Green Transformation

Name: Green Transformation
Uploaded: 2021-11-23T04:27:37Z
Duration: 20 min 32 s
Description: The post-pandemic economy is a quest filled with uncertainty. In this dynamic, the role of the state, which will still be dominant in the future, will be very decisive.

The post-pandemic economy is a quest filled with uncertainty. In this dynamic, the role of the state, which will still be dominant in the future, will be very decisive.

A PRASETYANTOKO,

· 6 minutes read

The Kompas100 CEO Forum Powered by East Ventures event held on Thursday (18/11/2021) had an important conclusion. The new economy after the Covid-19 pandemic will be colored by digital transformation and green transformation.

On that occasion, President Joko “Jokowi” Widodo noted that transformation could be implemented only if the pandemic was under control. In mitigating the impacts of the pandemic, the government plays an important role, especially in providing an extraordinarily large fiscal stimulus.

The post-pandemic economy is a quest filled with uncertainty. In this dynamic, the role of the state, which will still be dominant in the future, will be very decisive.

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A report titled “The Triumph of Big Government” that appeared in The Economist on Saturday (20/11/2021) noted that the role of the government, which had been dominant since the pandemic, would continue in the future.

The role of the state

The pandemic has forced the state to provide a large stimulus to citizens. This approach is reminiscent of the post-World War II situation, which was later known as the welfare state system, especially in Europe.

According to the report, since the Covid-19 pandemic, governments around the world have spent at least US$17 trillion, equivalent to 16 percent of the total global economy.

The government of the United States, which had previously been relatively reluctant to provide direct incentives to its citizens, is now at the forefront.

President Joe Biden has secured a $1.8 trillion to support the well-being of US citizens through various programs. Today, the US is more of a welfare state than Europe and the rest of the world.

One of its flagship programs is to encourage a green economy to anticipate climate change.

The government's programs were almost unplanned and were carried out due to the urgency of the pandemic.

Even if almost all countries in the world adopt the welfare state system again, it could be a "historical accident", rather than the result of planning or implementation of a certain ideology.

Environmental perspective

After being in place for more than a year, this is the best moment to reorganize the government intervention system, which is still needed for the next few years. In addition to financing health care and social protection to address the impacts of the pandemic, the state must also be present in the transition to a low-carbon economy.

The United Nations Climate Change Conference (COP 26) in Glasgow, Scotland, the United Kingdom, recently required a transition from fossil fuel energy to renewable energy. Investment in this field cannot be completely left to the market. The implementation of the Glasgow agreement is expected to increase the global government debt ratio to around 21 percent of global gross domestic product (GDP).

On the one hand, the government must subsidize the decarbonization efforts. On the other hand, growth is expected to slow down in line with the transition to a net-zero carbon emission economy.

In coping with the impacts of the pandemic, the Indonesian government has spent an unusual amount of funds to finance the National Economic Recovery (PEN) program. The spending for this program, which reached Rp 695.2 trillion (US$48.74 billion) in 2020, is expected to increase to Rp 755.7 trillion in 2021 and Rp 699 trillion in 2022. The largest budget allocations are given to health care and social protection.

Social protection funds are mostly directly transferred to the targeted recipients. Social protection spending, which totaled Rp 230.21 trillion in 2020, is expected to reach Rp 214.96 trillion in 2021 and Rp 148.3 trillion in 2022.

From the total budget allocation, it can be seen that the main goal of the fiscal stimulus is to address health problems and social issues (inequality). However, the question is: What is the direction of fiscal policy in anticipating climate change?

So in addition to overcoming the problem of inequality, the fiscal policy should also be well planned and be allocated proportionally to address the problems caused by the climate change.

It seems that our government has not given much attention to this aspect. In fact, mitigation and adaptation strategies to climate change are also closely related to inequality. The poor always have a greater risk than other community groups when a disaster occurs. So in addition to overcoming the problem of inequality, the fiscal policy should also be well planned and be allocated proportionally to address the problems caused by the climate change.

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A Climate Policy Initiative (CPI) study released in February of this year compared spending and allocation of fiscal stimulus in five countries in Asia: India, Indonesia, the Philippines, Singapore and South Korea.

In 2020, South Korea announced a stimulus package worth US$333.7 billion, followed by India with $332.9 billion, then Singapore with $85.7 billion, Indonesia with $74.7 billion and the Philippines with $17 billion. In terms of its proportion to the economy, Singapore’s spending is the largest, accounting for 24 percent of its gross domestic product, while South Korea had 20 percent, India 12 percent, Indonesia 6 percent and the Philippines 4 percent.

Using the Greenness of Stimulus Index (GSI) methodology developed by Vivid Economics in 2020, the CPI study shows that South Korea has allocated its economic stimulus to sectors in the “green” category (53 percent) and the “dirty” category (47 percent). As for Indonesia, only 4 percent of the stimulus spending is directed toward the green category, while the other 96 percent is still allocated to sectors that are classified as dirty.

South Korea has designed its economic recovery stimulus package to mainly cope with the environmental perspective. The budget allocations to renewable energy and the development of environmentally sound industries have been well planned from the start. It is not too late for Indonesia to elaborate on the direction of its future fiscal policy, especially with the passage of the Tax Harmonization Law, which already regulates carbon taxes.

Programs related to social welfare. in addition to overcoming the problem of inequality. must be environmentally sound. Moreover, with the help of advanced technology, we have the potential to develop a green and digital welfare state.

A Prasetyantoko, Rector of Atma Jaya Catholic University of Indonesia.

(This article was translated by Hendarsyah Tarmizi).

Editor:

naranasrullah

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