Indonesia has successfully emerged from the shadow of the Covid-19 pandemic

It is time for Indonesia to develop a new strategy to encourage the economy to be more productive and revived.

KOMPAS/PRIYOMBODO

The density of vehicles on Jenderal Sudirman protocol road in Jakarta on Monday (6/5/2024). Amid various global and domestic uncertainties, Indonesia's economy managed to grow 5.11 percent. Domestic activities, such as the election celebration and the Ramadan momentum, become the pillars of economic growth, reaching the highest number in the last five years.

Entering the year 2024, various socio-economic indicators have experienced impressive improvements. It is time for Indonesia to devise a new strategy amidst various global challenges full of uncertainty. The economy needs to be driven to become more productive and rise again.

After four years of struggling due to the Covid-19 pandemic, Indonesia's economic condition can now be said to have completely recovered. A number of indicators, ranging from economic growth to poverty, have improved.

Monday (6/5/2024), the Central Statistics Agency announced that the national economy in the first quarter of 2024 grew by 5.11 percent on an annual basis (year on year) or higher than the same quarter the previous year ( 5.04). In fact, this achievement is also the highest since 2015, especially in the first quarter growth period.

Previously, since the pandemic shook the world, the Indonesian economy has been quite constrained in achieving relatively high growth rates. Moreover, during the 2nd quarter of 2020 up to the 1st quarter of 2021, Indonesia experienced a recession due to contracted economic growth.

Also read: Economic Growth in the Midst of Premature Deindustrialization

The new economic revival began to appear in the second quarter of 2021. At that time, the annual economic growth rate reached 7.07 percent. It is said to be the highest during the pandemic. Unfortunately, this expansive growth can be said to be relatively artificial. This is because the basis for the calculation refers to economic performance which contracted very deeply, namely in the second quarter of 2020 (y-on-y) which fell to minus 5.32 percent. This condition is usually called low based effect.

This situation also occurred in other relatively high growth records, namely 5.73 percent in the second quarter of 2023 because the previous basic growth (y-on-y) was only 3.53 percent. Furthermore, this latest achievement can be said to be quite real growth, capable of growing higher on the basis of the previous period which was also relatively high.

Combo power

The fairly impressive growth is at least driven by two forces of economic activity simultaneously, namely a series of election activities and the momentum of Ramadan. This is evident from several sectors that record the highest growth.

First, the government administration sector with a y-on-y growth rate of 18.88 percent. Based on BPS records, this performance was boosted by increased employee spending, such as salary increases and distribution of holiday allowances (THR). As is known, the state has budgeted IDR 48.7 trillion for THR for state civil servants (ASN) ahead of Eid 2024. This budget targets around 10.3 million people from all ASN professional groups.

Second, the high growth rate of company services (9.63 percent) was contributed by the increasing income of event organizers (event organizers). Also encouraged by various other company service activities that support the 2024 election events.

Thirdly, there is a relatively high performance in the accommodation and food and beverage sector. The demand for accommodation, such as hotels, and food and beverage providers increased due to the upcoming elections and also during the month of Ramadan. Various events such as conferences, election preparations, and breaking of fast gatherings increase the spending on accommodation and consumption significantly.

Also read: The Economy is Growing, but Not Yet Stable and Quality

KOMPAS/P RADITYA MAHENDRA YASA

Homecoming vehicles enter the toll payment counter at the Kalikangkung Toll Gate, Semarang City, Central Java, Sunday (7/4/2024).

The increase in economic growth in those areas is also confirmed by economic performance according to expenditure groups. Among the six calculated expenditure components, government consumption and non-profit institutions serving households' (LNPRT) consumption recorded the highest growth. Both recorded growth of 19.90 percent and 24.29 percent, respectively. They were supported by spending for election activities, employee spending, and Ramadan economic activities.

For your information, LNPRT consumption is expenditure by social institutions that provide goods and services for free or cheaper to the public. This consumption consistently records high growth throughout the political years (Kompas, 9/11/2023).

Apart from the strong drive of election activities and the momentum of Ramadan, the economy in general seems to be starting to recover from the Covid-19 pandemic. One of the manifestations can be seen from the fairly consistent performance of the manufacturing industry in recent times, as measured by the size of the Prompt Manufacturing Index (PMI). The latest BI PMI for the first quarter of 2024 is in the expansive zone with a score of 52.8 percent.

