"Of the four sectors, the most affected would be the household sector, which, we predict, will experience a significant decline in consumption," Minister Indrawati stated at a press conference held on Wednesday in Jakarta.
The Finance Minister said that the household sector will witness a decline in consumption as people stop venturing out of their homes due to physical distancing measures, resulting in a drop in purchasing power.
The household sector is facing loss of income as many workers can no longer work to meet their basic needs. This especially applies to poor and vulnerable families as well as workers in the informal sector, according to the minister.
Meanwhile, Indrawati continued, the outbreak has put micro, small, and medium businesses (MSMEs) under pressure. They have not been able to carry out business activities, which has affected their ability to meet credit obligations, she said.
The Finance Minister predicted non-performing loans (NPLs) of banks may potentially increase significantly as MSMEs take a hit, which will further worsen the economic slowdown.
"The MSME sector, which has usually been a safety net during economic slowdown, has also been badly impacted by the outbreak. The sector will now suffer a huge blow due to restrictions on some economic and social activities," she explained.
Although the MSMEs managed to tide over the 1998 monetary crisis, the situation now is very different, the Finance Minister opined.
"In 1997-1998, MSMEs were still resilient, but during this COVID-19 outbreak, the sector has been hit really hard due to very limited social economic activity," she explained.
Meanwhile, economic activities that will be most disrupted in the corporate sector include manufacturing, trade, transportation, and accommodation services (such as those provided by hotels and restaurants).
Furthermore, Indrawati revealed that some financial sectors have also begun to feel the strain due to the current pandemic. She predicted that banks and finance companies may suffer from liquidity and insolvency issues.
"We see that a potential liquidity problem will pose some threat to this (financial) sector. Adding to the problem would be the volatility in financial markets, and capital flight will cause more strain," she said. (INE)
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