services liberalization initiative, including the cooperation negotiations between ASEAN and Australia and New Zealand. "The potential of integration and cooperation between these countries is expected to have a significant impact on post-pandemic recovery in the region," said the Minister of Finance. The Minister of Finance also explained that Indonesia is currently working on a financial sector reform agenda to improve access to financial services, expand long-term investment sources, increase competitiveness and efficiency, provide alternative instruments and improve risk mitigation, as well as strengthen investor and consumer protection. At the end of the meeting, the Minister of Finance expressed his appreciation to Cambodia as the chairman of ASEAN (ASEAN Chairmanship) 2022. As a country that will become the chair of ASEAN 2023, the Minister of Finance and the Governor of Bank Indonesia expressed readiness to lead the ASEAN forum and annual meeting in 2023. Indonesia's preparations will be directed at addressing issues and challenges facing ASEAN in order to promote joint and strong recovery in the region.