The figure is much better compared to the early days of the pandemic, which had dropped to 28.55 percent, the lowest in the last eight years of monitoring. This good performance has a significant impact on the growth of the processing industry sector, which is the main contributor to the national economy.

Socioeconomic

Indonesia's freedom from the shadow of the pandemic is evident not only from the size of its economic growth, but also from several other socio-economic indicators. One of these is in terms of employment. Referring to data from BPS in February 2024, the number of people employed in the country has increased by 3.55 million compared to the previous year. Currently, the total number has reached 142.18 million people.

Along with the relatively high absorption of labor, the unemployment rate has decreased by 0.79 million people. Currently, the number of unemployed people in Indonesia is at least 7.2 million or 4.82 percent of the total workforce.

Also read: The Economy Grows 5.11 Percent in the First Quarter of 2024, the Highest in Five Years

With an unemployment rate below 5 percent, it means that employment is currently back to pre-pandemic conditions, even recorded as better. In 2019, the open unemployment rate still touched 4.9 percent. However, in terms of numbers, the current number of unemployed is higher. This is also driven by the increasing number of the population in general and productive-aged population.

The condition has also boosted the achievement of the labor force participation rate (TPAK). Currently, Indonesia's TPAK is 69.80 percent. It proves that Indonesia is capable of recovering from the impact of the pandemic that caused TPAK to drop to 68.08 percent in 2021. In fact, the current achievement is higher than before the pandemic. In other words, Indonesia has overcome the wave of layoffs caused by the pandemic, which was once a ghost haunting the country's economy.

The recovery of economic activities towards normalcy currently also reopens job opportunities which ultimately helps to improve the national employment condition. Improvements are also seen across all sectors, whether for men or women, in rural or urban areas.

The increasing number of people who have income security because they have jobs also contributes to their ability to meet daily needs. This in turn reduces the percentage of the population who fall into poverty, in addition to being supported by social safety net programs provided by the government through various forms of social assistance.

Although there is no latest data that describes the condition of this year, the national poverty rate has been recorded to have decreased since last year. Referring back to BPS data in March 2023, the percentage of Indonesia's poor population is 9.36 percent.

The figure is approaching pre-pandemic conditions, even slightly lower. In other words, the current situation is relatively better. This achievement was able to make Indonesia exit from the two-digit poverty percentage, which was 10.14 percent in 2021. Simultaneously, Indonesia's extreme poverty also decreased by 0.62 percent to 1.12 percent in March 2023.

New challenges

A number of improvement notes prove that Indonesia has emerged from the dire situation caused by the Covid-19 pandemic. As often mentioned during the recovery period, Indonesia is quite resilient in facing the pandemic and has now been freed from the shadow of the outbreak. Of course, there are still some lingering effects. However, overall, all aspects, both social and economic, are relatively back in order.

Nevertheless, this does not mean that Indonesia can immediately become complacent. Currently, a number of new challenges are emerging, so the country must remain vigilant. After being free from the pandemic, other global threats continue to arise one after another. From geopolitical tensions among countries to threats to sustainability due to climate anomalies caused by global warming.

Also read: Processing Industry Supports Economic Growth in First Quarter 2024

AP PHOTO/ISMAEL ABU DAYYAH

Smoke rises following an Israeli air strike east of Rafah, Gaza Strip, Monday (6/5/2024).

It cannot be denied that such threats will have an impact on the domestic front. Domestic problems of major countries in the world that are trade partners with Indonesia will certainly greatly affect the economic performance in the homeland. Recently, the US monetary policy, which held the benchmark interest rate, also had an impact on Indonesia's monetary performance. If the policy taken is not appropriate, it is not impossible that it will greatly affect the performance of the recovering economy.

In addition, behind various previous improvements in growth performance, there are still some notes to be made. One of them is the relatively high and situation-based pace of the economy. Indonesia must be able to create an economic ecosystem that consistently records growth, not just due to momentum such as elections, Ramadan, and Eid al-Fitr.

Improving the employment sector should also be accompanied by an increase in quality, both in terms of education, working hours, and income levels. Relief for the poor has often been saved by social assistance. It's time for the government to develop more productive ways to solve the problem of poverty. Distribute "fishing hooks" instead of just "fish". All for the sake of a more sustainable economic development. (KOMPAS RESEARCH)