Even though Indonesia is suffering a current account deficit from a generally large trade deficit in services and its primary income, a surplus in its secondary income has reduced the current account deficit along with surplus trade in goods, thanks in part to the remittances from Indonesian migrant workers across the world.

Despite some restrictions in cross-border mobility due to the coronavirus pandemic, approximately 3.2 million Indonesians working overseas sent remittances totaling over US$9.2 billion in 2021. The number of workers and the value of their remittances were obviously higher before the pandemic, which reached over 3.7 million migrant workers and $11.4 billion in remittances. This made Indonesia the second largest exporter of migrant workers in ASEAN after the Philippines.

With the declining trend in COVID-19 infections in many countries, people’s mobility is expected to return to normal, not just within a country but also across countries, and that includes the movement of migrant workers.

In 2021, the World Bank reported that remittance flows to low- and middle-income countries reached $605 billion, a robust growth of 8.6 percent compared to the previous year. The bank further predicted that remittance flows to low- and middle-income countries in 2022 would increase 4.2 percent to reach $630 billion.

One of the essential factors to ensuring smooth remittance flows is a cross-border payment service. This is essential for people who are working overseas in order to send money either to their home country or to other countries for business purposes.

Over the past few decades, along with an increase in the international mobility of goods and services, both capital and people have contributed to the growing economic importance of cross-border payments. The value of cross-border payments is projected to increase from nearly $150 trillion in 2017 to over $250 trillion by 2027, or an increase of over $100 trillion in just 10 years.

The rising number of overseas migrants sending money through international remittances is one of the main factors contributing to the increase in cross-border payments. Other factors include the expansion of manufacturing supply chains across borders, the increasing flow of cross-border asset management and global investment, and intensified international trade and e-commerce.

In fact, demand is growing among international workers for access to cross-border payment services that are as fast, easy, secure and affordable as comparable domestic services.

Creating an efficient and secure cross-border payment system requires both technological and regulatory breakthroughs, as well as international cooperation. This is because domestic payment systems traditionally do not have a direct connection to the systems of other countries.

When transferring funds between two jurisdictions, the money is not physically transferred across borders. Instead, international banks provide accounts for their foreign counterparts and vice versa, which enable banks to make payments in a foreign currency. Therefore, accounts are credited in one jurisdiction and the corresponding amount is debited in the other jurisdiction.

The challenges to developing a cross-border payment system include high costs, slow speeds, limited access and inadequate transparency. Nevertheless, payment systems have undergone significant change over the past decade with innovation, technological developments and an emerging perspective on efficient cross-border payments.

Indonesia has signed various agreements with its ASEAN peers on trade in services, which includes facilitating the movement of natural persons (MNP). This is defined as “the temporary presence of individuals in another country in order to supply services”, and is one way through which services can be supplied across international borders.

In addition, Indonesia and some other ASEAN countries, such as Malaysia and Thailand, have also implemented bilateral cooperation in payment services through local currency settlement (LCS) using QR codes and fast payments, This cooperation needs to be expanded to include payment connectivity, which can provide migrant workers with fast, affordable, transparent, accessible and secure cross-border payment services.

Of course, the provision of an efficient and secure cross-border payment system should be supported with efforts to improve workers’ skills and protection while they are abroad. Hence, they will be able to not only send money home easily and comfortably, but also access higher paying jobs, which can increase the amount of the funds they send.

By enhancing these various efforts, Indonesia can maximize the benefits from the increased movement of migrant workers across the world after the pandemic. These benefits include not only improving the welfare of Indonesian migrant workers and their families, but also strengthening the current account balance that can lead to stronger economic recovery.

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The writer is executive director of the Center of Reform on Economics (CORE) Indonesia.