Although Indonesia’s economic performance improved in the third quarter from the second quarter, the improvement was still inadequate compared to other countries.
By
Agnes Theodora Wolkh Wagunu
·4 minutes read
JAKARTA, KOMPAS– Economic recovery in the midst of the COVID-19 pandemic is still a work in progress. Although Indonesia’s economic performance improved in the third quarter from the second quarter, the improvement was still inadequate compared to other countries.
The government should be more realistic and prepare a better strategy to balance the economy and public health. According to data from Statistics Indonesia (BPS), the Indonesian economy contracted by 3.49 percent year-on-year (yoy) in the third quarter. Quarter-on-quarter, however, the economy grew by 5.05 percent. In the second quarter, it contracted by 5.32 percent yoy.
Government spending was the only component of the nation’s gross domestic product (GDP) that recorded positive growth. The GDP as a whole shrunk. Government spending increased by 9.69 percent yoy in the third quarter.
Household consumption, which accounted for 57.31 percent of GDP, shrank by 2.1 percent cumulatively. Institute for Development of Economics and Finance (Indef) executive director Tauhid Ahmad said Indonesia’s economic growth rate was slower than that of its trading partners.
The United States economy, which shrank by 9 percent yoy in the second quarter, contracted by 2.9 percent yoy in the third quarter. Similarly, Singapore’s economy contracted less in the second of the two periods, from 13.3 percent yoy to 7 percent yoy, and Hong Kong from 9 percent to 3.4 percent. China recorded an increase in economic growth from 3.2 percent yoy to 4.9 percent yoy and Vietnam from 0.4 percent yoy to 2.6 percent yoy.
“These figures should be used [by the government] to be more realistic and optimal in managing the COVID-19 pandemic, increasing the absorption rate of the national economic recovery (PEN) budget and government spending as a whole, as well as boosting household consumption,” Tauhid said in a virtual discussion on Sunday.
According to Finance Ministry data, Rp 176.38 trillion (US$12.4 billion), or 86.51 percent of the total PEN budget of Rp 203.9 trillion, was spent for the social safety net.
Nevertheless, the spending was still unable to boost household consumption. “People are still unable to meet their daily needs, even basic needs such as food, even though the government had boosted social spending disbursement over the past few months,” Tauhid said.
Tauhid added that this fact suggested that social spend-ing disbursement had an unidentified problem. He encouraged the evaluation of the social safety net pro-gram, specifically of its recipients, recipient registration, the use of funds and the amount of spending.
Feeling safe
Indef economist Eko Listiyanto said the government was still unable to make the upper middle class feel safe and optimistic, resulting in their collective decision to reduce consumption, because its COVID-19 management was not optimal.
Government effort is necessary accelerate household consumption recovery. Boosting household consumption is the only way to recover from the recession.
“This should be the government’s main focus. If the number of COVID-19 cases goes down, households will feel secure in increasing their consumption, which in turn will accelerate the economic recovery,” Eko said.
If the government does not change its strategy, the economy will continue its contraction in the fourth quarter.
Coordinating Economic Minister Airlangga Hartarto said the economy had improved on a quarter-to-quarter basis, though the improvement was not significant. He was optimistic that the economy would grow by 5 percent in 2021. “We have passed the nadir,” Airlangga said.
We see growing optimism because we can start the vaccination next year.
Raden Pardede, executive secretary for the COVID-19 and economic recovery task force, was optimistic about the mood of the upper middle class and its potential to increase consumption in the fourth quarter. “We see growing optimism because we can start the vaccination next year, starting with vaccination of medical personnel by the end of this year,” he said on Sunday.
Even though economic growth would not return by the end of the year, Raden felt optimistic that the economic recovery would be continuous.