Economic Recovery and Partiality
Amid the uncertainty of the pandemic, such a hope has become a luxury. If we want to accelerate the economic recovery, three basic pillars (trilogy) that support the economy must be improved.
The pandemic has been going on since March 2020. Various resources have been taken to ensure that health, social and economic affairs can be properly restored.
Health data shows that the daily number of new cases is on the decline (although still unstable), partly because the implementation of micro-scale restrictions has begun to bring a positive result and vaccination of residents has begun.
The social condition of the community is still worrying due to job losses, business closures, and disruption of access to basic sources of life (food, education, health). Economic performance has shown signs of improvement since the third quarter of 2020. The economic growth has gradually begun to pick up even though it is still far from the normal situation (like before the pandemic). The disbursement of the 2020 National Economic Recovery (PEN) funds, which were earlier expected to be hampered by various obstacles, turned out to work quite quickly. The core issue that lies ahead is a change in work patterns and a decrease in the quality of life.
At the economic level, there are three stages that need to get a special attention so that the direction of the economic restoration can be carried out with a high level of precision. On an international level, the United States is likely to recover earlier. As a vaccine producer, it will urge every citizen to get vaccinated.
The implication is that the easing of fiscal and monetary policies will be slightly tightened. The inflows of foreign funds (including to Indonesia) will not be as large as before. Europe will not be able to recover immediately because it is still under pressure from the old problems (fiscal traps) due to mounting debts. The situation is getting worse because during this pandemic they have to increase their debts so that the ratio of their debts to the Gross Domestic Product (GDP) is getting bigger.
It seems that in 2021 the world economy will be more determined by the US, China, and India, the world’s three largest markets which have seen a strong sign of recovery in their economy (but India is now in trouble again). In fact, in 2020 China\'s economy had begun to grow.
At the national level, the situation is haunted by three things. The degree of digitization is still very low so that the capacity to adapt to new normal cannot run swiftly. Production is hampered by weak purchasing power, so many factories have reduced or stopped production. It is still difficult to increase trade activities because logistics is still disrupted, while most producers or consumers are still unable to access the digitalization. As poverty and unemployment rates continue to increase, large part of the state budget should be use for social cushioning to mitigate these problems.
As a result, the fiscal capacity to promote economic recovery is very limited. Indonesia has the capital in the form of deregulation policies and if they are implemented consistently, the business climate will theoretically get better. However, the deregulation must be closely monitored so as not to sacrifice the interests of small businesses in the national and global economic chain.
Furthermore, at the local (regional/regional) level, the infrastructure development carried out in recent years has managed to increase investment and spur the economic growth, both in urban and rural areas (through the Village Fund). Each area has benefited from the development of infrastructure facilities such as toll roads, dams, ports, airports, and others.
The latent problem that has not experienced much improvement is the imbalance of inter-island development. The economic contribution of Kalimantan, Sulawesi, Papua, Nusa Tenggara, and Maluku remains very small. These five islands must be able to immediately spur the economic growth so that their contribution to the national economy can be doubled from now (about 40 percent of GDP). The planned relocation of the capital city to East Kalimantan can be one of the main drivers of the economic growth in astern Indonesia. In this region, the transformation of the economy towards value-added enterprises should be carried out soon.
If you look at this year\'s data, there are three main issues that deserve to become a map of sources for the economic development. First, the strong and strategic economic sector is the agriculture. The growth in this sector remains positive although it is still low. The communication and health sectors have also shown a positive growth but their growth is mainly triggered by the pandemic.
The health sector, for example, is growing because the high demand for medicines, vitamins, face masks and vaccines.
The communication sector has also soared as a result of work models and activities that have completely changed from face-to-face meetings to the use of computers, applications, and the internet. This happens in almost all fields, such as the economy, education, and employment. On the other hand, the agricultural sector continues to survive despite being hit by the pandemic, especially in terms of logistics.
On the production side, activities continue to grow because the epicenter of the pandemic is mostly in urban areas.
Second, islands with low population density, such as Papua and Nusa Tenggara, still record a positive growth (of course at a low level). This provides clear evidence that population distribution is a very relevant issue which needs to be further improved because it will affect interactions between citizens (and the carrying capacity of the environment).
The density of the area which is based on a specific location threatens life from a number of aspects: (i) if the epicenter of the Covid-19 case occurs in a certain area (such as the current pandemic), all activities will be paralyzed; (ii) the density of the area makes mitigation efforts difficult to handle because the concentration of the population. For example, it is difficult to regulate human interaction by maintaining the required distance; and (iii) it can easily sparks problems, such as the spread of diseases and social unrest, due to inadequate environmental carrying capacity. So, the equitable distribution of the population is part of an integral solution to improve the quality of development.
Third, the government is still a vital actor in development (socio-economic). When the economy is paralyzed due to the pandemic, policy intervention and government spending have become the only fulcrum of life, including socio-economic recovery. However, it is necessary to clarify the crucial issue after the pandemic is over, in which the government has been asked by several parties to return to the "house".
