The World Bank has estimated that the poverty rate will further increase amid the risk of economic recession due to the Covid-19 pandemic.
By
A PRASETYANTOKO
·6 minutes read
KOMPAS/HERU SRI KUMORO
A. Prasetyantoko
Poverty, like death, is not just a matter of numbers. Poverty is bitterness and the struggle to overcome suffering. The World Bank has estimated that the poverty rate will further increase amid the risk of economic recession due to the Covid-19 pandemic.
The World Bank’s latest economic report titled “Indonesia Economic Prospects, July 2020: The long road to recovery” explains straightforwardly: without social assistance from the government, the poor will increase by between 5.5 million and 8 million people this year. The projected increase is mainly due to a 5 to 7 percent decrease in household income as a result of the increase in the number of people who lost their jobs.
Economic stagnation due to the Covid-19 pandemic has caused 2.6 million to 3.6 million people to lose their jobs, both permanently and temporarily. Based on surveys, the World Bank shows the sharpest decline in income is experienced by workers in the service sector and the agricultural sector, followed by the manufacturing sector. Household income in urban areas has dropped 5.5 to 7.5 percent, which is greater than the average national decline.
Poverty increased due to the decline in economic growth. Based on an optimistic scenario, the economy will stagnate at zero percent. The optimistic scenario is based on three assumptions. First, global growth will not be worse than the June scenario of 5.2 percent contraction. Secondly, the domestic economy can be fully reopened in August in line with the government\'s scenario. Third, there is no second wave of Covid-19.
If the requirements cannot be met, the World Bank is worried that Indonesia\'s economy would shrink 2 percent this year. The recession will plunge more people into poverty. The government plays a very central role so that the poverty rate can be alleviated if it is unavoidable.
Poverty Data in IndonesiaPercentage of poor population (%).
Rely on fiscal policy
The government is faced with a very difficult choice regarding public policy. If the economy is not gradually opened, the economic slowdown will be deeper and recession inevitable. However, if open too fast, the Covid-19 curve could become uncontrollable. There would be no second wave, but the first wave curve would get higher and it would take a longer time to flatten. The longer the coronavirus curve takes to flatten, the longer the economy will freeze and the potential for recession also increases.
The gradual opening or the restriction of economic activities has the same risks of recession. No one can understand very well the best choice in dealing with this situation.
In the June edition of its World Economic Outlook titled "A Crisis Like No Other, Uncertain Recovery ", the International Monetary Fund (IMF) projects the global economic growth at a contraction of 4.9 percent this year. The current crisis is like no other because it stems from health problems that are completely outside the scope of economic policy. As a result, various projections and mitigation measures rely on assumptions, whose conclusions are all unclear. All calculations have the same conclusion: the future is uncertain.
Almost all countries have difficult choices in protecting the lives and the welfare of the people. In this difficult situation, the hope is in the fiscal policy. The government is forced to continue to inject a large amount of funds into both the health and economic sectors. Fiscal policy is very central and crucial. Our government also faces the same dilemma. Government spending continues to grow as the need to cope with the multidimensional crises further increases.
The state budget deficit continued to increase due to the extra spending for the Covid-19 mitigation efforts. The deficit has risen to Rp 1.03 quadrillion or 6.34 percent of gross domestic product (GDP), from Rp 852.9 trillion or 5.07 percent of GDP. As the health risks have shown no signs of declining, it is possible that the cost of the crisis will further increase and there is no choice but to continue pumping liquidity into the economy. In addition to increasing the budget for health expenditure, the government has also allocated stimulus spending to maintain the quality of life of the people.
Kompas/Bahana Patria Gupta
Residents crowd the Sidoarjo City Post Office in East Java on Thursday (11/6/2020), the last day before the deadline to receive cash in the first phase of a social aid program from the Social Affairs Ministry. The residents ignored Covid-19 health protocol by jostling while waiting in line. Within two days, the post office had to disburse cash assistance to 9,000 beneficiary families in Sidoarjo.
The government has allocated Rp 15.5 trillion to the distribution of basic necessities for the poor and another Rp 8.3 trillion to the Family Hope social aid program. To support workers who lost their jobs, the government has also allocated Rp 10 trillion to the Pre-employment Card program as well as Rp 6.9 trillion to the electricity subsidy budget. There are also a number of direct assistance programs: Direct Cash Assistance worth Rp 32.4 trillion and Village Fund-Direct Cash worth Rp 31.8 trillion.
Among the various programs, three programs need continuous improvement: distribution of basic necessities, direct cash assistance and the pre-employment program. All three have the potential to be off target, and therefore, they will not be effective. Data improvement and the distribution mechanism are key in improving its effectiveness. For the distribution of basic necessities and the direct cash assistance, there are two approaches that need to be taken. First, for residents who have identity cards, distribution of assistance can be based on their residential identification number. As for residents, who do not have an ID card, the distribution can be based on cell phone numbers. If not having both, they can be listed as the most vulnerable group who have the potential not to be recognized in any policy.
The Covid-19 pandemic is an important opportunity to organize population data. Furthermore, this is the best moment to carry out bureaucratic transformation to be more professional and based on accurate data and the latest technology. It will not be too late if it is carried out immediately because the impact of the recession will last for a long time. So, the improvement is the key to prevent a further increase in the poverty rate.
The government is the safeguard to ensure the economic cycle is under control. Bureaucracy transformation is one of the keys to succeed in overcoming this problem. This response will also determine the extent to which the level of poverty (suffering) can be controlled (alleviated).
A. Prasetyantoko, Rector of Atma Jaya Catholic University.
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