Indonesia finance: Sri Mulyani Indrawati makes sense of Covid-19
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Southeast Asia

Indonesia finance: Sri Mulyani Indrawati makes sense of Covid-19

It has been a pattern in Indonesia for the best part of 15 years: whenever southeast Asia’s largest economy is engulfed in crisis, it turns to Indonesia's minister of finance – but she has never faced a challenge like this.

Mulyani Indrawati_780

Illustrator: Péter Csuth

Sri Mulyani Indrawati is Indonesia’s financial and economic trouble-shooter.

Whether it is managing the economic aftermath of the 2004 tsunami, reinforcing Indonesia’s fragile banks in the wake of the financial crisis, cleaning up the country’s customs regime or convincing locals to pay their taxes and remit cash they have squirrelled away in overseas bolt holes, Indonesia’s finance minister has consistently been the person in charge.

Mulyani’s role during her two stints running the nation’s finances has been defined as much by crisis as it has by the conventional stewardship of the economy usually associated with the job. Little wonder then that the 57-year-old, US-educated technocrat is much-hailed by Indonesia-watchers at home and abroad as one of the few genuine grown-ups in Jakarta’s leadership ranks. As a banker once put it to Asiamoney: “She adds a [percentage] point to GDP simply for being there.”

She has remained true to form during the Covid-19 pandemic. As the disease spread across Indonesia, Mulyani returned once again to emergency mode, retooling a budget that had passed only six months earlier in an attempt to stem the economic and social impact of the fast-expanding outbreak.

It helped that Indonesia was in reasonable economic shape when it entered the crisis.

The country, whose economy grew a slightly lower-than-expected 5% last year, ended 2019 with inflation of 2.7%, the lowest level in at least 20 years. 

When the sun is shining, you better fix the roof, because you can’t do it when it’s raining - Sri Mulyani Indrawati

Foreign reserves hit a historic record high of $132 billion in January, giving Bank Indonesia, the central bank, leeway to support a slumping rupiah, which had fallen in the middle of the coronavirus crisis from a year-average of about 14,000 against the dollar to touch 17,000.

The budget deficit, which is required by law to be under 3% of GDP, was just 1.76% by the time the September budget was announced. Indonesia’s debt-to-GDP ratio is a prudent 30%, Mulyani says.

That gave her room to manoeuvre when crafting a pandemic-fighting budget. As Mulyani noted in late May, peering into a computer monitor to speak to Asiamoney from her home isolation in Jakarta’s suburbs: “When the sun is shining, you better fix the roof, because you can’t do it when it’s raining. I always emphasize this to my team.”


When the world is healthier and historians can properly assess the 2020 coronavirus crisis to help ward off the worst of the next one, Indonesia will not be hailed for the way it handled its own outbreak. Having Mulyani’s hand on the economy was probably one of the few positives.

For months, Jakarta’s leaders seemed virtually in denial that there even was a health emergency to respond to, much less a need to limit its impact on 270 million Indonesians.

Indonesia did not admit to its first coronavirus infection until March, even though contagions and deaths were accumulating from early January in neighbouring Singapore and Malaysia while Indonesia remained at risk from China itself, in large part thanks to flights connecting Wuhan to Bali and Sulawesi.

Joko Widodo_300

President Joko Widodo stared
down international criticism for
what was seen as a lacklustre
response to the coronavirus crisis

Some Indonesian ministers made peculiar remarks when talking about the virus. A succession of officials claimed that Indonesia’s apparently unique resistance to Covid-19 was variously due to karma, the country’s steamy equatorial climate, the eating of bean sprouts and broccoli or the guzzling of a local concoction known as jamu, a traditional Javanese herbal tonic.

Sensible Indonesians weren’t buying their leaders’ idiosyncratic advice, but instead stocking up on face masks, hand sanitiser and whatever protective equipment they could muster.

Unusually in such times, social media often proved more informative than the official sources.

Indonesia’s official lack of cases was explained by scientists as more to do with a botched testing regime and the country’s flawed and chronically under-resourced health system than swigging local potions or some mystic forcefield.

