Australia lending $1.5 Billion to Indonesia

money loan

A Symbolic Gesture

Treasurer Josh Frydenberg and Indonesian Finance Minister Sri Mulyani Indrawati announced in a joint statement, that Australia will provide $1.5 billion to Indonesia as a loan.

On the statement, it was emphasized that the loan builds on their highly valued economic relationship and a strong record of bilateral cooperation. This is yet another largely symbolic gesture.

This was after Indonesia falls into its first recession in 22 years while it grapples with the surge of Coronavirus cases. The statement read “COVID-19 poses an unprecedented challenge to the Indo-Pacific and the world”.

Given that Indonesia is an important regional strategic partner to Australia, the said loan would be used to support Indonesia’s budget and was repayable over 15 years. As stated “Indonesia’s recovery and ongoing prosperity is critical to the stability and security of our region.”

It is devastating to hear that holiday island of Bali has been the worst affected due to a halt in international tourism. It suffered from a 12.28 per cent drop in gross regional domestic product in the third quarter of 2020, following a fall of 10.98 per cent in the previous quarter.

 On a bigger picture, Indonesia’s gross domestic product shrank by 3.49 per cent in the said period, following a 5.32 per cent contraction in the previous quarter.

A landmark free-trade agreement between Australia and Indonesia came into force in July this year, but has not been as fruitful as expected due to domestic expenditure to mitigate the effects of the pandemic.

Economists are saying that it will not have a major impact on Indonesia’s current economic troubles. For instance, Arianto Patunru, an Indonesian economist, told ABC that the loan is largely a “symbolic sign.” “To put that into perspective, the Indonesian Ministry of Finance needs to raise funding of around $US8-10 billion per month to deal with COVID-19,” he said.

However, the gesture by Australia will still assist Indonesia in calming the markets and restoring investor confidence, Mr Patunru added.

Used or not, the loan gives a signal to the market, and it is very essential. Whilst Indonesia is dealing with its economic problems, they also wanted to take care of the investor’s attitude and confidence. So at least, these investors don’t pull out their investments with this funding.