The downturn continued in the third quarter with a contraction of 3.49 percent, placing Indonesia in its first recession since the 1998 Asian Financial Crisis. Contributing sectors to this negative growth include household consumption, investment, and exports.
The COVID-19 pandemic also triggered capital outflows from Indonesia’s financial markets, with many foreign investors withdrawing from the bond and equity markets. This situation added pressure to the financial markets and weakened the rupiah.
The liquidity decline in financial markets made it difficult for banks and financial institutions to issue new loans or support distressed debtors. Consequently, the non-performing loan (NPL) ratio rose from 2.5 percent in January 2020 to 3.1 percent by mid-year.
This increase reflects the struggles faced by many companies and individuals in meeting their debt obligations. Although loan restructuring offered some relief, the long-term effects of the pandemic could worsen the financial situation.
Companies with high debt were particularly vulnerable. With significant revenue declines, many struggled to repay debts, leading to a reduction in domestic economic activity.
Reflecting on this, economist and financial practitioner Hans Kwee noted that the current situation is still impacted by the COVID-19 pandemic, and many businesses were forced to close due to its prolonged effects.
Despite debt restructuring efforts to help companies recover, many still struggle to obtain additional capital to resume operations. “The purchasing power of society also disappeared, and many entrepreneurs suffered losses that prevented them from reopening,” he said.
He cited textile company Sritex as an example, which previously performed well but now struggles to compete in the market. This was also due to the weakened market caused by the COVID-19 pandemic.
The decline in consumer purchasing power has also been a significant factor. He noted that the micro, small, and medium enterprise (MSME) sector slowed significantly from last year to this year, partly due to the government withdrawing COVID-19 stimulus support too quickly.
This created challenges for businesses to compete, especially small businesses that needed more government support. “In terms of health, the government might step back, but for business, they cannot,” he emphasized.
Another pandemic effect has been shifts in corporate ownership or acquisitions for various reasons, such as where companies are looking for investments to survive a challenging economic environment.
Such an example of an ownership change during the COVID-19 pandemic was in the e-commerce sector, where PT Global Digital Niaga Tbk, also known as Blibli.com, acquired a 51 percent stake in PT Supra Boga Lestari Tbk on September 30, 2021.
Shifts in corporate ownership or acquisitions were also seen in the case of investors looking for resilient businesses and owners looking to exit from certain businesses.
Another such example in the latter instance was where indirect ownership change also occurred with PT Tridomain Performance Materials Tbk (TDPM), whereby its majority shareholder, DH Corporation Ltd, was acquired by Xing Wang Group. DH Corporation, previously owned by Hadiran Sridjaja, was targeted by the Xing Wang Group to expand their business operations in Indonesia; a strategy that aligned with Sridjaja’s plan to divest its solvent based synthetic resin business.
Meanwhile, TDPM, in its Extraordinary General Meeting of Shareholders (EGMS) on March 28, 2024, approved a name change to PT Tianrong Chemical Industry Tbk, as approved by the Ministry of Law and Human Rights.
“This is normal. Companies with large capital and strong teams typically dominate the market,” he concluded, adding that business people must learn from these changes and be prepared to survive.
Reporter: UKKK press release
Editor: Bayu Prasetyo
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