Even as international travel restrictions began biting as early as February, president Joko Widodo threw money at the outbreak, albeit in the wrong places, announcing discounts and incentives to lure travellers to tourist hotspots such as Bali.

As holiday cancellations mounted, Widodo pledged even more state millions to pay social media ‘influencers’ to lure travellers to a country that wasn’t conducting widespread testing for the disease.

It took until almost April for Indonesia to decree a quarantine lockdown – several weeks after much of the rest of the world – and even then it only enacted a partial, mostly advisory, one.

No less a national authority than the health minister, Terawan Agus Putranto, posited that Indonesians’ faith was keeping the virus at bay.

Putranto, a former military doctor, slammed as ‘insulting’ a study by Harvard University researchers that said Indonesia had many unreported cases because of a lack of testing kits and training in how to use them.


Harvard’s health experts were proved right. The virus was infecting Indonesians in vast numbers. It continues to do so. As curves flatten elsewhere, it is not clear Indonesia has even reached any sort of peak.

By June 8, there were 32,033 confirmed cases in Indonesia, according to data from Johns Hopkins University’s Coronavirus Resource Center.

On June 9, as the lockdown began to be lifted, Indonesia announced 1,043 new cases, its highest daily increase so far. There have been 1,883 deaths.

In March, modelling by researchers at the University of Indonesia projected 1.7 million infections and 144,000 deaths: that is close to the number of Indonesians who lost their lives in the 2004 tsunami.

For a glimpse at the potential scale of the virus in Indonesia, look at data from Surabaya, Indonesia’s second-largest city after the capital Jakarta, with a population of about 13 million.

In late May, The New York Times reported that a random sampling of 11,555 people in the city showed that 10% of them carried coronavirus antibodies.

Indonesia’s population is about 270 million, making it the world’s fourth most populous country.

Though official Indonesia has appeared casual, even cavalier, in its reaction to Covid-19, a serious response was being planned by the finance ministry and the central bank, in particular, out of the public view.

Suddenly the whole market mechanism was in a standstill, like hibernation. The economy just stopped, both demand and supply just stopped - Sri Mulyani Indrawati

“When I saw the lockdown in Wuhan… I projected that this is going to spread,” says Mulyani. “Suddenly the whole market mechanism was in a standstill, like hibernation. The economy just stopped, both demand and supply just stopped.”

One of the first things she did was basic but important. She simply Googled the impact of the Spanish flu outbreak of 1918/19, and how governments responded to it. She then consulted doctors, scientists and epidemiologists to walk her through what the pandemic meant.

“I tried to formulate what it could mean for our budget, and our resources,” she says.

She studied the soaring infection data in Italy and Spain, which at the time were Europe’s two hardest-hit economies.

“It became clear it was going to require huge resources” she says.

Crisis planning

Worried about capital outflows, Bank Indonesia also went into crisis planning mode. About $9.7 billion left the country during the first quarter of 2020, more than double the amount in 2008, leading to a weak rupiah (while April deposits by non-residents into Singapore’s banks jumped 44% from 2019 to a record $44.37 billion).

In May, Bank Indonesia reported reserves of $128 billion, bolstered by a series of bond issues. Mulyani held crisis consultations with IMF boss Kristalina Georgieva, while also drawing on advice from the Asia Development Bank and World Bank.

Asiamoney spoke to Mulyani on May 23, two days after Indonesia had reported 973 new cases, then a crisis high. She was working from home because Covid-19 had already laid low her colleague, the transport minister, and put a stop to Cabinet meetings in person.

Like officials the world over, matters of state were suddenly transacted via Zoom, FaceTime and Skype.

“This is something that I never really thought would happen in our lifetime,” she says. “It’s been tough for many people.”

Her two sons and daughter were with her, after returning to Jakarta from jobs and study abroad, for the confinement.

“At least we have peace of mind that they are all close and safe and that we can monitor them,” she says, as her grandchildren ran in and out of her office. 

When we reflect back maybe two or three years from now we will realize this has not been the right way to respond - Sri Mulyani Indrawati

Mulyani’s first response came in February, when she pledged support to prop up the tourism sector in Manado, a city in Northern Sulawesi much favoured by Chinese tourists, and in Bali.