The government is designated to be present when there is a crisis, recession, or pandemic. In fact, the government must continue to be actively involved in the economic arena through precise development planning, budget policies that guide the country\'s long-term vision, and build economic stabilization/distribution which is the constitutional mandate. The current situation should be used as the basis in shifting the economic structure to better reflect the goals of social justice. After the pandemic is resolved, the nature of the policy should work for the benefit of distribution according to the proclamation of the Indonesian Independence.
The ‘furnace’ of literacy
After the 1998 economic and political reforms, several aspects in the economic and political development have shown a significant progress. Indonesia is now struggling to show its dignity among other countries.
The issue of income inequality has worsened and it seems difficult to immediately solve it. However, since 2015 the welfare disparity has gradually declined (in line with the reduction of poverty and unemployment rates). A series of social protection policies, access to capital, and agrarian reform have been implemented. However, during a pandemic, the Gini ratio (a tool to measure inequality) has increased again as the economic recession severely hit the middle-lower group more.
They are uprooted from the roots of the economic movement. This is an important signal that must be captured so that the economic recovery policy package and program can better deal with these vulnerable groups. This policy should be used to improve the equal distribution of incomes that must be fought for.
During the pandemic, this nation has shown an extraordinary social orchestra. Before the government acted excessively, all citizens had worked hand in hand to help each other. It can help ease the social burden due to the sense of solidarity among the citizens. The people have also contributed their energy, thoughts, and attention to the government.
In fact, the health, economic, and social crises are bonding them, not tearing them down. However, on the other hand, there is a disgraceful attitude from some state officials, both at the central and regional levels, who “circumcise” social assistance programs (or other resources) for the celebration of lust. It is difficult to justify this corrupt behavior. It robs the rights of people who are severely hit by the crisis. The morality has collapsed. Law enforcement must be strengthened to eliminate the evil acts. This incident should also bring a message: the anti-corruption movement must be further promoted.
A problem which is often overlooked is the decline in the level of knowledge of the nation\'s young generation due to the disruption of the education system. The digitalization has become the fulcrum of teaching. The problem is, the assets and access of each citizen (and region) to undergo this learning model are different, resulting in literacy inequality. In big cities the teaching process can take place smoothly, but in most (most) regions, serious systemic problems have hampered the teaching process.
The government has taken every effort to mitigate this case, but it seems that it has not been fully successful. Knowledge is a furnace of progress. Al efforts need to be taken so that literacy does not go backwards. Information and innovation are the clothes of present and future civilizations. Both can only be supported by knowledge. If knowledge is stuck in the middle of the road, innovation and progress will only become a shadow.
The economic recovery is perhaps the dream of all countries. However, amid the uncertainty of the pandemic, such a hope has become a luxury. If we want to accelerate the economic recovery, three basic pillars (trilogy) that support the economy must be improved. Only with this way, health mitigation efforts and economic recovery can be carried hand in hand.
First, the digitalization and the reform of education policies are a must, including the way they have to be carried out. After the pandemic, new models and habits of life cannot be taken back. Economic actors and students must be provided with access to technology and knowledge of digitization. Without the deepening of technology, it is difficult for economic activities to keep up with the changes. The educational curriculum should be shifted towards strengthening technological literacy, regardless of the field of science involved. An urgent decision is needed to design and execute the digital transformation.
Second, in the current century of change, one of the things that must be further maintained is the security of life. One of the buffers is job (job security). There are two main tasks: (i) ensuring the skills of the workforce are compatible with the needs of the labor market. If the digital transformation and educational curriculum have been shifted towards such a change, half of the works have been done. The rest is just strengthening the work ethic and the spirit of innovation which should be further promoted as a process that will never ends.
Then, (ii) a comprehensive social protection formula that reduces the vulnerability (insecurity) of citizens. This social protection touches the dimensions of education, health, housing, and other basic needs (clothing and food). So far the government has made tremendous investments in this area, which needs a further alignment and expansion. If the whole basic public services can be improved, the productivity of the citizens/labor will also increase.
Third, during a recession like this, it is very natural for the government to relax fiscal and monetary policies, such as providing various incentives (reductions) in taxes and interest rates.
However, the overall map of the economic structure needs to be evaluated carefully so as not to interfere with a very vital issue: inequality. The economic parasite that must be removed is the welfare disparity. It is now a good momentum to design fiscal and monetary policies that can make the post-pandemic era to represent a new face of the national economy: advanced and equitable.
The economic progress is underpinned by an identity of economic transformation and a variety of innovations thanks to knowledge and technology. Meanwhile, economic equity is supported by fiscal and monetary policies that defend those who have been outside the economic wall. Progressive taxation needs to be considered, as well as broad access to capital. The crisis has dimmed the lights of life, but it is forbidden to darken the partiality.
Ahmad Erani Yustika, Professor, Business and Economics School at Brawijaya University ; Economics Deputy, Vice Presidential Secretariat.
This article was translated by Hendarsyah Tarmizi.