Economy of Extended Lebaran Holiday

KOMPAS/TOTOK WIJAYANTO

Enny Sri Hartati

Lebaran in Indonesia is an annual event. This is inseparable from the series of traditions and rituals of the Idul Fitri celebration, especially the phenomenon of mudik (exodus), during which people travel many kilometers to celebrate Lebaran in their hometowns.

The mudik tradition is not just people traveling from big cities to rural areas. Mudik is more unique, because it occurs on a massive scale throughout Indonesia. Therefore, it cannot be denied that mudik also has a great economic impact. However, it also leads to highly troublesome transportation problems, especially on Java.

To anticipate and solve the congestion problem, the government extended the collective leave for this year’s Lebaran. The Lebaran holiday leave, which is usually four working days, was extended to seven working days. On the 2018 calendar, the tanggal merah, or official holiday dates, for the collective leave are only June 13, 14, 18 and 19. However, through the joint decree (SKB) of three ministers, the collective leave period was extended by three extra days from June 11-14 and June 18-20. Thus, the total collective leave for Lebaran 2018 will last almost two weeks from June 11-20. The decree applies not only to civil servants, but also to private employees, the Indonesian Military (TNI), the National Police and employees of state-owned enterprises (SOEs).

For the business world, the seven-day holiday plus the regular days off on Saturdays and Sundays are quite burdensome, particularly as the decision came unexpectedly, less than a month before its implementation. Of course, many businesses had not anticipated the move, such as by rescheduling working hours to achieve their production targets before the Idul Fitri holiday. Consequently, when it comes to pursuing production targets to meet the demands of Idul Fitri, businesses may have to provide overtime pay.

Even though the collective leave for the private sector is optional and not obligatory, it still has the potential to complicate and hamper a company’s performance. With so many government offices on extended holiday, public services will be disrupted. Furthermore, vital public services such as banking services, logistics and customs require urgency, speed and timeliness. Delays can impact operational costs and can lead to increased inefficiency. Even if the delay is within the tolerance limit of a working agreement or a contract, it can be critical and lead to substantial losses.

In fact, the business world, especially the manufacturing sector, is facing severe pressure due to the weakening rupiah. In the midst of their dependence on imported raw materials, the rupiah depreciation has added to the high-cost economy. Therefore, it is feared the current extended Lebaran holiday will further increase the burden of the industrial sector. Another sector facing a potential significant impact is power. With many offices and industrial activities on extended holiday, electricity consumption will fall significantly. Therefore, state electricity company PLN offered discount industry packages during the Lebaran holiday. Several industries with huge electricity consumption, such as the textile industry, were interested in these incentives. However, the problem was with retaining their employees during the holiday, which certainly implied additional overtime pay.

No doubt, the Lebaran holiday has the potential to drive public consumption, especially in food and beverage, transportation, communications and to the hospitality sectors. Perhaps the government assumed that giving the holiday allowance (THR) plus the 13th-month salary before the Idul Fitri holiday would have a direct and significant impact on increased public consumption. The government even urged local administrations to do the same.

This request raised pros and cons in a number of regions because, aside from the issue of interregional fiscal capabilities, the policy had not been included in determining the regional budgets (APBDs).

Consumption

Increasing government spending through the THR and 13th-month salary provision ahead of the Lebaran holiday could increase household consumption. However, the extent of the multiplier effect depends heavily on purchasing power and the burden of meeting the people’s basic needs. Statistically, the inflation rate has been low in the last three years. However, it is likely that this has had an impact on the decline in purchasing power. Moreover, even though the prices of basic staples are claimed to be quite stable, it is stable at high prices.

Meanwhile, the tourism sector, which was expected to attract people during the long holiday, is still experiencing many problems. Some regions do not have the creativity to optimize the opportunities of the mudik travel season. Activities at tourist destinations in a number of regions are as usual, with no special activities created to attract travelers. As a result, they did not necessarily take advantage of the increased volume of tourists during the extended holiday. Therefore, any following decision on the extended Lebaran holiday should be evaluated and planned more comprehensively.

Several countries with four seasons indeed often provide long holidays, such as the summer or winter holidays. Besides addressing the different seasons, these countries also have high productivity. These long holidays are often used to travel abroad and to use the time to relax. One of the expectations is that, when the holiday season is over, it will see renewed productivity.

In contrast, Indonesia’s real sector productivity has been on the decline. The current utilization rate at many companies is only about 70 percent. The real sector also faces tight competition from high-cost pressures in the domestic economy, ranging from energy and logistics costs up to the high costs of imported raw materials due to the rupiah depreciation. Therefore, the extended Lebaran holiday – which is already long enough – will of course have a significant impact on fixed costs. Simply put, companies must still pay full month’s wages for about 20 working days.

With the weaknesses in the production side, the extended Lebaran holiday possibly will not move consumption optimally. Projected growth for household consumption in the second quarter of 2018 is still limited; it has not recovered and has not been able to exceed 5 percent. As a result, economic growth in the second quarter of 2018 still remains below 5.1 percent.

Enny Sri Hartati, Executive Director of the Institute for Development on Economics and Finance