Several countries in the Asia-Pacific, such as Malaysia, Thailand, the Philippines, and Australia, have readied plans for recovering their economies from the impacts of Covid-19.
By
AGUS SUGIARTO
·7 minutes read
KOMPAS/RADITYA HELABUMI
Distribution of social assistance package stage 4 from the Provincial Government of DKI Jakarta to residents affected by Covid-19 at RW 06, Cipulir Sub-District, Kebayoran Lama, South Jakarta, Tuesday (30/6/2020).
Several countries in the Asia-Pacific, such as Malaysia, Thailand, the Philippines, and Australia, have readied plans for recovering their economies from the impacts of Covid-19. The countries of the European Union are doing likewise. The EU is preparing grand plans to restore the economies of its member countries.
The threat of a recession or a wave of economic depression that almost all countries in the world are facing is beginning to appear in plain sight. It therefore makes sense to prepare risk mitigation or recovery efforts from this point forth, without waiting for the end of the pandemic. If all countries have economic recovery plans ready, the impacts of a global recession or depression can be minimized immediately and a way out can be found.
Not wanting to be left behind by these countries, President Joko “Jokowi” Widodo has announced the establishment of the Covid-19 Mitigation and National Economic Recovery Committee through the issuance of Presidential Regulation No. 82/2020. This committee has the very difficult task of restoring Indonesia\'s economy, which has been battered by the Covid-19 health crisis. It is hoped that this committee will take prompt and appropriate steps for recovering Indonesia\'s economy so it does not cause any further damage.
The establishment of this committee has been extremely timely, even though the rising number of confirmed coronavirus cases in Indonesia has shown no signs of abating. The conditions on the ground show that the national economy is already on the verge of a recession, perhaps even a depression, so it is necessary to take immediate policies and actions to overcome these conditions. The following are several notes that the committee needs to consider in restoring the national economy.
Focus of recovery
The public has high hopes that Indonesia can quickly rise up from the impacts of the epidemic and formulate a strategy for rebuilding the national economy. These efforts must focus on three key issues. First, save as many lives as possible from Covid-19 infection, which is currently spiraling out of control. Economic recovery will not be completely successful if the virus continues to spread.
Second, spin the economic wheel as rapidly as possible, so as to restart the economic machine to prevent deeper contraction. Moving the economic engine must be prioritized in the labor-intensive industries and those sectors that provide basic goods to sustain the lives of many people.
Workers head home on Thursday (23/4/2020) after finishing their shifts at a garment factory in Dayeuhkolot, Bandung regency, West Java. Protecting workers from Covid-19 infection is critical as a number of businesses continue to operate during the large-scale social restrictions (PSBB) implemented in Greater Bandung.
Third, boost purchasing power, which has experienced a sharp fall as a result of the increase in unemployment and the poverty rate. The Covid-19 health crisis has widened the economic gap to reduce the quality of life for a great part of the population.
It is hoped that these three focuses will not only save the Indonesian nation from a deeper downturn, but also strengthen the resilience of the national economy against long-term crises.
Rebuilding an economy that has been hit by the Covid-19 epidemic will be costly. Money must again start flowing in the real sector in order to finance those economic activities that were temporarily halted in response to the crisis. Aggressive fiscal policies have been implemented through a variety of stimulus packages to inject liquidity so that the economy can move. The question is, how long can the government continue to provide stimulus amidst its limited sources of revenue?
Tax revenue will not be as large as last year, considering the number of companies that are making losses or have gone out of business. The budget deficit is projected to widen to 6.34 percent of gross domestic product (GDP). Issuing government bonds on the global market is still possible, but must provide greater returns because Standard & Poor\'s has downgraded Indonesia’s investment grade from stable to negative as a result of the epidemic.
The banking industry, which is one of the main sources of financing in the real sector, also faces obstacles. On the one hand, the current need for liquidity is very large, but not all banks have sufficient liquidity to support major credit expansion.
On the other hand, a credit crunch is also a very likely possibility, because the banks that have large liquidity are being very selective in handing out credit. As a matter of fact, banks have had a large role in providing financial support to sustain the activities of micro, small and medium enterprises (MSMEs) as well as big companies. Large corporations also face an additional challenge because they must pay higher borrowing costs, especially since international rating agencies have lowered their corporate debt rating.
The economic crisis caused by the Covid-18 health crisis has also caused insolvency (unable to pay debt) in the MSME sector as well as among big companies. The low demand for their products has destabilized their financial condition to cause them to default in paying their debt obligations. Many businesses in Indonesia are currently in the insolvency phase, and if this insolvency problem is left to continue, it would become impossible to avoid a wave of corporate bankruptcies.
Corporate bankruptcy is occurring everywhere around the globe, with many companies declaring bankruptcy. Therefore, the committee carries a very heavy burden to prevent this wave of bankruptcy from engulfing Indonesian businesses. This preventive approach is very logical, because it is useless to inject MSMEs or big companies with additional liquidity when many businesses have gone bankrupt and have been liquidated.
Starting new MSMEs and companies to replace those that have gone bankrupt is no easy feat, because this takes a long time and requires large resources. The MSME sector has become one of the most important pillars of the national economy, so the committee must make MSMEs the top priority of the national economic recovery program.
There are several arguments for prioritizing the recovery of MSMEs. First, the sector has a very large number of MSMEs at around 52 million businesses, but most of them still remain extremely vulnerable to the impacts of the economic crisis. MSMEs comprise approximately 99.9 percent of all businesses in the country, with big businesses making up the remaining 0.1 percent.
Second, MSMEs contribute around 60 percent to GDP. Third, MSMEs absorb 97 percent of the approximately 137 million workers in the country. From this fact, we can see that widespread bankruptcies in the MSME sector will have a major impact on unemployment. Fourth, MSMEs are active across many parts of the country, so reviving MSMEs will also support the recovery of regional economies that have been affected by the health crisis.
Strong efforts must be made to prevent the national economy from sinking into a recession, which is the way it is headed now, and the potential impacts must be minimized to prevent greater losses. Economic policies that might appear to be abnormal are the very policies that are urgently needed now to accelerate recovery of the national economy. All regulations, whether they were issued by the central government, Cabinet ministries, state institutions, or regional administrations, must therefore be reviewed so that they do not hinder the economic recovery effort.
DOKUMENTASI AGUS SUGIARTO
Agus Sugiarto_
Reviewing these various regulations is critical so that conflicting or overly bureaucratic provisions do not slow the pace of economic recovery. Those rules that do not support economic recovery can be eliminated or simplified where necessary.
Agus Sugiarto, Advisor, Financial Service Authority.
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