Indonesia can smile proudly, because, among the G-20 countries, it is predicted to have the second-fastest economic recovery, after China.
By
ENNY SRI HARTATI
·5 minutes read
KOMPAS/TOTOK WIJAYANTO
Enny Sri Hartati
Indonesia can smile proudly, because, among the G-20 countries, it is predicted to have the second-fastest economic recovery, after China. The International Monetary Fund (IMF) predicts that Indonesia\'s economy will only contract 1.5 percent in 2020, below China\'s positive growth of 1.9 percent. South Korea is projected to record a contraction of 1.9 percent and Russia one of 4.1 percent.
However, Indonesia must be careful in responding to the IMF’s promising outlook. First, the IMF reference indicator remains in the magnitude of economic contraction. In fact, in three consecutive 2020 quarters, Indonesia’s economic growth rate was at 2.97 percent, minus 5.32 percent and minus 3.49 percent, respectively. To keep the economic contraction at no more than 1.5 percent in 2020, there must be spectacular growth in the fourth quarter of 2020. The economy must record positive growth of at least 4.34 percent.
Second, if it is assumed that the economic contraction in the second quarter of 2020 was the deepest, Indonesia’s contraction rate was quite low. Many countries contracted badly, such as Singapore (minus 13.3 percent), the United States (minus 9 percent), Hong Kong (minus 9 percent) and the European Union (minus 13.9 percent). However, when looking at the recovery in the third quarter of 2020 against the second quarter of 2020, Indonesia’s growth was the slowest at 34.4 percent, while the United States rebounded by 67.8 percent, Hong Kong by 62.2 percent, Singapore by 47.4 percent and the EU by 71.9 percent.
Third, the countries that contracted deeply generally have close links with global supply chains, such as Singapore, or with global financial markets, such as the EU. This means that if the global economy improves, let alone the pandemic ends, their economies will automatically recover. On the other hand, the integration of the Indonesian economy with the global one is low. The main drivers of the Indonesian economy are household spending and investment. Thus, the economic recovery is highly dependent on the recovery of people\'s purchasing power and the confidence of business actors.
The problem is, however, that people\'s purchasing power has declined. Many workers have been temporarily laid off and some have even lost their jobs.
According to Statistics Indonesia (BPS), the open unemployment rose to 9.77 million people (7.07 percent) in August 2020. Underemployment, namely working fewer than 35 hours per week and still looking for new jobs, totaled 14.10 million people (10.19 percent). Meanwhile, the number of part-time workers also increased to 35.88 million people (25.96 percent) and that of informal workers rose to 77.68 million people (60.47 percent). The Covid-19 pandemic resulted in a decrease in the income of around 29.12 million workers.
The employment profile indicates how difficult it will be to recover people\'s purchasing power if there is no immediate job creation. The government\'s fiscal capacity to finance social protection will be insufficient, let alone to compensate for the reduced income of 29.12 million workers and to finance the social protection for 26.42 million poor people. Meanwhile, there should be job openings, especially from investment in the labor-intensive sector. Even if there is an increase in investments, it cannot create many jobs, if the increase only occurs in the service sector.
In the midst of such a gloomy situation, the government has allocated a large amount of funds for routine spending and for the Covid-19 Handling and National Economic Recovery Program this year. Ironically, the allocation of large funds for Covid-19 mitigation and economic recovery seems to be in vain.
Security officers escort suspects (in orange vests) on Sunday (6/12/2020) at the Corruption Eradication Commission (KPK) headquarters in Jakarta. Social Affairs Minister Juliari P. Batubara was named as one of five suspects in a corruption case centering on the Social Affairs Ministry’s distribution of Covid-19 social assistance packages in Greater Jakarta. The KPK has also seized Rp 14.5 billion in cash as evidence in the case.
The realization of the 2020 state budget expenditure until the third quarter was only 61.3 percent, while transfers to regions and village funds (TKDD) were 82.4 percent. This means that the remaining expenditure that has to be realized by the central government in less than the last three months still amounts to Rp 763.8 trillion. At the regional level, Rp 402.3 trillion of the regional budgets (PBD) have not been disbursed. Meanwhile, the realization of the spending for the economic recovery program was only 62.1 percent of Rp 695.2 trillion. The realization of the spending for health, in fact, was only 41.18 percent of Rp 97.9 trillion.
A relatively high realization rate has been achieved only on the expenditure for the social protection, where Rp 207.8 trillion (88.92 percent) has already been disbursed. However, the public was shocked by the arrest of the Social Affairs Minister, who was accused of receiving kickbacks from contractors tasked with distributing social assistance in the form of staple goods packages. Previously, BPS’s findings indicated that the pre-employment card program had not reached its targeted recipients, because 66.47 percent of recipients were in fact employed.
The low effectiveness of the fiscal stimuli and the potential for moral hazard in the disbursement of Covid-19-related spending has created a serious problem in the fiscal management. Not surprisingly, the Finance Ministry is almost certain that it will face difficulty in maintaining the spending for health and the stimulus, especially with the government currently holding regional elections. In addition to absorbing non-priority budgets, the regional elections also have the potential to inflate state budget spending if the Covid-19 transmission cannot be controlled.
Although the availability of Covid-19 vaccines is believed to be able to solve health problems, the economy will not be able to recover immediately. In the post-Covid-19 era, it is almost certain that there will be a change and a new dynamic in the global economic order. The economy is heading to a new balance, so it needs to focus on solving short-term problems. Do not let Indonesia be trapped to think only for a long-term focused on the implementation of the Law Number 11 of 2020 on Job Creation and inappropriate national strategic projects, like a proverb Gajah di pelupuk mata tak tampak, semut di seberang lautan tampak (An elephant on the eyelid can\'t be seen, but an ant across the ocean is visible).
ENNY SRI HARTATI,Senior researcher at the Institute for Development of Economics and Finance (INDEF).
