The pandemic has brought a severe impact, both in terms of unemployment and poverty. Meanwhile, the divergence in economic recovery will create different job opportunities.
By
A PRASETYANTOKO
·5 minutes read
Apart from cultural-religious moments, Idul Fitri is also an economic phenomenon. Idul Fitri has always been used as an opportunity to distribute wealth from urban to rural areas on a fairly large scale. Unfortunately, for the last two years this phenomenon has faded along with the implementation of social restrictions to cope with the Covid-19 pandemic. The problem is that there are no other policy options to limit people’s mobility because if the social restrictions are not implemented, the impact will be much greater.
The Covid-19 pandemic has turned the old order upside down and opened up new opportunities that had been unthinkable. So, the post-pandemic economic reality requires new breakthroughs. Moreover, even though economic recovery has begun, sectoral divergences are also increasing. As a result, economic inequality will become a serious problem during the post-epidemic era.
Statistics Indonesia (BPS) issued last month data on economic growth for the first quarter of 2021, which show a 0.74 percent contraction year-on-year. Although the annual growth is still in the negative zone, signs of recovery are visible in quarterly growth.
The peak of the economic contraction due to the pandemic occurred in the second quarter of 2020 with a growth of minus 5.32 percent. In the third quarter, the contraction began to narrow to minus 3.49 percent and to 2.19 percent in the fourth quarter. In the first quarter of this year, the contraction has further narrowed, bringing hope that in the second quarter of this year, growth will be in the range of 5-7 percent on the condition that the pandemic can be mitigated.
Even though recovery has begun, the risk of economic inequality is increasing and tends to be dangerous, as warned by the International Monetary Fund (IMF) in its World Economic Outlook quarterly report released last April. The report entitled "Managing Divergent Recoveries" warns that the global economic recovery is faced with dangerous imbalances, both domestically and globally.
Not all economic sectors have similar recovery prospects. Some sectors are predicted to continue experiencing a downturn, while other sectors continue to grow in the long term. The pattern of economic recovery resembles the shape of the letter "K" (K-Shape recovery); there are sectors that have rapidly grown and there are (many) that have further slumped.
Not all economic sectors have similar recovery prospects.
Inequality
Learning from India\'s experience, the Indonesian government didn’t have any other choice but to ban the annual mudik (exodus) during this year\'s Idul Fitri. Many people were disappointed with this decision but unfortunately there was no other option. This had consequences, especially for business actors in transportation, hotels, food and beverages and other related business activities.
Due to the mudik ban, the flow of liquidity to the regions did not occur optimally during Idul Fitri. In 2019, Bank Indonesia prepared Rp 217 trillion (US$15.13 billion) to welcome Idul Fitri. The greatest demand for cash usually comes from urban areas in Java. Some of the money flows to the regions in line with the mobility of travelers, which reach about 15 million people.
The social restrictions have indeed hampered the recovery of various economic sectors. However, the core of the problem is not the homecoming or mudik policy itself, but the pandemic that has disrupted various economic sectors.
In the first quarter of this year, the transportation and warehousing sectors experienced the largest contraction, which reached 13.12 percent. Meanwhile, the accommodation and food and beverage sectors contracted 7.26 percent or the second hardest hit sector. During the first quarter of this year, there were 11 sectors that still suffered contraction and only 6 sectors showed a positive growth.
The information and communication sector experienced the highest growth which reached 8.7 percent, followed by the health sector with 3.6 percent, agriculture 2.5 percent, and the real estate sector 0.94 percent. Symptoms of economic divergence are evident in the pattern of sectoral recovery. The divergence in economic recovery will further worsen social inequalities that have occurred so far.
This lame pattern of recovery is worrying. Long before the pandemic, IMF data showed that Indonesia and China were the champions in terms of the worsening of Gini ratio or index that measures inequality in the last 30 years. Meanwhile the pandemic has increased the number of unemployed and poverty which will exacerbate inequality.
According the Fiscal Policy Agency’s scenario, the unemployment rate would increase from 5.18 percent to 7.33 percent in 2020, if the impact of the pandemic is severe and it will further rise to 9.02 percent, the impact is “extremely severe”. Likewise, the poverty rate is estimated to increase to 9.88 percent if the impact of the pandemic is severe and to 10.98 percent if the impact is “extremely severe”.
The pandemic has brought a severe impact, both in terms of unemployment and poverty. Meanwhile, the divergence in economic recovery will create different job opportunities. Sectors that absorb a lot of workers such as the manufacturing, trade, construction and mining industries will continue to suffer contraction in the future, while capital intensive sectors, such as information and telecommunications, will continue to record a positive growth.
In coping with such problems, the government needs to introduce at least two measures. First, allocating economic recovery funds proportionally to labor-intensive sectors, with negative growth. The goal is to avoid massive layoffs.
Second, designing an economic transformation so that sectors that still rely on a large number of workers, both in the production and distribution processes, can undergo a change. Technology adoption is an option even though it requires investment, including in terms of skills with high costs. Therein is the relevance of the role of government.
With the divergence in economic recovery, the government should play a bigger role in supporting the economic cycle, both through regulation and fiscal policy.
A Prasetyantoko, Rector of Atma Jaya Catholic University of Indonesia.
This article was translated by Hendarsyah Tarmizi.