In Widodo’s cabinet, which was then still meeting in person, Mulyani says she was pushing for emergency laws to be decreed, first on health and then for a social safety backstop to support Indonesians whose livelihoods were suddenly crushed by the onset of the pandemic.

She admits Indonesia was not ready for a pandemic, but it was not alone in that respect.

The state budget, passed by parliament only last September, had to be junked because of the crisis and quickly redrawn by Mulyani and her team.

“In our budget mechanism, there was no appropriation for Covid-related preparation because it was not planned, so we really had to make sure we could appropriate funds significant enough in order to prepare for this health situation,” she says.

Mulyani was particularly concerned for the millions of Indonesians who are considered ‘off the books,’ the so-called informal sector army of street-food vendors, stallholders and jobbing labourers, which some economists estimate is as large in output as verifiable GDP.

“We really had to expand the social safety net,” she says. “This would kill the economy.”

Panicking markets

By March, there was another problem looming: panicking markets.

“The volatility in the financial markets was just crazy at that time … stocks down, the bond market collapsing, commodities collapsing,” she says.

HSBC has calculated that commodities – notably coal, tin, copper and palm oil – make up roughly 60% of Indonesian exports.

Mulyani reached into Indonesia’s own more recent history, notably its response to the global financial crisis in 2008 to 2009, which she had managed during her first stint as finance minister.

She also commissioned a precautionary stress test of Indonesia’s financial sector.

An official of Indonesia’s state Deposit Insurance Corporation (DIC) reportedly told a parliamentary financial commission that its own stress test indicated that eight banks were vulnerable in a worst-case scenario. 

[Banks] are in good shape. Better than expected - Sri Mulyani Indrawati

That official was then countered by the DIC chairman Halim Alamsyah, who told journalists that “all banking indicators are normal and their fundamentals sound.”

Amid the conflicting reports, Asiamoney asks Mulyani about the health of the financial sector. “They are in good shape,” she says. “Better than expected.”

She says the health of the sector depends on how long the pandemic lasts, as well as on how long non-performing loans can be sustained. But she thinks Bank Indonesia and the financial services authority have created some breathing space for banks to weather the medium-term impact of the pandemic.

Mulyani’s new budget was passed with emergency effect in early April. It was a bold change for the country. The rules governing the budget deficit, which by law must not exceed 3% of gross domestic product, were loosened to allow the deficit to widen.

Mulyani told Asiamoney on May 23 that the deficit would swell to a manageable 5.1% this year, but in a Jakarta budget briefing on June 3, she revised that number to 6.34%.

Widodo has pledged to restore it to below 3% by 2023, his last full year in office.

Government debt is expected to triple to $63 billion, but defence spending was cut by close to $600 million, no mean feat in a cabinet with ex-military and security strongmen in key portfolios such as defence, investment, home affairs, health and religion.

Raising funds

Indonesia has been aggressively raising funds: it issued Asia’s longest maturity sovereign bond in April, selling a 50-year tranche as part of a $4.3 billion ‘pandemic bond’ offer, Indonesia’s largest ever. Deutsche Bank, Goldman Sachs, Citigroup, HSBC and Standard Chartered were the deal’s joint bookrunners.

Mulyani, who was a managing director of the World Bank in between her two stints as finance minister, helped secure a total of $7 billion in loans from the World Bank, the ADB and the Asian Infrastructure Investment Bank.

The emergency financing laws also included a provision to monetize the budget deficit – allowing the central bank to buy government bonds. That had been forbidden in the country since the 1960s, largely as a way of avoiding inflation.

Mulyani appears sensitive about the move. But she also says it’s “only temporary” and will only be used “in this very extraordinary situation.”

But Nurhastuty Wardhani, lecturer in accounting and corporate governance at Jakarta’s Trisakti University, worries that the 50-year dollar-denominated bond poses potential generational issues for Indonesia, not least because of the repayment risk converting from a base currency that has been weak against the US currency. 

Are we going to be collapsing this global cooperation, or are we going to have [something] totally new post-Covid? I’m optimistic - Sri Mulyani Indrawati

Indeed, it was only a generation ago, during the Asian financial crisis, that the rupiah slumped from 2,500 to the dollar to 17,000.

