Restoring the Economy during Idul Fitri Celebrations

KOMPAS/TOTOK WIJAYANTO

Enny Sri Hartati

Ramadan and Idul Fitri, locally known as Lebaran, are highly anticipated events for consumers and traders. Businesses, ranging from micro, small to medium and large businesses, hope to reap bigger profits during Idul Fitri. Traders generally expect sales turnover during the fasting month and Idul Fitri usually accounts for between 30 percent and 35 percent of their annual sales.

Idul Fitri does not only have a religious dimension. Its economic dimension is even bigger. Economic activity usually grows at the start of the fasting month and reaches its peak ahead of Idul Fitri celebrations. The majority of Muslims usually increase their spending during the fasting month.

During Idul Fitri celebrations, various special dishes are available, while most people don new clothes as a tradition. In fact, some people are willing to borrow money in order to be able to go mudik, the annual tradition of visiting hometowns during Idul Fitri.

Also read: Provoking Spending

The tradition occurs throughout the archipelago and even Indonesian workers abroad return to their hometowns to celebrate Idul Fitri. Under normal conditions, Idul Fitri is a lever for economic growth.

In the midst of the pandemic, the impact of Ramadan and Idul Fitri on the economy has certainly declined. Spending on special foods for iftar and sahur (predawn meal) have to be adjusted according to financial conditions. The desire to buy clothes has to be postponed. Even if the government did not ban the mudik tradition, the spending for Idul Fitri will remain low. People’s purchasing power remains low as their incomes have dropped significantly due to the pandemic.

Also read: Addiction to Food Imports

In the midst of weak purchasing power, the government must seriously take a "safeguarding" measure to ensure that Idul Fitri celebrations can help revive the economy. Most importantly, of course, to maintain price stability for basic necessities so that the people’s low purchasing power will not further be eroded by the rise in prices.

KOMPAS/ADITYA DIVERANTA

A row of pastries for Eid al-Fitr preparation at a corner of West Tomang Market merchant stalls, West Jakarta, Thursday (15/4/2021).

Another step that is no less important is to protect the domestic market from the influx of imported goods. The public must be encouraged to increase their spending so that the demand for the domestic products can grow. Moreover, many micro, small and medium enterprises (MSMEs) and Small and Medium-scale Industries (IKMs) have gone out of business due to the pandemic. A breakthrough should, therefore, be taken so that the economic momentum during Idul Fitri will be able to revive the activities of the small businesses.

The most important thing is to safeguard labor-intensive industries so that they will immediately be able to reemploy workers. The textile and textile product (TPT) industry, which employs more than 3.94 million workers, should be protected. Moreover, the people’s tradition to buy new clothes once a year during Idul Fitri is an opportunity for small and medium-scale industries ( IKMs) to revive their businesses.

Also read: Taking Advantage of the World Economic Locomotives

Unfortunately, various types of clothing, such as casual and formal tops, bottoms, overalls, and baby clothes can be imported without tariff barriers. In fact, ahead of Idul Fitri, the demand for Muslim clothes, including koko, robe, hijab, and prayer rugs, usually increase sharply. However, IKMs are unable to take the advantage of the rise in the demand due to the influx of cheaper imported products from China and Thailand. It is not surprising that in the fourth quarter of 2020, the textile and apparel industry fell by 8.8 percent and hundreds of thousands of people in the industrial sector lost their jobs.

IKMs are unable to take the advantage of the rise in the demand due to the influx of cheaper imported products from China and Thailand.

Regulatory contradiction

This condition occurs not only because of weak safeguard policies for the domestic market, but also because of paradoxical policies. The government should have applied a tariff structure that is aligned from upstream to downstream. Ideally, import tariffs for downstream products should be higher than those for upstream products. The imposition of safeguard or security measures such as temporary import duties (BMTP) is needed.

Thus, apparel producers (downstream) can more optimally absorb domestic raw materials as well as gain market certainty. This means that the one-measure with two-benefit policy can be fulfilled, namely encouraging the value addition because it uses local raw materials and can substitute imports.

However, the current structure of the textile import tariffs is on the opposite. The tariffs on imports for upstream are higher than those for downstream. In fact, for downstream (finished) products originating from free trade partner (FTA) countries, such as China, are not subject to import duties. On contrary, almost all export destination countries for Indonesian textile products impose safeguard measures to protect their domestic market because they are still allowed by the World Trade Organization (WTO).

Kompas/Priyombodo

Workers load packages into trucks in the Tanah Abang area, Central Jakarta, Monday (19/4/2021). Package delivery services to a number of cities on the island of Sumatra have increased. Workers admit that packages containing finished clothes dominate the delivery.

In fact, the imposition of the safeguard measures on finished products will certainly bring multiple effects on national economic growth, because it can help IKMs because large industries which produce either branded or non-branded clothing cooperate with IKMs under a plasma core partnership system.

In addition, the addiction to imported raw materials occurs not because domestic raw materials are not competitive, but because the domestic raw materials are subject to Value Added Tax, while imported raw materials are VAT-free. Moreover, the imposition of the safeguard measures or temporary import tariffs or BMTP on apparel will not reduce the value of exports because the majority of export-oriented industries receive import tariff exemption facilities such KB / KITE for their raw materials.

Indonesia with a population of more than 270 million people is certainly a big market for world textile producers, especially ahead of Idul Fitri. In the midst of the people’s low purchasing power, the domestic market should be protected from imported products such as by closing the domestic market from imported second hand clothing which is widely traded through online shopping platforms and social media. In fact, the import of used goods has been prohibited under the Trade Minister’s Regulation (Permendag) No. 2015.

Also read: Food Industry Road Map

So, if the government argues that the entry of cheap imported goods without BMTP is intended to increase the public spending, it is misleading, especially, at present, imports of apparel are dominated by cheap products that compete head to head with those produced by IKMs.

People’s purchasing power will soon recover if jobs are available. It can happen if the products of MSMEs and IKMs, which account for 99 percent, are sold. Thus, in order to be able to recover the economy, it is not the cheap products that are needed by the community, but the opening of new jobs. If the labor-intensive industry grows, people\'s purchasing power will also improve.

ENNY SRI HARTATI, Senior researcher at the Institute for Development of Economics and Finance (INDEF).

This article was translated by Hendarsyah Tarmizi.