During his speech, which lasted 10 minutes and 20 seconds, President Joko Widodo emphasized that the country was in crisis mode and consequently, all members of his Cabinet must develop a collective sense of crisis.
HENDRIYO WIDI/KARINA ISNA IRAWAN/AGNES THEODORA
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The COVID-19 pandemic has spelled uncertainties in the national and global economy. The sturdy walls of a nation, even superpower ones, have been easily infiltrated by the disease, which then wreaks havoc inside. Unsurprisingly, many have their own analyses regarding the economic crisis brought forth by the novel coronavirus.
At the outset of the pandemic, capital market economists called the crisis a shock that creates uncertainties or a “black swan” event. The terminology refers to unprecedented occurrences with huge impacts. In an economic perspective, shocks that disrupt perceptions and create negative sentiments can lead to tumults and even crises.
Some also call the crisis an unseen propagation of punctures. Starting as a small puncture at one spot that no one is aware of, COVID-19 ends up gnawing at all aspects of life. Like tiny, undetected punctures on a car tire, people are often only aware of them once they get too big and pose a real danger.
Meanwhile, in its latest report titled “A Crisis Like No Other, an Uncertain Recovery” published on June 27, the International Monetary Fund (IMF) cited these uncertainties as a crisis like no other. This extraordinary crisis is mentioned as the “great lockdown”.
The Organization for Economic Cooperation and Development (OECD) calls it an economic crisis that has resulted in countless countries walk on a tightrope. The metaphor can be found in the title of the OECD’s June 2020 economic report titled “The World Economy on a Tightrope”.
The World Bank has also chimed in, saying the crisis would lead to the deepest global recession since World War II (1939-1945). Indeed, the COVID-19 pandemic is not merely about health. It has also severely undermined global economy and the domestic economy of so many countries. The domino effect of uncertainties that it creates has led to countries and international agencies revising economic growth estimates numerous times and warn about dangerous levels of recession.
The IMF has predicted that the global economy would contract by 4.9 percent in 2020. Previously, in April, the IMF projected the global economy to contract by 3 percent. The organization also said Indonesia’s major trade partners are among those suffering from the biggest blow. The United States, for instance, may see its economy shrink by 8 percent. Meanwhile, European Union countries may see economic contractions of 10.2 percent on average.In Asia, Japan’s economy is expected to shrink by 5.8 percent. China will still enjoy 1 percent growth but India’s economy will contract by 4.5 percent. The economy of emerging countries, including Indonesia, is projected to contract by 3 percent.
Previously, the World Bank estimated that the global economy will shrink by 5.2 percent this year as a result of disruptions in the global trade supply chain and finance. It also predicted that emerging countries may face an economic contraction of 2.5 percent as well as a 3.6 percent decline of per capita income.
The OECD has even presented two scenarios of economic growth projections for the world and Indonesia based on the possibility of a second COVID-19 wave. With a second wave, the global economy is expected to shrink by 7.6 percent this year. Without one, the global economy may shrink by 6 percent this year.
Meanwhile, unemployment is expected to surge from 5.4 percent in 2019 to 9.2 percent this year. All countries must watch out for surges in unemployment and poverty.
Specifically for Indonesia, the OECD said the country’s economic growth would shrink by 2.8 percent if pressures from supply, demand and trade only occur once. However, with a second COVID-19 wave, Indonesia’s economy is expected to shrink by 3.9 percent.
The government has estimated that the national economy will grow between minus 4 percent and 1 percent. Based on this, the National Development Planning Agency (Bappenas) predicts that by year-end, the country’s poverty rate will jump to between 9.7 percent and 10.2 percent of the total population, which amounts to between 26.2 million and 27.5 million people. This means that there will be 3.9 million more poor people in Indonesia in 2020.
The COVID-19 pandemic and large-scale social restrictions (PSBB) will likely lead to increased financial vulnerability. Low-middle income people have a 55 percent chance of becoming more vulnerable. Meanwhile, poor people have a 55 percent chance of becoming chronically poor.
Referring to May research conducted by the World Data Lab, Indonesia is ranked third among countries with the highest surge of poverty due to COVID-19, with around 3 million people. Only India with 10 million and Nigeria with 8 million have a higher poverty surge than Indonesia.
On Sunday (28/6/2020), a video of President Jokowi’s wrath in a Cabinet meeting at the State Palace on 18 June went viral after it was uploaded to the Presidential Secretariat’s official YouTube channel.
Jokowi was furious at his ministers for their lack of progress in COVID-19 mitigation efforts. He saw them as merely “working as usual” and threatened to disband agencies and fire ministers to speed up the efforts.
During his speech, which lasted 10 minutes and 20 seconds, the President emphasized that the country was in crisis mode and consequently, all members of his Cabinet must develop a collective sense of crisis. The President also quoted the OECD and World Bank economic growth projections while asking his Cabinet members to exercise caution and be quick in responding to the latest economic situations.
Jokowi was furious at his ministers for their lack of progress in COVID-19 mitigation efforts.
The government’s seriousness in tackling COVID-19 impacts in various aspects of life is expected, especially as it has allocated a large amount of money for COVID-19 mitigation. As of June 16, the government has allocated Rp 695.2 trillion (US$48.4 billion) for COVID-19 mitigation.
The budget includes Rp 87.55 trillion for health, Rp 203.9 trillion for social protection, Rp 120.61 trillion for business incentives, RP 123.46 trillion for incentives for micro, small and medium enterprises, Rp 53.57 trillion for cooperatives’ funding and Rp 106.11 trillion for ministries, agencies and regional administrations.
Regarding the government’s COVID-19 mitigation budget, Jokowi spoke about the low spending in health. The President pointed out that only 1.53 percent of the health budget had been used. Regarding social assistance fund, Jokowi said that fund distribution was “not bad”. However, he ordered that the entire budget be disbursed soon to tackle the extraordinary situation.
Budget use is in the public spotlight, including in terms of spending, target appropriateness, monitoring and transparency. This is not simply a matter of the people’s money being at stake. The capacity and performance of state ministries and agencies are also at stake.