Digitalization: A Safe Path to a More Inclusive Recovery in Indonesia?

There are two key longstanding structural constraints to inclusive growth in Indonesia—low financial inclusion and limited access to finance—resulting in a large financing gap. Indonesia’s digitalization— growing rapidly in the e-commerce and financial services sector, the latter facilitated by fintech—is helping close this gap. The COVID-19 pandemic will likely serve to further accelerate this digital transformation: adoption of e-commerce and digital payments has increased amidst lockdowns and social distancing. Digitalization can also help counter the impact of the COVID-19 crisis, including through the delivery of government support measures, and support longer-term growth. However, attempting to scale up digitalization quickly as a response to a crisis, is not merely challenging but also potentially risky (e.g., risks to financial stability or cyber risks). Hence, important challenges need to be addressed first (e.g., infrastructure, skills, regulations) to ensure an inclusive and stable recovery.