The inability to contain Covid is creating a lot of problems in the economy of the South east Asian countries.
“Indonesia, like many of the ASEAN economies, has yet to really get to grips with the Covid-19 virus,” Darby, global head of equity strategy at the U.S. investment bank, told CNBC’s “Squawk Box Asia” on Tuesday. “That seems to be the Achilles heel for the ASEAN economies at the moment,” he said referring to Association of Southeast Asian Nations regional grouping.
“A resurgence in more infectious mutations of the virus poses significant risks to Indonesia’s economic recovery,” Moody’s said in the report. It will also “challenge government plans to reduce the fiscal deficit to pre-pandemic levels, a credit negative.”
Days earlier, S&P Global Ratings issued similar comments, warning in a July 15 report that Indonesia’s “existing credit buffers on ratings will be chipped away if ongoing lockdowns are prolonged.”
On Tuesday, Indonesia President Joko Widodo announced an extension of pandemic-linked restrictions that are set to end July 25, Reuters reported.
Darby said Indonesia’s situation has to be put into context: The country’s balance of payments position is “actually very good,” he said, adding that its foreign exchange reserves are near record highs. On top of that, the Indonesian economy is also experiencing “quite a decent manufacturing revival.”
“The reality is that … you’re likely to not reach full economic potential until you get to some form of herd immunity,” Darby said. “Unfortunately, the potential for Indonesia to meet its pre-pandemic levels is probably quite low at the moment given the poor rollout of the vaccine.”
What happens next is just a matter of time. We will keep you updated on the news. So you should keep an eye out.