Focus on Protecting Vulnerable Groups

KOMPAS/RONY ARIYANTO NUGROHO

People brave the heat on Saturday (19/9/2020) as they queue to receive their cash aid at the Bondongan subdistrict office in South Bogor district, Bogor, West Java. At least 1,022 local residents are registered as social assistance recipients with the Bondongan office, which has implemented a scheduling system to serve the residents of three out of the subdistrict’s 20 community units (RW) per hour.

Indonesia is believed to be on the brink of recession. The government must focus on the protection of vulnerable community groups and business players so that they are able to survive.

JAKARTA, KOMPAS — The government has again revised the economic growth target for the third quarter of 2020 to a range between minus 1 and minus 2.98 percent. With such a target, Indonesia is certain to fall into a recession because the economy will suffer a contraction for two consecutive quarters.

Finance Minister Sri Mulyani Indrawati said on Tuesday that economic growth was unable to enter the positive zone because household spending had not yet recovered. On the other hand, investment, exports and imports contracted further. Economic growth relied only on government spending.

Also read: Economic Transformation and Empowerment

Household spending in the third quarter of 2020 is predicted to contract between 1.5 and 3 percent and investment is projected to fall between 6.6 and 8.5 percent. Meanwhile, exports are expected to decline between 8.7 and 13.9 percent and imports to fall by between 9.8 and 17 percent.

The economic contraction will be partly caused by the decline in production. The improvement in the Purchasing Manager Index (PMI) has not been able to push growth in the manufacturing and trade sectors. Tourist activities also remain weak, thus putting pressure on the transportation, hotel and restaurant sectors.

"This projection depends on the handling of Covid-19. Economic growth at the global or national level relies on the ability to control the virus,” Sri Mulyani said in a press teleconference.

Statistics Indonesia (BPS) reported that the Indonesian economy contracted 5.32 percent in the second quarter of this year, after growing 2.97 percent in the first quarter. Indonesia will fall into a recession if the economic contraction continues in the third quarter of this year.

KOMPAS/AGUS SUSANTO

Children stand on the balcony of a makeshift stilt house on Tuesday (22/9/2020) along the bank of the Ciliwung River in Bidara Cina, Jatinegara, East Jakarta.

Sri Mulyani said almost all countries in the world were projected to suffer an economic contraction in the third quarter of this year, albeit not as deep as in the second quarter. Indonesia’s contraction will be deep enough, while several countries in Europe have even suffered negative growth for three consecutive quarters.

In Indonesia, the socioeconomic and financial risks remain high due to the Covid-19 pandemic. The number of new cases of Covid-19 continues to increase in major provinces such as Jakarta, West Java, East Java and Central Java. The increase in new Covid-19 cases in these provinces has affected the performance of the national economy.

"The balance point (between economy and health) continues to be sought because Covid-19 will remain with us. The pandemic will not end now and may continue until the end of the year or even until 2021, depending on when a vaccine is discovered," said Sri Mulyani.

Teguh Dartanto, an economist at the Institute for Economic and Community Research at the Economics and Business School of the University of Indonesia said the government should focus on the protection of the public and the business world so they can survive amid the uncertainties caused by the pandemic.

Also read: Trade Expo to Have Online Buyers

The target for economic growth does not need to be set too high. Almost all countries experience contraction and even recession.

If the economy can enter positive territory or improve from the previous quarter, it would be good enough, he said. Currently the most important thing is to protect the community and provide a signal for improvement, he added. "Economic growth should not be the main target, but how to protect the public and the business world in order to survive the pandemic," said Teguh.

The effectiveness of the program would not be determined by the size of the budget, but rather by the clarity of the concept and the speed and accuracy in the implementation of the program.

Previously, a senior researcher at the Institute for Development of Economics and Finance (Indef), Enny Sri Hartati, said the government needed to focus on two priority programs, namely the social and economic side. The effectiveness of the program would not be determined by the size of the budget, but rather by the clarity of the concept and the speed and accuracy in the implementation of the program.

Social protection programs are demand-side interventions, namely preventing people\'s purchasing power from falling, with poor people as its main target. The economic recovery program should be aimed at micro, small and medium-scale enterprises (MSMEs) which have a 99 percent contribution to the national economy.

State budget pressure

The economic contraction in quarter III-2020 can be seen from the performance of state revenues as of Aug. 31 this year, during which tax revenues fell 15.6 percent to Rp 676.9 trillion. The sharpest decline occurred in income tax (PPh) on imports which fell 38.44 percent, while the revenues from corporate income taxes fell 27.52 percent.

KOMPAS/TOTOK WIJAYANTO

A ship docks on Tuesday (22/9/2020) at the container port of Tanjung Priok in North Jakarta. Statistics Indonesia (BPS) records show that exports declined 8.36 percent year-on-year (yoy) in August 2020 from US$14.262 billion in August 2019, while imports nosedived 24.19 percent yoy from US$14.169 billion in August 2019.

According to Sri Mulyani, almost all types of taxes suffered a contraction during January-August 2020, except for individual income tax, which still grew 2.46 percent. In addition to the fall in economic growth, the weak performances of tax revenues were also caused by the provision of fiscal incentives as a counter-cyclical policy.

On the other hand, realized state expenditure reached a total of 1.53 quadrillion, growing 10.6 percent. The growth in state spending was driven by the distribution of the spending for the national economic

recovery program, which reached a total of Rp 254.4 trillion, as well as transfers to regions and the disbursement of village funds worth Rp 557.4 trillion. The state budget suffered a deficit of Rp 500.5 trillion, equivalent to 3.05 percent of gross domestic product (GDP).

The director general of financing and risk management at the Finance Ministry, Luky Al-Firman, said the 2020 state budget deficit had been set at 6.34 percent of GDP. The widening of the deficit is allowed in order to support development. However, the widening deficit added to the government’s debts.

Social assistance

The government has boosted social assistance programs (Bansos) to boost public demand and consumption. By the end of this year, the amount of social assistance disbursed is estimated to reach Rp 242 trillion. This amount exceeds the ceiling of Rp 203.9 trillion. As of Sept. 18, the realization of the National Economic Recovery (PEN) budget for social protection had reached 60.7 percent, or Rp 123.77 trillion.

KOMPAS/TOTOK WIJAYANTO

Tono repairs a rattan chair swing on Tuesday (22/9/2020) at his workshop, which also doubles as a store, in Grogol, Jakarta. The craftsman said that sales had dropped since the Covid-19 epidemic emerged in the capital, and that he had yet to receive Rp 2.4 million in emergency capital assistance from the Cooperatives and Small and Medium Enterprises Ministry’s targeted program for micro and small enterprises.

The executive secretary of the Covid-19 and PEN Management Committee, Raden Pardede, said the government was trying hard to stimulate the economy to prevent Indonesia from entering a long recession. Through social assistance, people are expected to increase their consumption spending so they can help drive the economy. (KRN/AGE/CAS)