INTRODUCTION

The 2018 general elections saw an unprecedented change in Malaysian politics when the then opposition Coalition of Hope (Pakatan Harapan, PH) took control of the federal government and disrupted the six-decade continuous rule of the National Front (Barisan Nasional, BN) coalition. The so-called political tsunami swept across peninsular Malaysia but stopped short of the east coast states of Kelantan and Terengganu. The Pan-Malaysia Islamic Party (Parti Islam Se-Malaysia, PAS), which contested as a third force, managed to strengthen its hold over Kelantan and wrest Terengganu away from the United Malays National Organisation (UMNO). This article explains why PAS has been dominant in Kelantan, not just stemming the Peninsula-wide wave of change in 2018, but also durably resisting the rule of the UMNO-led BN federal government for decades as an opposition-controlled state.

PAS has long been known as an ideologically driven regional party since its political influence barely extends beyond its strongholds along the northeastern coast and in northern states of peninsular Malaysia such as Kelantan, Terengganu and Kedah. These states provide a fertile ground for PAS to mobilize and gain support as they are overwhelmingly Malay-Muslim and are culturally conservative with deeply rooted Islamic traditions. The population of Kelantan, for example, is ninety-six per cent Muslim. It is also a state renowned for its Islamic learning and for producing Islamic scholars (ulama)—so much so that it is dubbed the Serambi Mekah (Verandah of Mecca). Malay and Islamic identities, therefore, play a central role in politics in Kelantan. Political parties of all stripes contending in Kelantan must employ language and rhetoric imbued with Malay and Islamic overtones—both are often tightly intertwined—in order for them to be taken seriously by voters. But as we shall see later in this article, simply projecting one’s Islamic credibility is not enough to entice voters to one’s side, although PAS is certainly good at doing that. More than simply a strong Islamic image, it is PAS’s long-entrenched position in the communities, its well-organized machinery, and extensive political education and outreach efforts that have helped it govern Kelantan for the most part of Malaysia’s post-independence history.

INTRODUCTION

In Malaysia, Islam is often regarded as the religion of the federation. However, it should be noted that the 1957 Report of the Federation of Malaya Constitutional Commission, also known as the Reid Commission Report 1957, clearly states that:

The White Paper of the report further emphasizes:

Article 3(1) of the Federal Constitution states that “Islam is the religion of the Federation; but other religions may be practised in peace and harmony in any part of the Federation” (Laws of Malaysia Federal Constitution 1957, p. 11).

The economic, political, strategic and cultural dynamism in Southeast Asia has gained added relevance in recent years with the spectacular rise of giant economies in East and South Asia. This has drawn greater attention to the region and to the enhanced role it now plays in international relations and global economics.

The sustained effort made by Southeast Asian nations since 1967 towards a peaceful and gradual integration of their economies has had indubitable success, and perhaps as a consequence of this, most of these countries are undergoing deep political and social changes domestically and are constructing innovative solutions to meet new international challenges. Big Power tensions continue to be played out in the neighbourhood despite the tradition of neutrality exercised by the Association of Southeast Asian Nations (ASEAN).

The Trends in Southeast Asia series acts as a platform for serious analyses by selected authors who are experts in their fields. It is aimed at encouraging policymakers and scholars to contemplate the diversity and dynamism of this exciting region.

EXECUTIVE SUMMARY

• • Article 18 of the Universal Declaration of Human Rights (UDHR), published by the United Nations in 1948, states that “everyone has the right to freedom of thought, conscience and religion; this right includes freedom to change his religion or belief, and freedom, either alone or in community with others and in public or private, to manifest his religion or belief in teaching, practice, worship and observance.”

• • Malaysia recently won its bid to sit on the United Nations Human Rights Council from 2022 to 2024. However, while the country's constitution is progressive in underlining the rights of religious minorities, this is severely lacking in practice as it exercises heavy regulation on religion, combined with restrictions on the practices of certain faiths.

• • Based on interviews and focus group discussions conducted in Malaysia, this paper uncovers the challenges faced by religious minorities in the country, and how treatment of them at the hands of religious authorities is illustrative of encroachments on their right to the freedom of religion. The groups that will be focused on are the Millah Ibrahim (Abrahamic Faith), the Baha’i faith, and the Ahmadiyah faith, all of which have been banned by the religious authorities.

