The latest report from Statistics Indonesia (BPS) showed a 0.05 percent deflation in September 2020.
By
ENNY SRI HARTATI
·5 minutes read
KOMPAS/TOTOK WIJAYANTO
Enny Sri Hartati
The latest report from Statistics Indonesia (BPS) showed a 0.05 percent deflation in September 2020. This deflation reflects the consistent drop in Indonesia’s Consumer Price Index (CPI) over the past three consecutive months. The declining CPI amid the pandemic indicates a corresponding drop in household consumption, or purchasing power. Oversupply is certainly not the cause of the fall, because the Covid-19 pandemic has disrupted production.
Without waiting for the upcoming BPS report on gross domestic product (GDP) growth, which is to be released on 5 Nov. 2020, it is almost certain that the Indonesian economy has fallen into a recession in the third quarter, especially since the food, beverage and tobacco and the transportation sectors are major contributors to deflation. In fact, these two sectors are key indicators of human activities in the real economy. The transportation sector is the primary gauge of economic recovery, while falling food prices can indicate two things: a decline in consumption, which is quite worrisome because it relates to basic human needs, and a drop in the incomes of food producers.
In short, household spending, which contributes 56-58 percent to economic growth, is still contracting. This condition has been exacerbated by the decline in household consumption due to weakening purchasing power. Moreover, households in the top 20 percent of income distribution are still delaying spending. This can be seen from the 11.64 percent growth in third-party funds (DPK) in banks.
On the other hand, the efforts to boost investment growth by injecting liquidity in the banking system have not yet resulted in real sector movement. For example, the Finance Ministry has placed government funds of Rp 47.5 trillion in state-owned commercial banks and another Rp 11.5 trillion in seven regional development banks in a bid to spur economic growth.
Meanwhile, Financial Services Authority Regulation (POJK) No. 11/2020 on bank loan restructuring facilities has helped both banks and debtors. At least Rp 662.1 trillion in loans have been rescheduled under the loan restructuring facility. The central bank also injected Rp 662.1 trillion under its quantitative easing (QE) policy as of September.
A trader prepares eggs for a buyer\'s order at the Ciledug market, Tangerang City, Banten, Thursday (1/10/2020). The Covid-19 pandemic has decreased buyer visits to the market and reduced people\'s purchasing power.
However, loan disbursements fell 1.69 percent year-to-date in August 2020. Of all loans disbursed, working capital loans contracted the most at 2.86 percent, followed by consumption loans at 1.89 percent, while investment loans recorded a slight increase of 0.84 percent. Although loans grew 1.04 percent year-on-year in August, it declined 0.26 percent month-to-month from the July figure.
The government’s policy to expand the social protection budget has been unable to prevent purchasing power from declining. The decision to increase the National Economic Recovery fund to Rp 695.2 trillion has also not brought about any significant impacts.
Instead of evaluating the ineffectiveness of its various programs, the government instead made another controversial move in a bid to accelerate economic recovery: The House of Representatives (DPR) and the government passed into law the omnibus bill on job creation during a plenary session on Monday.
The law is expected to attract investments and accelerate economic recovery after the pandemic subsides. Under the law, the government not only reduces barriers to investment by simplifying licensing procedures and other measure, but also removes overlapping, inefficient, and conflicting regulations.
At first glance, passing the job creation omnibus bill into law will result in broad deregulatory measures. If the law were intended for such a noble purpose, surely all elements of society would have fully supported it. The government did not need to discuss the detailed contents of the bill “in secret" during the deliberation process
KOMPAS/TOTOK WIJAYANTO
Traders serve buyers at Pasar PSPT Tebet Timur, Tebet, South Jakarta, on Friday (14/2/2020). This year, the government is targeting food price inflation to fluctuate at around 3-5 percent.
However, the bill instead provoked public polemic and rejection. A number of articles in the bill have the potential to harm national interests. The policy on improving the ease of doing business should be intended to fulfill the national interest. Giving greater authority to the investment management agency should be offset with high levels of transparency and accountability.
Issuing licenses to invest in strategic sectors risks a moral hazard. Ease of doing business should not ignore the efforts to protect the natural ecosystem. It is impossible for a single regulation to solve the land conversion problems.
As its name implies, the Omnibus Law on Job Creation should have been welcomed with joy by all labor groups. Surprisingly, the biggest resistance against the law comes from labor organizations, which believe that the law will hurt workers and lower their bargaining power. Meanwhile, the government has continued to claim that the law will instead increase social security for all workers.
Employment issues cannot be resolved merely through talk. There must be definitive action to support investment in labor-intensive industries. Efficiency and debureaucratization should not just benefit investors, but also help improve workers’ welfare.
One thing is certain: it will be difficult to recover the economy if we do not overcome the Covid-19 health emergency. This means that in the short term, public support is needed to resolve the pandemic and emerge from the recession. Public trust is the major capital. However, the government’s policies have instead diminished public confidence. After its decision to go ahead with the 2020 simultaneous regional elections despite the public calls for their postponement, it has now passed the omnibus bill on job creation and raised eyebrows.
ENNY SRI HARTATI, Senior researcher at the Institute for Development of Economics and Finance (INDEF).