And what does ‘temporary’ mean in practice? Mulyani reiterates Widodo’s promise, saying the government will be able to go below a 3% budget deficit by 2023.

The budget deficit will be “huge,” she says, but the challenge is to unwind it gradually in 2021 and 2022, minimizing the impact on the economy. That relies in part on factors outside Indonesia’s control, including the price of commodities such as oil, coal, rubber and palm oil that have driven the country’s exports for more than a decade.

“We have a relatively strong fiscal cushion,” she says.

“We have space when we are required to do an expansion; we won’t be hitting the market in a panicked way that is unsustainable.

“When we were hit by this Covid, we could immediately expand our fiscal and budget spending for health, our social safety net and supporting small and medium businesses. This creates confidence and stability at the grassroots level,” she adds.

“You use all the buffers that you built during the good times when you are in a very difficult time like this. That’s including the credibility and the track record, which is very helpful for us to expand the deficit. Because investors and bondholders know that they are dealing with an economy that is being managed very robustly.”

Optimistically, Mulyani expects the economy to contract by between 0.5% and 2.3% this year, but to return to growth of between 4.5% and 5.5% in 2021. GDP growth averaged about 5% over each of the last three years.

Capital cashier

One casualty of the pandemic has been the $35 billion to $40 billion plan to shift Indonesia’s capital from Jakarta to a brand new city hewn out of East Kalimantan, in the heart of the Borneo jungle.

Ground was due to be broken on the site next year, with the capital operational by 2024 and eventually expanding to be a city of between five million and six million people.

Isran Noor_300

East Kalimantan governor Isran
Noor will have to accept that the
pandemic has postponed plans
to build a new capital in his region

In March, Asiamoney reported from the site of the proposed capital, which is slated to be one of Asia’s largest infrastructure projects. In an interview, the populist regional governor, Isran Noor, waved off what appeared then to be nascent signs of the virus in Indonesia. Indonesia hadn’t had a contagious case, he said, so it wasn’t a problem.

Noor described his national finance minister Mulyani as a ‘bank cashier’ who would count the billions in foreign investment that he insisted would sweep into the capital project.

Mulyani says she is a supporter of the project but she isn’t planning to play capital cashier any time soon. The health crisis has arrested those plans.

Three months on, governor Noor gets around in a surgical face mask, and his beloved capital has been shelved for the medium term. The new budgetary demands arising from the pandemic mean that Indonesia can’t afford it for some time.

“It is on hold,” Mulyani says.

“The president and all [the cabinet] see that in terms of timing it does not fit with the challenges we are facing at this moment. The appetite to finance this type of project is going to be dwindling,” she adds.

“The next year is not the right timing for us to start building this [new capital]. But if later in the year there will be an opening and it becomes part of the integrated plan to recover the economy, then we can look at it beyond 2021 because maybe 2021 is just too soon.

“On the one hand, the idea and the hope is still worth being preserved, but on the other hand, we also have to prioritize our resources and our attention to what is necessary at this moment, so we will look at this in 2021.”

Efficiency reforms

How has Mulyani dealt with working from home?

She is surprised how effective it has been.

“I don’t even go to my office for more than two-and-a-half months and the republic is still going,” she says. “Maybe we don’t need an office again. I don’t buy that bureaucratic argument anymore.”

Wearing a managerial hat as head of an important ministry, Mulyani says she intends to make permanent the efficiency reforms that had become necessary for her ministry to function since March, a timely example of how Indonesia’s lumbering state sector can be better.

She sees it as government embracing the digital transformation that is already under way in the private sector.

Mulyani’s international exposure and profile has made her reflect on the “sad” international response to the Covid crisis. She says it has been “nationalistic” and “inward-oriented.”

“It’s ‘me first, my country first, my safety first, I’m not thinking about others’,” she says. “It’s very sad. The ability to respond globally has been very poor. The question is, are we going to be collapsing this global cooperation, or are we going to have [something] totally new post-Covid? I’m optimistic, but maybe we really have to see the worst first before we realize there is no other way but to cooperate. I think when we reflect back maybe two or three years from now we will realize this has not been the right way to respond.”

With additional research from Rin Hindriyati in Jakarta

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