Govt Spending is the Key in Driving the Economic Growth

The government needs to increase its expenditure to drive economic growth this year as consumer spending has yet to recover.

KOMPAS/AGUS SUSANTO

Activities at a shopping center in the Sentul City area, Bogor, West Java, Sunday (25/4/2021). The ban on mudik (going home) on May 6-17, 2021 is expected to increase public visits to malls and shopping centers in big cities. Economic activity increases gradually as more and more people get vaccinated.

JAKARTA, KOMPAS - Indonesia needs to seek a breakthrough in supporting economic recovery this year. The slow pace of global economic recovery as the result of the resurgence in Covid-19 cases must be coped with a number of strategies, such as increasing exports and government expenditures.

Indonesia\'s Center of Reform on Economics (Core) estimates that Indonesia\'s economy will grow between 3 percent and 4 percent this year, lower than the government’s economic growth target of 5 percent.

In the first quarter of 2021, the economy is predicted to contract between 0.5 percent and 1 percent.

Core Indonesia’s founder and senior economist at the research institute, Hendri Saparini, said Indonesia should be able to use the Covid-19 pandemic as an opportunity to review economic policies and determine policy options that could help support economic recovery. Government spending is considered very important in driving the economic growth.

Also read:

^ Pushing for Economic Recovery

^ Economic Recovery Priorities

^ An Increase in State Revenues Indicates Economic Recovery

Indonesia should also be able to take the advantage of the economic recovery in its major trading partners such as the United States, European Union, China and Japan. In the first quarter of 2021, Indonesia’s export performance showed an improvement due to rising commodity prices on the global market.

"Our exports are improving because the markets of our main export destinations are showing promise. This is an encouraging start, "he said in an a virtual media discussion titled " Breaking the Inertia of Economic Recovery” on Tuesday (27/4/2021).

Hendri said government spending would be the key in supporting economic recovery in the second to fourth quarter of this year. The government must also take advantage of the financial stimulus and use it appropriately to encourage economic recovery, he added . This year, the government has allocated about Rp699.43 trillion from the state budget to finance the economic stimulus package, an an increase of 20.7 percent from the stimulus funds of about Rp 579 trillion provided last year.

Our exports are improving because the markets of our main export destinations are showing promise.

KOMPAS/TOTOK WIJAYANTO

Container terminal at Tanjung Priok Port, Jakarta, Monday (15/3/2021). The Central Statistics Agency (BPS) recorded a surplus of US $ 2.01 billion in the February 2021 trade balance, with exports reaching US $ 15.27 billion and imports of US $ 13.26 billion.

The government should not only to target investments from large industries but also from micro, small and medium enterprises (MSMEs) to create more jobs. "Policy choices must be comprehensive. It is time to organize the industry so productivity could be improved, "he said.

Core Indonesia’s executive director Mohammad Faisal said the economic expansion was predicted to start in the second quarter (April-June) of 2021. However, economic growth and increase in people’s mobility during the period would still be unable to push up household spending, the main driver of the economic growth, which accounted for 55 percent of the country’s gross domestic product (GDP).

The spending of the lower-middle-class remains weak due to a lack of job opportunities and decline in social assistance funds provided by the government. This year, the government has allocated Rp 157.41 trillion to finance the social assistance program, down from Rp 220.39 trillion last year.

Also read:

^ Supporting Economic Recovery Through Business Sector

^ Stimulus to Lift the Economy

Until the end of April 2021, the number of residents who had been vaccinated reached 6.7 million people or 2.5 percent of the total population. The low vaccination coverage has reduced consumers’ optimism.

Tourism

Core Indonesia’s economist, Akhmad Akbar Susamto, said that the government\'s plan to reopen several main tourist destinations such as Bali, Bintan and Batam to foreign tourists should be reviewed . The resurgence in Covid-19 cases in several countries needs to be monitored, he added.

The deputy for strategic policy at the Tourism and Creative Economy Ministry, Kurleni Ukar, said the tourism and creative industries were among the sectors hardest hit by the pandemic. Foreign tourist arrivals dropped 74.9 percent last year. As the result, many workers in the tourist industry lost their jobs.

The reopening of these tourist destinations should be based on the handling of Covid-19 and the readiness of local governments, she said.

This article was translated by Hendarsyah Tarmizi.