Interview with Minister Airlangga: RI will have a Different Face

KOMPAS/CYPRIANUS ANTO SAPTOWALYONO

Coordinating Minister for the Economy Airlangga Hartarto

The COVID-19 pandemic has put Indonesia and other countries into recession. The health crisis has turned into an economic crisis.

Household spending, which dominates Indonesia’s gross domestic product (GDP), has nosedived. Upper-middle-class consumers have increased their savings due to rising uncertainty over their economic prospects. Meanwhile, many people in the lower-middle class have received social aid to maintain their consumption level.

According to data from Statistics Indonesia (BPS), the Indonesian economy contracted by 5.32 per-cent year-on-year (yoy) in the second quarter, then improved to a contraction of 3.49 percent yoy in the third quarter. The government is optimistic that the economy will either grow by 0.6 percent or contract by no more than 2 percent this year and recover next year with 5 percent growth.

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Coordinating Economic Minister Airlangga Hartarto, in a special interview with Kompas last week, emphasized the game changer for 2021: COVID-19 mass vaccination and structural reforms introduced through Law No. 11/2020 on job creation. In general, Airlangga gives the Indonesian economy a score of 8.5 this year.

Q: What is the turning point toward economic recovery? Has the government found the middle road to balance public health and the economy?

A: The government firmly stated that the COVID-19 pandemic is a public health crisis turned into an economic crisis. Therefore, we need to build confidence in the public health situation, so that the public can go about their economic activity. The government has managed the public health issues. The COVID-19 pandemic is an opportunity for the government to revitalize public services in the health sector. The main difference between the early days of the pandemic and today is more clarity over the implementation of health protocol and better health facilities. The pandemic will be managed from a public health perspective with mass vaccination as the main driver.

Also read: 2021 Challenge: Adapting and Collaborating or Defeated by the Pandemic

KOMPAS/ERWIN EDHI PRASETYA

The production activities of the garment division of PT Sri Rejeki Isman Tbk or Sritex in Sukoharjo, Central Java, Wednesday (13/2/2019). The textile and textile product industries still have wide opportunities in the domestic and export markets but face challenges of efficiency and global competition.

The other critical factor is the Job Creation Law. This law has brought investment from various institutions, and many of our partners abroad have inquired about this matter. With these factors, the public will see that Indonesia manages the pandemic distinctively, because Indonesia is one of the few countries that manages the pandemic without enforcing a quarantine.

Indonesia has implemented large-scale social restrictions (PSBB) with 11 economic sectors opened and has successfully proved among the G-20 countries that Indonesia’s economic growth is second only to China. The economic contraction and the nadir occurred in the second quarter. In the third quarter, the economy grew by 5.05 percent quarter-on-quarter (qoq). If we can maintain the 5.05 percent growth, the Indonesian economy will either grow by 0.6 percent or contract by 2 percent. The big trend is within sight now.

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Q: What is the main requirement to restore economic activity, and which sector is the easiest to re-store?

A: The main drivers of the economy are consumption and investment. During the pandemic, both of them do not work optimally. The demand side of consumption is disrupted by a sense of insecurity caused by the pandemic. The solutions are implementing strict health protocol to mitigate the COVID-19 pandemic and mass vaccination. From the investment side, there will be a new source of investment, the national sovereign wealth fund (SWF). There are positive indications, as various countries have made their investment commitment. The third engine of growth will be this SWF, which does not rely on state budget. Usually, we are dependent on direct foreign investment, not through the capital market. If the economy grows by 5 percent, labor absorption is estimated to be around 2 million new jobs. Therefore, we need another push factor and utilization of these assets.

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Q: Could we interpret it as a shift in the source of growth from consumption toward investment?

A: We saw that the global economic recovery is currently within our sight. The Chinese economy is able to record a positive growth rate, which might help us integrate with global supply chains. Next is the United States’ decision to extend the General System of Preferences (GSP), of which there is a possibility for adding more exports to the US, including textiles, footwear, jewelry and furniture. Then, through the Comprehensive Economic Partnership Agreement (CEPA) with South Korea, in-vestment from South Korea will improve. We are pushing for these factors while introducing the Job Creation Law. These regulations will change the face of Indonesia.

DOKUMENTASI HUMAS PEMPROV NTB

A circuit for the 2021 MotoGP race in the Mandalika Special Economic Zone, Kuta, Central Lombok, West Nusa Tenggara, is still under construction on Jan. 28.

With structural reforms, we do not only look at consumption as a basis, but also improving investment. We also push for another factor, namely the digitization of the economy. The information and telecommunication technology sector grew by 10 percent, turning this sector into the country’s engine of growth.

Q: What is Indonesia new face that is shaped by the Job Creation Law? Regarding economic digitization, are our workers ready, because many of our industries are still labor intensive?

A: Indonesia has become an upper-middle income country. If we talk about cheap wages, there are better countries. If we compete in more developed countries relying on productivity, however, we cannot compete with countries that have better technology. Therefore, Indonesia chooses to compete using the Job Creation Law. Technological advancement and productivity are important, be-cause they can carry us out from the middle-income trap, such as through digitization.

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I am not pessimistic, because we already have the pre-employment card. There are 43 million young people who can access the internet within the 514 regencies and municipalities of the archipelago. They can drive the economy through digitization and have the willingness to learn. Their motivation is the main driver.

Q: The 2021 state budget assumes 5 percent economic growth. Looking at the current situation, is that assumption still realistic?

A: For the pandemic, there is dynamic change in the growth target. According to Law No. 2/2020, the government has the mechanism to adjust its budget in accordance with the latest conditions. We will see in 2021. The government is confident with the state budget’s economic target of 5 percent growth and 3 percent inflation.

Q: Optimistic about the Indonesian economy?

A: In sports, pessimistic people never win.