• • It was found that the three groups navigate their respective situations differently. For example, Millah Ibrahim adherents are very conscious of the repression that they face, and have resorted to propagating their teachings in secret and migrating to countries that are more lenient towards them. On the other hand, the Baha’i community feel they have relative freedom to practise their rituals despite the fatwa which bans their movement, and therefore do not see the need to take legal action against the authorities. This is in contrast to the Ahmadiyah adherents who use legal means (such as court cases) to counteract the repression towards them.

• • Considering the precarious position of these groups, it is recommended that religious authorities engage with these minority groups so as to deepen their understanding of these groups and to properly assess the perceived threat that they allegedly pose. Such engagement would also allow Malaysia to uphold its commitment to human rights.

BACKGROUND

At the end of 2019, the world was stunned by the emergence of an alarming new virus. After numerous failed attempts to contain it, by March 2020 the World Health Organization finally recognized COVID-19 as a pandemic. The rapid spread of the virus gave little time for governments all over the world to brace for its impact. While some governments bought time by implementing travel restrictions, the Indonesian government, fearing an economic slowdown, initially played down the virus’ threat by running a travel campaign in February 2020. However, as the COVID-19 death toll crept up, by March it was clear that the virus was a real threat. By April 2020 when the virus has spread to all of Indonesia's thirty-four provinces, the government finally implemented social restrictions in the Greater Jakarta area.

As people reduced their mobility, the economy slowed, and many breadwinners lost their income. Amidst such a condition, an increase in the poverty rate was expected. Although initially the poverty rate projections forecast that Indonesia's years of poverty alleviation efforts may be reversed as people fell into poverty, the country did better than expected. The poverty rate was projected to be as high as 13.38 per cent (World Bank 2020a). The actual outcome, however, defied many of these projections.

Considering that Indonesia experienced a significant economic contraction of up to –5.32 per cent in the second quarter of 2020, it was remarkable how Indonesia's poverty rate only climbed up to 9.78 per cent in March 2020 from its low of 9.22 per cent before the pandemic. This figure would then peak at 10.19 per cent in September 2020 (Statistics Indonesia 2020). By September 2021, Indonesia has returned to a singledigit poverty rate, which equated to 1.04 million people moving out of poverty (Statistics Indonesia 2022). International institutions, such as the World Bank, attributed the Indonesian government's success in keeping the country's poverty rate down to the many social assistance and social safety net programmes deployed throughout the pandemic.

When the pandemic struck, Indonesia was in a better position than in 1998 when the Asian Financial Crisis shook its economy. Before the COVID-19 pandemic, Indonesia already had a running social protection system.

THE CURRENT TREND OF MENTAL ILLNESS

Global Trend

Globally, mental illness has been recognized as a less addressed disease while having a large economic impact (Chong et al. 2016; Steel et al. 2014; United Nations, Department of Economic and Social Affairs 2022). It is estimated that globally, in 2010, the productivity loss due to anxiety and depression amounted to US$1 trillion per year, while mental health in general resulted in losses as high as US$2.5 trillion per year due to poor health and productivity losses, and that number is projected to increase to US$6 trillion by 2030 (Lancet Global Health 2020).

As a type of mental illness, depressive disorders were among the leading causes of years lived in disability (YLD) counts in 2017, and mental disorders, in general, shared more than 14 per cent of age-standardized YLDs during the last thirty years. The prevalence of mental disorders is higher than 10 per cent in all twenty-one Global Burden of Disease (GBD) regions (e.g., Southeast Asia, East Asia, and Oceania) (James et al. 2018; Moran et al. 2012).

Looking at figures taken from the Institute for Health Metrics and Evaluation (IHME) website (Institute for Health Metrics and Evaluation 2019), mental disorders have increased in rank in terms of Disability Adjusted Life Years (DALYs) from number 13 in 1990 to number 7 in 2019 (Figure 10.1), potentially showing a substantial increase in severity and the number of diseases. However, in terms of Years Lived in Disability (YLD), mental disorders consistently sat at the 2nd rank in both 1990 and 2019, showing a potentially similar trend over the 29 years (Figure 10.2).

