The G20 presidency is a strategic agenda to showcase the results of economic development and policy reformation. With a Muslim-majority population, Indonesia uses the Islamic economy and finance to promote its economy and support the national economic recovery with the spirit of ‘Recover Together, Recover Stronger’. In this momentum, Indonesia has initiated several programs in the Islamic economy and finance such as promoting a Halal ecosystem, strengthening Islamic digital payment and integration between Islamic commercial and social finance which are aligned with the G20’s agenda in order to foster economic growth in the middle of the prolonged COVID-19 pandemic. W FRIENDICA M APRILAWAN PUTERA and KURNIA HARYAKUSUMA delve further.
Recover together, recover stronger
As host of the G20 presidency in 2022 with the theme of ‘Recover Together, Recover Stronger’, Indonesia reflects the vision of a new era that encourages a more productive and balanced global economy, greater financial and monetary system stability and broader equality and sustainability.
To do so, it needs to enable the environment and partnership through three main pillars: promoting productivity, increasing resilience and stability and ensuring sustainable and inclusive growth. The core value of the theme is a stronger collective global leadership. As host of the G20 presidency in 2022, Indonesia is taking the opportunity to promote the theme using digitalization.
Indonesia promotes the theme ‘recover together’ so that every country can experience unvarying recovery and enhance financial system stability. In addition to that, Indonesia also encourages the theme ‘recover stronger’ by enhancing efficiency in the economy, improving economic inclusion and ensuring sustainability.
The exit strategy to support equitable recovery is looking at the macro policy exit strategy which consists of supply chain disruption and also the bankruptcy of corporations. The coordination of economic policy recovery in the short term is vital and needs to be communicated well.
Addressing scarring effects to secure future growth is related to the coordination of economic recovery to resolve the wounds of the pandemic in the short and medium term. All those various healing processes surely take time. Those who are already bankrupt cannot suddenly be healthy, so this needs restoration.
The next strategy is sustainable finance. It is implemented by incorporating transition finance into sustainable finance alignment, developing market infrastructure to enhance accessibility and affordability of sustainable finance and developing policy levers to incentivize financing and investment that support sustainable development.
The final two strategies are financial inclusion regarding digitalization and SMEs, and international taxation. Financial inclusion regarding digitalization and SMEs can be achieved by harnessing digitalization to improve productivity and inclusion, particularly for the underserved communities, such as women, youth and MSMEs. In certain ways, several points on the financial tracks of the G20 agenda reflect the principle of Islamic finance that is oriented on ethical, balanced, sustainable and inclusive financial activities, which are also aligned with the UN Sustainable Development Goals. However, the important thing is the process to achieve it by strengthening integration between Islamic finance and environmental, social and governance aspects.
Indonesia intends to promote its achievements in mitigating the effects of the COVID-19 pandemic, especially in the recovery of its economic and financial sectors. In addition, to realize its dreams of becoming a global Halal and Islamic finance hub in the world, Indonesia will employ the Islamic economy and finance to boost the social and economic impact as well as leveraging members of G-20 to enhance the trust of global investors.
The program to foster the Islamic economy and Halal ecosystem is through incentives, financial relaxation and the National Economic Recovery (PEN) Fund to overcome the pandemic’s effects. The PEN Fund was allocated IDR741 trillion (US$51.65 billion) in December 2021; however, it only managed to spend about IDR533 trillion (US$37.16 billion). Some of that amount was spent through Kredit Usaha Rakyat — the guaranteed microcredit program for supporting the development of SMEs in Indonesia — and the Ultra Microcredit Scheme.
In addition, the momentum also brings the potential of Islamic digital payments and Islamic investments through innovation in Islamic finance products. Recently, the National Committee for Islamic Economy and Finance addressed several potential Islamic finance products involving Islamic investment banks, world-class Takaful operators, municipal Sukuk and Islamic public–private partnerships and Islamic employee provident funds.
Furthermore, last but not the least, the integration between Islamic social finance and commercial finance will ensure the sustainability of economic recovery in the middle of the COVID-19 pandemic. Charity and social funds from Zakat, Infaq, Sadaqah and Waqf can be managed into a social safety net in order to boost economic growth and financial inclusiveness.
W Friendica M Aprilawan Putera is an analyst at the Secretariat General, Ministry of Finance, Indonesia. He can be contacted at [email protected]. Kurnia Haryakusuma is an Islamic finance specialist at the National Committee for Islamic Economy and Finance, Ministry of Finance, Indonesia. She can be contacted at [email protected].