Economic Impacts of Covid-19 Outbreak must be Mitigated
The most important thing is to handle the Covid-19 seriously and mitigate risks to the Indonesian economy.
By
ENNY SRI HARTATI
·4 minutes read
The Covid-19 outbreak, which originated in the Chinese city of Wuhan in December 2019, has now spread throughout the world. The World Health Organization (WHO) confirmed on March 8 that Covid-19 had spread to 93 countries outside China and is estimated to have infected 101,197 people. China has the largest number of infected people, with 80,813 people, while outside China, 21,110 people have been infected. The three countries outside China with the highest number of cases are South Korea with 6,767, Italy with 4,636, and Iran with 4,747.
Of the total number of infected people, more than 54,000 have recovered. The percentage of recovery is more than 50 percent. In Indonesia, as of Monday, 19 people had tested positive for Covid-19. Meanwhile, according to the monitoring of the Foreign Ministry, 12 Indonesian citizens abroad had also tested positive for Covid-19. As many as seven people or 58.3 percent of them have recovered.
From this illustration it is implied that Covid-19 cannot be considered trivial because it has easily spread to many countries. However, from data on the number of infections, the pattern of spread and percentage of recovery of patients, it is clear that it should not cause panic. The most important thing is to handle the disease seriously and mitigate risks to the Indonesian economy.
Containing the spread of the outbreak is indeed not only the task of the Health Ministry. The mitigation programs carried out by all stakeholders need to be integrated. Concrete mitigation measures are important so that the people will feel secure to carry out their routine activities and to prevent panic being triggered by confusing information on social media.
In addition to containing the virus, efforts to mitigate its impact on the economy are urgently needed. The growing fears across the world over the spread of Covid-19 have led to the cancellation of major activities and travel not only for vacations but also for business trips and worship.
Many economic activities in China have been stopped. In 2019, Indonesia’s economic relations with China were very important. In the investment sector, China was the second largest foreign investor with total investment of US$4.7 billion or 16.8 percent of the total. In the trade sector, China was Indonesia\'s largest trading partner. China was also the largest destination of non-oil and gas exports, with total value of $25.8 billion (16.7 percent). Imports from China even reached $44.6 billion or about Rp 611 trillion (30 percent). The Covid-19 outbreak has caused a decline in both imports and exports.
The problem is that more than 25 percent of the raw materials of the manufacturing industry in Indonesia come from China. The portion of intermediary inputs from China even reached 27.5 percent. The difficulty to import raw materials has had a serious impact on the performance of the industrial sector. In the tourism sector, China is the second largest source of tourists with around 2.07 million visitors (12.86 percent) and estimated foreign exchange earnings of about $2.47 billion.
With the breadth and magnitude of the potential impact of Covid-19 on the Indonesian economy, there must be a concrete and serious effort to mitigate it. The financial stimulus package prepared by the government must be effective and reach the targeted recipients. The efforts to facilitate exports and imports, for example, must be ensured not only to smooth the flow of goods, but must also ease imports of raw materials and other intermediary goods.
The same should be done for the 30 percent discount on airfares to 10 tourist destinations, with a 25 percent seat quota per flight, during March-May 2020, the budget reallocation for 10 tourist destinations, and the revocation of hotel and restaurant taxes. There must be regular monitoring and evaluation of these incentives.
No less important is the policy of maintaining people\'s purchasing power. The acceleration of the disbursement of non-cash food assistance, the Family Hope aid program for the poor, labor intensive program in rural areas and village funds for rural development are expected to be effective in anticipating the risk of rising prices for basic needs and maintaining people\'s purchasing power. More importantly, it can overcome the potential decrease in supply due to stagnation in the industrial sector so as not to trigger mass layoffs.
ENNY SRI HARTATI, Senior Researcher of the Institute for Development of Economics and Finance.