Recovery Program Should Target the People

KOMPAS/RONY ARIYANTO NUGROHO

Covid-19 vaccination participants await in the observation stage of giving vaccines to shopping center and retail workers in Bogor City, West Java, March 21, 2021. Vaccination is believed to help economic recovery.

Editor’s Note

The Kompas daily once again held a limited panel discussion on the economy on Thursday (18/3/2021), themed "Harnessing the National Economic Recovery Stimulus". The panelists were: Deputy Finance Minister Suahasil Nazara, former finance minister M. Chatib Basri (2013-2014), Indonesian Chamber of Commerce and Industry vice chairman Shinta Widjaja Kamdani, and M Bloc Space CEO founder Handoko Hendroyono. Coverage on the discussion, published here, on page 13 and on page “Jendela E”, were prepared by Ninuk M. Pambudy, Agnes Theodora, Dimas W. Nugraha, and researcher Giani from Kompas Research and Development.

In March 2021, two economic indicators that showed optimism needed to be addressed with caution. On the one hand, the economy began to show improvement, as reflected by the increase in tax revenue. As of 28 Feb. 2021, state budget realization totaled Rp 219.2 trillion, a 0.7 percent increase compared to the same period last year (Kompas, 24/3/2021). However, data from Statistics Indonesia (BPS) showed that monthly inflation was a mere 0.08 percent, or 1.37 percent on a yearly basis.

Also read: Inflation Data Shows Improvement in Demand

The government has provided a the national economic recovery (PEN) stimulus program as regulated in Law No. 2/2020. Last year, the PEN program disbursed Rp 579.8 trillion, or 83.4 percent of the targeted amount. The undisbursed amount of Rp 56.12 trillion was part of the allocation intended to provide financial incentives for businesses.

This year, Rp 699.43 trillion of the state expenditure totaling Rp 2.75 quadrillion was allocated for the PEN program, which is to be used for financing health, especially the national vaccination rollout. The PEN stimulus is also intended for financing social protection and assistance for cooperatives and micro, small and medium enterprises (MSMEs) to keep business activities running.

Also read: Politics of MSME Development

The third factor that has determined the PEN program is structural reform through the Job Creation Law, to be carried out alongside restoring the public health sector and social protection.

Avoiding the K curve

Monitoring is needed for the economic recovery program on the potential development of a K-shaped recovery. The lives are getting better, as illustrated by the upward slope on the K curve. Their savings have increased because they have incomes, but almost no expenses.

At the same time, the lives of the middle to lower classes are getting more difficult. They don’t have savings or only limited savings that run out quickly, because they have lost their jobs. This group is reflected by the downward slope on the K curve.

A survey conducted by the Smeru Research Institute and Prospera in October and November 2020 that involved 12,216 households showed that nearly three-quarters of the surveyed households had experienced a decline in income compared to January 2020. The first Indonesian cases of COVID-19 were formally announced on 2 March 2020.

Also read: Economic Growth toward the End of the Pandemic

To avoid widening the gap, the government needs to improve the PEN program so it focuses on the informal sector, which has been dealt a severe blow by the pandemic. The demand side should be increased by consolidating social assistance, for example by providing household cash assistance that covers 130 million middle to lower class citizens. Since 57 percent of informal workers are women, a policy is needed that will help women enter the formal sector.

Building digital infrastructure is very important and should be a government priority. Because the government has limited funds, it must prioritize spending, such as by delaying the purchase of fighter aircraft and relocating the capital city.

KOMPAS/KRISTIAN OKA PRASETYADI

Minister of Tourism and Creative Economy Sandiaga Uno tries to play kolintang while visiting Marinsow Village in the Likupang Special Economic Zone, North Minahasa, North Sulawesi, March 6, 2021. The tourism sector has been severely affected by the Covid-19 pandemic.

Competitiveness

The government must continue its efforts to reform the country’s economic structure, especially on the ground. Other countries have also made similar efforts to attract foreign investment. Data from the Investment Coordinating Board (BKPM), the World Bank, and UNESCO show that Indonesia is uncompetitive in terms of land prices, average wage, logistics costs, loading and unloading costs, and investment efficiency as reflected in the incremental capital output ratio (ICOR).

Indonesia needs to be ready to anticipate the United States\' economic recovery in 2023.

In fiscal design, it would be better for the government to pay more attention to the pre-pandemic evolution in consumer behavior, which indicated an increased preference for locally made products. This new direction in consumer behavior should be recognized through real and broader programs at government, state enterprises (BUMN), the private sector, and the greater public.

Regarding the nascent optimism that has begun to grow since the second half of 2021, Indonesia needs to be ready to anticipate the United States\' economic recovery in 2023. Capital outflow should be prevented, as it could destabilize the rupiah exchange rate.

This article was translated by Hendarsyah Tarmizi.