New Normal as Anchor for Positive Expectations

KOMPAS/RONY ARIYANTO NUGROHO

Long lines of KRL commuter train passengers are seen at Bogor Station, Bogor city, West Java, Monday (8/6/2020). A number of workers and economic actors from the Greater Bogor region began to leave for Jakarta because a number of offices and economic activities began to open during the Transitional Large-Scale Social Restriction (PSBB) in Jakarta. Due to the limited number of the trains due to the imposition of a limited number of means of transportation results in the long lines with close distances among people at a number of stations through which the trains pass. The line at Bogor Station itself was seen from 5 a.m. until 9 a.m.

In the science of decision-making, there is what is called dynamic optimization, with multi-constraints that change over time.

The aim is to replicate the situation, which is faced by looking forward and taking into account constraints and uncertainties (stochastic dynamic optimization).

The result of this optimization is a time path that illustrates that every policy action will depend on the environmental situation and condition. This time road map does not set a specific schedule for action, but only a preparation that signals there will be light at the end of the tunnel. That is the situation being faced by Indonesia and the world that is handling Covid-19. After focusing on preventing the transmission, the policy plan moves toward more multidimensional efforts, saving lives while minimizing recession.

Anchor for positive expectation

Since the beginning, the government has tried to help economic activity continue and not severely drop. The first phase is saving lives and medical personnel. It is then followed by the second phase in the form of social protection for social and vulnerable groups, protection for lower middle groups who are victims of termination of employment.

Kompas

Children look a a gondola with passengers as gondoliers officially resume work for the first time since Italy\'s strict coronavirus disease (COVID-19) lockdown, in Venice, Italy, May 30, 2020.

The third phase is to strengthen the economic habitat so that the Covid-19 outbreak does not turn into an economic and financial crisis through a focus program on affected sectors, MSME protection, relaxation of bank credit and fiscal relaxation to finance economic stimulus. However, whatever stimulus is offered will depend on whether there is an interaction between purchasing power and promotion, both traditionally and virtually online. Therefore, we need to change expectations from negative to positive.

Read also: New Normal? This is Really Normal

In this case, a research team from two American universities, Yale and Carnegi Mellon, conducted an experiment participated in by 2,480 volunteers that published in the journal Proceedings of the Royal Society A. The results of the analysis show that larger groups usually take longer to search for a solution to a crisis or even become passive. This is due to the fact that some members of the group trust the hoaxes/rumors which make the group unable to make decisions.

Negative sentiment makes people not creative to find solutions to improve the situation, on the contrary it will even lead to actions that will make things worse. This is in line with the description of consumers everywhere, who form the largest group in society. Therefore, community expectations need to be guided by showing a road map that contains positive information (Isard [1995]).

In the above-mentioned dynamic optimization decision, the key is terminal condition, which gives an illustration of how the handling of health emergencies will have an optimal impact on the lives of many people in the future. Here is the function of the new normal. In daily behavior, a positive picture of the future is needed to reduce uncertainty so that counterproductive behavior does not occur. In Indonesia, there are two major groups that affect the national economic condition, namely consumers and producers.

The wish of life of many people can run because of the interaction between the demand and production. The demand side is dominated by spending behavior, which is determined not only by taste and income but also by future expectations. Prevention of Covid-19 transmission in the world is done by limiting or even temporarily limiting the interaction between the demand and production side in the economy. There are countries that have chosen to impose strict regional quarantines, such as Italy and Spain.

This can only happen if there are extraordinary events that affect the set of information that affects people\'s expectations.

Meanwhile, some countries, such as Sweden and Japan, including Indonesia (large-scale social restrictions/PSBB), have chosen a softer version of the restrictions that allow some aspects of revenue and production flows to continue. The consumer confidence index dropped dramatically from 113.8 in March to 84.8 in April. This number is below 100, which means it is in the pessimistic zone. This can only happen if there are extraordinary events that affect the set of information that affects people\'s expectations.

Read also: Economy in the New Normal

The most affected component was the economic condition index, which fell sharply to 62.8 in April, from 103.3 in March, as a result of the decline in the income index. Meanwhile the employment availability index fell to 41.2 as a result of many layoffs. Restrictions on economic interaction as a result of health emergencies have affected the community, both those with fixed incomes (especially those who have been laid off) and those who rely on daily income.