As an example of the burden of mental illness, studies have shown that psychotic disorders are associated with both health and nonhealthcare costs. However, it is less known that the non-healthcare costs component such as productivity loss (Knapp and Wong 2020) has a large share (more than 50 per cent of the total cost). Such a trend is shown by various studies in different countries such as China, Australia, Japan, England, Ireland, Spain, Belgium, Korea, the United States of America and Canada (Sado et al. 2013; Mangalore and Knapp 2007; Phanthunane et al. 2012; Charrier, Chevreul, and Durand-Zaleski 2013; SANE Australia 2002; Fasseeh et al. 2018; Zhai et al. 2013).

INTRODUCTION

The private sector accounts for more than 90 per cent of the total Indonesian GDP and plays an important role in the Indonesian economy and employment. This chapter focuses on non-financial large and medium businesses which are the main economic drivers of the private sector. Nonfinancial large and medium businesses account for approximately half of the total private sector contribution to real GDP. Following this introductory section, section 15.2 describes Indonesian corporate performance prior to COVID-19. Subsequently, section 15.3 discusses the economic impacts of COVID-19 that appeared in multiple non-financial sectors during 2020–21. Next, section 15.4 zooms in on the impact by looking at how financial pressure on corporates evolved within the 18-plus months from the beginning of the COVID-19 pandemic, which was subsequently followed by changes in government objectives and support. It is then followed by section 15.5 covering how the Government of Indonesia (GoI) has applied an adaptive policy approach with a better understanding of the COVID-19 pandemic and its impact on both the global and domestic economy. The last section summarizes the discussion as well as gives a reflective discussion on past policies and potential future interventions. Additionally, two case studies on Value Added Tax (Pajak Pertambahan Nilai, or VAT) are presented to provide evidence at a micro level to support the discussions at a macro level in the previous sections.

The COVID-19 pandemic hit the corporate sector hard, especially in 2020, as public authorities across the globe implemented unprecedented measures to contain the spread of the virus. Restrictions on mobility and social contact, school and business shutdowns, quarantine and border closures brought the economy to almost a standstill. Sales across many sectors were plummeting as demand fell sharply. While financial commitments with respect to workers, suppliers and lenders remained, firms had to face abrupt and sharp reversals in earnings. This situation has depleted the liquidity buffer of firms across many sectors. The risk caused by liquidity shortages in the corporate sector rose and potentially affected the stability of the financial system.

The impact of the pandemic was, nonetheless, heterogeneous across sectors, depending on each sector's reliance on social contact and mobility.

INTRODUCTION

Financial inclusion is a key enabler to reducing poverty and boosting prosperity as financial access facilitates day-to-day living, and helps families and small business owners generate income, invest in opportunities and work their way out of poverty. Financial inclusion can empower communities to meet their basic needs and has an important role in the efforts to help people prepare for, respond to, and recover from health and economic crises, such as COVID-19. Financial inclusion has been among the important development policy instruments with more than fifty-five countries launching the National Financial Inclusion Strategy (NFIS) as of early 2020, and a further thirty-four countries are currently in the process of doing so (World Bank 2021).

In Indonesia, the initiative to implement financial inclusion strategy has been officially started in 2016 in line with the introduction of Presidential Regulation/Perpres No. 82/2016 on NFIS (Strategi National Keuangan Inklusif, or SNKI). The NFIS is a legal framework to promote financial inclusion by opening access for more Indonesian to banking and other financial services. The state of financial inclusion in Indonesia saw a marked improvement over the last decades, but compared to peer countries, Indonesian financial inclusiveness is still lagging. Moreover, the inclusiveness gap between the poorest and the richest population is still considerable.

The COVID-19 pandemic has brought both challenges and opportunities for Indonesia's financial inclusion. On the one hand, the implementation of mobility restriction measures to control the spread of the virus resulted in the closure of bank branches and halted operations of mobile money agents in compliance with restrictions. On the other hand, government officials and health practitioners encouraged the use of cashless and contactless modes of payment to reduce the risk of viruses spread through the handling of cash. This will create new opportunities for the potential adoption of Digital Financial Services (DFS). Small businesses and low-income households can directly benefit from digital solutions such as mobile money services, online banking and other financial technology innovations.

