For nearly a year, the Covid-19 pandemic has stalled almost all economic activity. Amid such uncertainty, glimmers of hope can slowly begin to be reconciled and the pace of recovery can be accelerated.
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By Dewi Indriastuti
·6 minutes read
AFP/POOL/GARY RAMAGE
Australian Prime Minister Scott Morrison (Top-R) is seen on a screen attending a videoconference with G20 leaders to discuss the COVID-19 coronavirus, at the Parliament House in Canberra on March 26, 2020. - Leaders of the G20 major economies are holding an online summit on March 26, in a bid to fend off a coronavirus-triggered recession, after criticism the group has been slow to address the crisis.
For nearly a year, the Covid-19 pandemic has stalled almost all economic activity. Amid such uncertainty, glimmers of hope can slowly begin to be reconciled and the pace of recovery can be accelerated. Health remains the focus of the recovery program.
For almost a year the economic wheels have come to a virtual halt due to the Covid-19 pandemic. Business players are confused and completely uncertain about the situation at the beginning of the pandemic.
As time goes on, some business players have returned with new approaches. Together with the community, they are innovating to adapt to the new situation. However, their efforts cannot be optimal because the number of new Covid-19 cases in Indonesia continues to increase. As of Sunday (21/2/2021), a total of 1,278,653 Covid-19 cases had been recorded in the country.
The Covid-19 pandemic has severely hit the world economy. Indonesia\'s economic growth projection of 5.3 percent in the 2020 State Budget was shattered.
Indonesia ended up posting a 2.07 percent contraction in 2020, marking a significant drop from 5.02 percent in the previous year. The main component of gross domestic product (GDP), namely household spending, which accounts for 57.66 percent of GDP, shrank 2.63 percent on an annual basis. Meanwhile, investment, which contributed 31.73 percent to GDP, fell 4.95 percent.
Based on data from the Financial Services Authority, public savings or third party funds in Indonesian banks grew just 11.11 percent annually in 2020.
The Indonesian economy, which relies heavily on household spending and investment, declined as household spending and investment weakened due to the pandemic. The uncertain situation due to the spread of the coronavirus made people more cautious about spending their money. Based on data from the Financial Services Authority, public savings or third party funds in Indonesian banks grew just 11.11 percent annually in 2020.
On the other hand, bank loans fell 2.41 percent year-on-year in 2020. The negative growth in lending means that borrowers still pay their installments to banks and some loans have even been paid fully. However, the amount of loans disbursed by banks is getting smaller.
According to the Consumer Confidence Index (IKK) survey conducted by Bank Indonesia, there was actually an improvement in the people’s confidence in November and December 2020. However, the index fell to 84.9 in January 2021 from 96.5 in December 2020.
SEKRETARIAT PRESIDEN
President Joko Widodo held a meeting with ministers and Coordination Task Force for Covid-19, Doni Monardo at the Merdeka Palace, Jakarta, Monday (20/7/2020). The meeting discussed the formation of the Covid-19 Handling Committee and the National Economic Recovery.
The index, which reflects consumer confidence in the economic condition, has been below the optimistic level of above 100 since April 2020. Consumer expectations of business activities, income and job availability for the next six months continue to weaken.
This occurred, among other reasons, due to the implementation of social restriction programs that have severely affected business activities and people’s income. The social restrictions were introduced to control the transmission of Covid-19.
On paper, there is optimism that Indonesia\'s economy will recover this year. In fact, there is hope that Indonesia\'s economic growth of minus 5.32 percent on an annual basis in the second quarter of 2020 will be the lowest during the pandemic period.
There is also hope that the economy has begun to recover as reflected in the decline in the economic contraction in the third quarter of 2020, during which the economic contraction fell to minus 3.49 percent in the third quarter and to 2.19 percent in the fourth quarter, 2020. In the 2021 state budget assumption, the country’s economy is projected to grow 5 percent.
However, the recovery efforts are still faced with an unstable situation. There are many things that affect market perceptions, for example the slow progress of the vaccination programs in Indonesia, which has been carried out since Jan. 13, 2021 and the increase in new Covid-19 cases, and government policies.
Initial step
What kind of recovery is the government aiming at and from where will it start?
Bank Indonesia has mapped out the priority economic sectors that are productive and safe and which have a major contribution to GDP and exports. There are six priority sectors that can contribute 16.8 percent of GDP.
AFP/ROMEO GACAD
A man wearing a facemask amid concerns over the spread of the COVID-19 novel coronavirus, walks past a stock market display board showing movements of the South Korea\'s stock index at a shopping mall in Bangkok on March 15, 2020. - The world markets were sent into meltdown by fears over the coronavirus outbreak that has threatened to plunge the global economy into recession.
The six sectors are the food and beverage industry; chemical, pharmaceutical and traditional medicine industries; forestry and logging; and horticultural crops, in addition to plantation crops and mineral ores.
The second priority consists of 15 safe and productive economic sectors, with a contribution of 21.6 percent to GDP. The opening of economic activity can be initiated from the two priority sector groups so that the impact on GDP will be significant.
The treatment in providing loans or financing can also be adjusted to the condition of each economic sector. For example, a sector whose performance still has the potential to grow, with a medium risk of Covid-19 transmission, will be different from a sector that has the potential to grow, but has a high risk of Covid-19 transmission.
Again, the consideration in determining recovery steps is not just a matter of GDP. This must be focused on the main cause of the economic crisis, namely the health crisis due to the pandemic.
The pandemic has shattered the economic structure. However, pandemics also present new opportunities and work models. For example, micro, small and medium enterprises are more creative and flexible because the pandemic has forced them to adjust to the situation.
However, there are also economic sectors that must be assisted because their income has sharply declined and some even have suffered losses.
During the pandemic there were at least an additional 2.56 million unemployed people and 24.03 million people who suffered a decline in income.
In fact, this group is willing to spend money, at least on vacations and looking for a new atmosphere, after being shackled by the pandemic for almost a year.
Meanwhile, there is also a need to spur the consumption of the middle-upper class, among other things, by convincing them that the Covid-19 pandemic is under control. As long as the pandemic is not under control, consumption will not increase. In fact, this group is willing to spend money, at least on vacations and looking for a new atmosphere, after being shackled by the pandemic for almost a year.
Another thing that is no less important is to prepare the economy to move faster when the condition has begun to recover, for example by resuming infrastructure development. Realizing the limited funds available for infrastructure development, Indonesia recently established the Investment Management Institution (LPI) to spur investment. The government will gradually inject capital up to Rp 75 trillion by the end of 2021 as initial capital for the new institution to attract investors.
After that, the institution can increase the added value of managed funds by investing in projects in various sectors.
AFP/GOH CHAI HIN
Customers gather at a street stall in Jakarta on November 5, 2020, as Indonesia tumbles into first recession since the Asian financial crisis.
A precise strategy is needed to determine which projects will be funded by LPI’s investment funds. The government is optimistic that the enactment of Law No. 11/2020 concerning job creation will not only be able to increase investment but also bring a lot of benefits to the Indonesian people.
The pandemic can be used as an opportunity to improve many things, such as by conducting structural reform in the Indonesian economy so that it will be better and more sustainable than before the pandemic.
Quoting the founder and chairman of the World Economic Forum, Klaus Schwab, the Covid-19 pandemic is an opportunity to reform the economy of the country and the world to become better and more valuable.
(This article was translated byHendarsyah Tarmizi).
