Raising People’s Purchasing Power

KOMPAS/TOTOK WIJAYANTO

A woman shops on Sunday (9/2/2020) at a supermarket in Bintaro, South Tangerang, Banten. Consumer spending grew 5.04 percent in 2019, a year-on-year decrease of 0.01 percent. The government needs to take extra precaution in issuing policies that do not affect consumer purchasing power.

Consumer confidence weakened again in July 2021 amid the dominating role of household spending in supporting economic growth.

Bank Indonesia (BI) reported that its Consumer Confidence Index (IKK) dropped to 80.2 in July, marking a return to pessimistic territory. A month earlier, the IKK reached 107.4, well above the threshold of 100. Strict mobility restrictions imposed by the government since July 3 to break the chain of Covid-19 transmission put pressure on the consumer index. (Kompas, 12/8/2021).

According to the latest data on the country’s economic growth reported by Statistics Indonesia (BPS), household spending grew 5.93 percent year-on-year (yoy) during the second quarter of 2021. Household spending recorded a 5.21 percent decline in the same period of 2020 and a 5.18 percent increase in the same period of 2019. Compared to the first quarter of 2021, household spending dropped 2.2 percent. Household spending contributed 7.07 percent to the economy in the second quarter of 2021, the highest in the last 17 years.

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The common challenge is how to raise household spending, which is determined by the people\'s purchasing power. The Covid-19 pandemic has caused a decline in the economic capacity of the community, especially the poor and lower-middle class that comprise blue-collar workers, informal sector workers and owners of micro, small and medium-scale companies.

The decline in economic activity, especially that directly related to tourism and food and drink, education, trade and transportation, in addition to manufacturing and real estate, has led to many layoffs or reduction in working hours.

KOMPAS/RIZA FATHONI

Workers load social assistance packages to truck to be distributed from PT Food Station Tjipinang Jaya Warehouse, Cipinang, East Jakarta, Thursday (23/4/2020). The government distributed social assistance packages of Rp 600,000 each month for three months in an effort to prevent residents from mudik (eksodus) and increase purchasing power during the COVID-19 pandemic.

A number of social assistance programs provided by the government during 2020 had limited the increase in the number of poor people. The poverty rate as of March 2021 was recorded at 10.14 percent. The World Bank estimates that without the social assistance programs, the poverty rate would reach 11.8 percent.

However, the social protection is an emergency program and temporary. Social protection cannot sustainably support people\'s purchasing power. Therefore, social protection must be attached to productive activities in cities and villages.

Labor-intensive investment, which can provide many jobs for the middle class should become a priority.

Efforts must be made to create jobs that can provide adequate income. Extraordinary efforts should be taken to make the best use of the funds for the handling the pandemic. In rural areas, for example, the productivity of the agriculture, forestry and fishery sectors should be further improved by establishing a downstream industry such as post-harvest processing activities and rural industries. Labor-intensive investment, which can provide many jobs for the middle class should become a priority.

Providing decent work for the people, especially the young workforce, which has been severely affected by the pandemic, can help reduce welfare inequality and dampen social unrest.

(This article was translated by Hendarsyah Tarmizi)