Financial inclusion plays an important role in delivering government support to those whose income was negatively affected by the pandemic. The pandemic provided a lesson that massive delivery of government support during mobility restrictions can be done quickly if people have access to the financial system.

INTRODUCTION

Indonesia was on a growth trajectory between 2010 and 2019 with annual growth rates averaging 5.4 per cent and was hopeful of achieving the high-income country status by 2045. In 2019 Indonesia managed to show a healthy macroeconomic status—growth reached 5.02 per cent, the inflation rate was manageable at 2.78 per cent, the Gini ratio was at 0.39, the rupiah appreciated by 5 per cent, and there was a 138-basis point decrease in Indonesia's ten-year government bond yield in the second half of the year.

In 2020, the World Bank classified Indonesia as an upper-middleincome country. Later, due to the COVID-19 pandemic, Indonesia was then reclassified as a lower-middle-income country. The unprecedented Wuhan outbreak surprisingly shook the global economy to its core in a manner we had never seen before, except perhaps during the Spanish flu pandemic in the early 1900s. At about the time the first COVID-19 cases began to appear, the world was under a cloud due to the US-China trade war which had caused a long period of economic uncertainty and increased geopolitical tension resulting in surging commodity prices. In Q4 2019, the global economy looked set to rebound. Capital flows started returning to emerging markets assets, including Indonesia. The rupiah appreciated by 5 per cent between 31 May 2019 and 31 January 2020, and the ten-year yield went down by 138 basis points during the same period.

COVID-19 first emerged in late December 2019 in Wuhan, China (WHO 2020) and was thought to be a pneumonia disease. By mid-February 2020, positive cases had reached close to 50,000 and spread across twenty-seven countries. By this time, the global market was still in its bullish tendency, with capital flows still flowing into the emerging markets. However, the disease spread fast, pushing the World Health Organization (WHO) to announce a pandemic status on 11 March 2020. At that time, the financial market was still unaware of what was coming but there were already more than 118,000 COVID-19 cases in over 110 countries.

The global financial market was priced in less than ten days after the WHO declared the pandemic. On 20 March 2020, there was a freeze in the global financial market. The Volatility Index (VIX) hit an all-time high of 53.54.

INTRODUCTION

The novel coronavirus 2019 (COVID-19) outbreak has devastating public health consequences and poses a major economic threat. The ongoing pandemic continues to chart the path for global public health and economic activities. The Johns Hopkins University Coronavirus Resource Center reported more than 470 million total confirmed cases worldwide in March 2022. Global economic growth shrank by 3.5 per cent in 2020 (Weiss et al. 2020; World Bank 2021), with a recovery projected to happen in 2021 and 2022. Globally, countries implemented various responses to COVID-19 which can be classified into four key areas: saving lives; protecting the purchasing power of the poor and vulnerable; saving jobs and businesses; restoring countries to become more resilient (World Bank 2020).

The first two confirmed COVID-19 cases in Indonesia emerged on 2 March 2020 and spread exponentially within a short time. By January 2022, the Indonesian National Disaster Management Authority (Badan Nasional Penanggulangan Bencana, or BNPB) reported more than 4.2 million cases. Indonesia had already faced three large waves of COVID-19 cases between 2020 and early 2022: the original Wuhan coronavirus variant in 2020, the Delta variant in mid-2021, and the Omicron variant in early 2022. The Indonesian government took various significant steps to reduce the spread of the virus and protect the poor and vulnerable families, jobs and businesses, and maintain economic recovery.

To reduce the spread of COVID-19 in the early days of the pandemic, Indonesia introduced international travel restrictions on 1 January 2020 before the first COVID-19 cases were detected in the country. The government introduced the Work, Study, and Worship at Home policy on 16 March 2020 and implemented large-scale social restrictions (Pembatasan Sosial Berskala Besar, or PSBB) on 31 March 2020 as recommended by many studies and international organizations (Glass et al. 2006; Gottlieb et al. 2020; Maharaj and Kleczkowski 2012; Reluga 2020).