In terms of consumption demand, the weakening of public shopping sentiment can be seen from the weakening growth in annual spending on restaurants and hotels from 5.64 percent to 2.39 percent in the first quarter of 2020. Anything that can be postponed will be postponed, at minus 3.29 percent for clothing, footwear and maintenance services. On the Maslow-style demand scale (1943), the purchasing index of durable goods decreased to 87.3 in April and this would have an impact on delaying consumption of durable goods, such as electronics, furniture, and household appliances.

Kompas/Wawan H Prabowo

President Joko Widodo speaks with Jakarta Governor Anies Baswedan while reviewing the readiness to apply the new normal standard procedure at the Hotel Indonesia traffic circle, Central Jakarta, Tuesday (26/5/2020). On that occasion, the President ensured the preparation for disciplinary implementation of large-scale social restrictions or PSBB by the Indonesian Military (TNI)/National Police (Polri).

This impact was felt in several branches of the manufacturing industry in the first quarter of 2020. The most striking picture of the pre-Covid-19 world differences with the current situation is in the furniture industry which experienced the deepest contraction with a growth of minus 7.28 percent, very different from the first quarter of 2019 which grew 12.89 percent. Next is the metal, computer, electronic, optical and electrical equipment industries, which experienced negative annual growth of minus 3.52 percent.

On the other hand, pessimism from the production side was shown by the decline in the index of business activity expectations, which weakened to 102.3 in April, from 126.2 in the previous month. This was confirmed by investment spending on machinery and equipment, which slumped with growth of minus 3.62 percent, very far compared to one year earlier which was 8.40 percent. This overall resulted in investment to grow only by 1.97 percent in the first quarter of 2020 compared to 5.03 percent last year. The impact on the production side is in the branch of machinery and equipment industry which grew minus 9.33 percent, the lowest among other branches of the manufacturing industry.

The potential of this virus will remain a latent danger that is always lurking for some time to make the new normality as a concept of a balance between efforts to deal with health emergencies and the running of the economy.

In such a difficult situation, Indonesia could still produce an annual economic growth of 2.97 percent in the first quarter of 2020. Indeed, it is still below the average growth of 5 percent that has been happening all this time, but in a state of health emergency this level can still be achieved as a survival capital and support for recovery in the future, especially when growth in the second and third quarters is still in big question marks. To restore the livelihoods of the community in the third quarter of 2020 and beyond, what is needed is a situation in which the community itself returns to do activities. The potential of this virus will remain a latent danger that is always lurking for some time to make the new normality as a concept of a balance between efforts to deal with health emergencies and the running of the economy.

KOMPAS/KRISTI UTAMI

Tegal Station is preparing to welcome a new normal. In addition to limiting physical distance between people, the station manager also provides hand washing facilities and body temperature measurement facilities.

The new normal economy

The structure of the economy under the new normal has been drawn from Statistics Indonesia (BPS) publications on the structure of GDP growth in quarter I-2020. In essence, those that will survive, even thrive, are those that fulfill basic needs. For example, growth in spending on health and education actually increased to 7.85 percent, from 5.54 percent in 2019 (pre-Covid-19). Food and beverages other than restaurants remained relatively unchanged, staying at 5.10 percent. Likewise housing and household equipment with a growth of 4.47 percent, remained unchanged compared to before the outbreak. This is made possible by the revival of cooking at home.

From the production side, people\'s desire to increase their endurance brought the chemical, pharmaceutical and traditional medicine industries to 5.59 percent growth, the highest for the manufacturing sector. Not wanting to be left behind, the upsurge in online activities due to schooling, working and spending from home increases the growth of the information and communication sector to 9.81 percent, from 9.06 percent last year. Sectors such as transportation, trade, hotels and restaurants, including tourism, which are currently the worst hit as they rely on face-to-face transactions and physical attendance and meetings, still have great hopes in the new normal era, after the form of presentation has been transformed according to Covid-19\'s vigilance operations standards.

KOMPAS/HERU SRI KUMORO

Ari Kuncoro

The new normalcy discourse that was recently rolled out is an expectation realignment as well as a terminal condition, which gives positive hope to the community because it shows the storm will pass even though the exact timeline has not been set. This can be seen from the interest in shopping for Idul Fitri holiday needs at traditional markets, such as in Tanah Abang and other night markets, in the middle of the PSBB. This trend is likely to continue after Lebaran is over. The interest of the community to move back is actually quite large after being confined in the house for a long time even though in its implementation it requires better crowd control to prevent the risk of re-transmission. This purchasing power can be utilized for economic recovery by implementing clean and healthy living habits consistently.

Ari Kuncoro, Rector of the University of Indonesia