The Economic Growth during Pandemic

Kompas/Heru Sri Kumoro

Finance Minister Sri Mulyani

Finance Minister Sri Mulyani has announced the government’s plan to revise down the economic growth target in the second quarter of 2021 following the resurgence of new Covid-19 cases.

During a virtual press conference on the state budget in Jakarta on Monday (21/6/2021), the finance minister said that the previous economic growth prediction of 7.1-8.3 percent for the second quarter of this year needed to be revised. The government previously targeted the economy would grow 7 percent or more. The target growth was relatively high because the basis for economic growth in the second quarter of 2020 was very low at minus 5.32 percent. Since being hit by the Covid-19 pandemic, Indonesia has experienced a recession. The annual economic growth in 2020 was recorded at minus 2.07 percent and minus 0.74 percent in the first quarter of 2021.

Optimism has grown amid the improvement in the global economy, which has helped push up Indonesia’s exports in recent months. Our trade balance recorded a surplus throughout 2021 to May. From a health perspective, the start of the vaccination program has also contributed to an increase in optimism that the pandemic can be overcome. In line with improving health, the economy is expected to recover.

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However, new challenges have emerged. The number of Covid-19 cases has increased sharply, reaching 2 million cases on June 21, 2021. The government’s policy to tighten the micro-scale public activity restrictions (PPKM Mikro) until July 5, 2021 is expected to slow economic growth again. Consumer confidence may fall and result in a decline in household spending. After handling the Covid-19 pandemic for more than a year, we need to thoroughly evaluate our growth strategy during and after the pandemic. We want high and sustainable growth, of quality, and create a strong middle class.

The three sources of growth, namely household spending (consumption), exports and investment, need to be directed toward more sophisticated sectors so as to create jobs and provide better income for workers, and increase product competitiveness.

KOMPAS/RADITYA HELABUMI

A worker attaches a label to bananas that are ready to be packed at the packaging house of PT Great Giant Pinneapple (GGP), Central Lampung, Lampung, Wednesday (16/6/2021).

A World Bank report in mid-June 2021 said investment and household spending, which declined in the first quarter of 2021, were expected to recover in the second quarter of 2021. However, the worsening Covid-19 pandemic could put further pressure on consumption, the retail sector and transportation.

The government is targeting an increase in direct investment following the implementation of the Job Creation Law. As we want investment to contribute to growth, it must be export-oriented and create added value in the domestic economy. With our comparative and competitive advantages, investors are also expected to reinvest their profits in the country.

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The trade strategy must be in line with the industrialization strategy, which is aimed at increasing growth with a focus on manufacturing and non-commodity. The export earnings should be sent back to the country in order to boost the domestic economy. The competitiveness of local products should be also improved so that they can compete in the growing e-commerce in the country.

In the short and immediate term, the government and society must further prevent the spread of the Covid-19 and meet vaccination targets. We must learn from our experience in handling the Covid-19 pandemic for more than a year.

This article was translated by Hendarsyah Tarmizi.