Later, on 11 May 2020, Indonesia launched comprehensive health, economic and social containment measures, the National Economic Recovery (Pemulihan Ekonomi Nasional, or PEN) programme. It covers public health support, social protection for the poor and vulnerable, fiscal incentives and financial support for businesses. The government spent IDR575.9 trillion in 2020 and IDR657.1 trillion in 2021 for the PEN programme. In 2022, the government continued the programme by allocating IDR455.62 trillion.

PRE-PANDEMIC INDONESIAN BANKING SECTOR: STRONG CAPITAL AND LOW RISK

Before the pandemic, Indonesia's banking sector performed positively, in line with the economic growth in the past few years. Having been through a few big economic crises, i.e., the Asian Financial Crisis (1997–98) and the Global Financial Crisis (2008), Indonesia's banking sector has come a long way and has continued to implement good governance and prudent risk management practices. Up to this day, the banking sector remains the most regulated industry in Indonesia as it is the backbone of the financial sector.

Over the years leading to the pandemic-led crisis, Indonesia's banking sector proved to be resilient and withstood episodes of economic slowdown with strong capital, sufficient liquidity and low credit risk. The banking sector's capital adequacy ratio was relatively stable at 23 per cent by the end of 2019 (Table 4.1). Credit risk was relatively low, as the non-performing loans (NPLs) remained below 3 per cent in the pre-pandemic years. Yet, credit growth had started a notable slowdown. By the end of 2019, credit recorded 6 per cent growth, declining from as high as 13 per cent in 2018 (Figure 4.1). Furthermore, banks’ liquidity was slightly tighter, as the loanto- deposit ratio was at 93.6 per cent by the end of 2019.

Credit growth generally moves in line with the pace of economic growth. During the commodity boom, the banking sector recorded strong growth. Credit disbursement managed to reach double-digit growth due to rising economic activities related to and/or derived from the commodity sectors. In 2010–13, credit growth recorded 20–25 per cent growth. Unfortunately, following the slowdown of China's economy, commodity prices started declining, which soon marked the end of Indonesia's commodity boom.

Since 2016, credit growth has continued to decelerate to <10 per cent, which gives an indication of the significance of commodity sectors to the economy. The unfavourable global environment at the time—with rising geopolitical tensions between the US and China, which led to a trade war— had brought negative effects on global growth and then reduced global demand for commodities. The slowdown in credit was also shown by a continuously lowering loan growth to nominal GDP growth ratio in the last four to five years.

SETTING THE SCENE

The World Health Organization (WHO) detected cases of “viral pneumonia” in Wuhan city in the People's Republic of China on 31 December 2019. The virus was later named COVID-19 (World Health Organization 2022). In January 2020, several countries reported their first cases of COVID-19, including Thailand on 13 January 2020, Japan on 15 January 2020, France on 21 January 2020, and the United States on 24 January 2020. At that time, Indonesia had not yet found any cases although the screening and preparedness to detect the virus had been in place, including the installation of thermal scanners at major airports and the appointment of more than a hundred COVID-19 hospitals. Indonesia had also imposed international travel restrictions from 1 January 2020, temporarily suspended all flights connecting Indonesia and China and imports of live animal products from China. The first cases of COVID-19 in Indonesia were detected and reported on 2 March 2020.

WHO and the Chinese health authorities closely studied the virus from its first discovery. On 24 February 2020, the WHO-China mission on COVID-19 reported the main findings of their mission and highlighted the importance of large-scale implementation of non-pharmaceutical public health measures, COVID-19 case detection and isolation, contact tracing and monitoring/quarantining as well as community engagement to control the COVID-19 transmission and reduce illness and death resulting from the COVID-19 infection (World Health Organization 2022). WHO declared COVID-19 as a pandemic on 11 March 2020 and regularly updated the COVID-19 situation and recommended measures to address the pandemic and mobilized resources on a global scale to handle the pandemic.

Many countries began to close their borders and implemented the measures recommended by WHO, including lockdowns. China took more extreme measures than what was recommended by WHO, locking down the city of Wuhan and other cities in Hubei province on 23 January 2020, to quarantine the centre of the COVID-19 outbreak.