The Pandemic and its Economic Impact
Every misery, including a pandemic, creates grief. Not many tastes are usually recorded from calamities, except a list of numbers: deaths, damages, losses, and the like.
Every misery, including a pandemic, creates grief. Not many tastes are usually recorded from calamities, except a list of numbers: deaths, damages, losses, and the like.
Statistics tells the scale of the disaster being experienced. If the number of the casualties is getting bigger, the misery being caused is surging. Similarly, related to material losses. On the contrary, no description of tastes that narrates the depth of the wound is revealed: unexplained anxiety, acute depression, or life expectancy that disappears.
Mass frustration reflects the true bitterness of the disaster. The pandemic of the coronavirus disease (COVID-19) currently sweeping across the world, including Indonesia, is producing two things at the same time: Swelling statistics and mounting grief. The number of victims continues to surge, and the anxiety of every citizen is almost exploding. The world is suddenly ambushed by darkness as leaders are busy turning on lights. How should this pandemic be dealt with so as not to cause the economy to implode?
Ammunition of control
Forest fires and coronavirus are similar in that they spread easily if not quickly extinguished. Control measures depend highly on the amount of ammunition at hand (such as health facilities, medics and volunteers). In the end, the virus attacks humans, so that people\'s awareness and patience become a gamble.
So, the key words in the first stage of this battle are transmission prevention, health facilities and citizen awareness. There are quite a few variations in this control model, ranging from the extreme (totally disabling affected areas/lockdown) to the mild (recommendation to limit interaction).
Until now there is no single effective model to be applied to each country/region. All depends on the specific economic, social, political and cultural characteristics. Each country must make a pandemic map and a full introduction to the economic and sociological conditions of society. That information serves as the basis for decisions made to check the virus.
Now the government and its COVID-19 task force are very busy preparing the medical equipment. Doctors and paramedics are mobilized, medical devices are purchased and brought in, primary protection equipment is produced and distributed (masks, hand sanitizer, safety clothing, etc.), isolation rooms are prepared. However, all those efforts still seem to be moving less swiftly than the virus. Residents and medical personnel often find it difficult to get masks, doctors are running out of safety gear and long queues are forming at hospitals, aside from various other limitations (this is also found in other countries).
Jakarta as the domestic epicenter of the epidemic is overwhelmed by this misery. We can imagine the complexity faced by other regions that have fewer health facilities than Jakarta. If this primary issue is not immediately resolved, it will be difficult to curb the spread of the virus – and the number of victims. Time is the dominant risk factor at the moment.
This policy has been decided, of course, with all considerations taken into account.
Beyond all technical issues, controlling the spread is a matter of coordination between policy choices and citizen awareness. The president has opted to advise people to work, study and worship from home (and be disciplined about keeping a distance, washing hands, etc.). This policy has been decided, of course, with all considerations taken into account. While looking at the good and weak sides of this policy, the crucial issue to be addressed is to increase citizens’ awareness. Policy choices may be criticized, some have even been condemned. However, once a decision has been made, the duty of citizens is to obey.
That is the crucial point. Not all residents have sufficient awareness. Some activities are still going on quite busily, shopping centers are still visited, business owners do not all comply with the suggestions. Some Jakarta residents have even gone to visit their hometowns (as is the local custom for Ramadan) early this year. The implication of this is that the policy may be right, but its effectiveness is low because of weak awareness. The solution that must be worked out: Enforcement of the rules without exception.
Macroeconomic measures
Three macroeconomic policy areas must be addressed now to mitigate the impact of the epidemic. First, fiscal policy must be completely overhauled (call it a fiscal disaster if you like). This overhaul is not aimed at reaching the economic growth target. Forget growth for the moment, focus on managing impacts. About 30 percent of ministry/agency expenditure (plus other expenses) is to be dedicated to this need (try not to open new debt options). The fiscal policy should address three matters: social protection, survival of small and informal businesses (farmers, fishermen, microbusinesses, informal sector, workers), and reduction of the household tax burden.
Social aid has been increased, particularly through the Rice Assistance Program and the Family Hope Program, as announced by the government. Health Care and Social Security Agency (BPJS) contributions have been waived for individuals on low incomes, the Pre-employment Card Program has been postponed. Small businesses and the informal economy should be prioritized for assistance, preferably in the form of cash transfers, with the nominal value adjusted for daily living needs. The government should also ensure adequate food supply at reasonable prices. Nontaxable income should be increased (say from Rp 54 million to Rp 66 million per year) and electricity for the poor should be made free (for example, under 900 VA). The salaries of echelon 1 and 2 state officials as well as of the directors and commissioners of state- or region-owned companies (BUMN/BUMD) should be cut by 50 percent for six to nine months.
These two authorities have issued policies already, but those are not too powerful.
Second, monetary policy and financial sector policies – the domains of Bank Indonesia (BI) and the Financial Services Authority (OJK), respectively – should be leveraged to even greater degree. These two authorities have issued policies already, but those are not too powerful. Interest payments and installments for micro and small businesses have been stopped until the end of the year, but assistance for cooperatives (savings and loans) and micro finance institutions has not been formulated. Medium and large businesses can be relaxed first with a more moderate scheme according to the ability of the financial sector (banks).
Banks (especially state-owned ones) must stop the practice of "ponzi schemes" that have been offered to corporations or individuals who own money so that loan interest can be reduced. BI should take the initiative in pushing this policy, and the OJK should carry out strict supervision. This is the best time for both of them to show their usefulness directly to the people. The Deposit Insurance Corporation (LPS) should take the initiative in guaranteeing banking resilience. A gloomy economic situation will be easily ignited by rumors, so depositors must be given a bright message. The policy is escorted to the operational level.
Third, an action plan is needed for the time after the outbreak, which must be prepared from now on. Assuming that the epidemic spread can be stopped in the next 3 to 6 months, that is when the economic recovery begins. Factories will start operations, micro and small businesses will be working again, street vendors will open their stalls, fishermen go to sea, farmers cultivate the fields and farms, blue-collar workers will flock the roads and public transportation again.
Economic incentive packages must be prepared swiftly, for example for labor-intensive and export-oriented businesses and the use of local raw materials and local processing must be increased. The point is that businesses can start to move, so that the country\'s economy also moves again. This opportunity should be used also to do away with wrong policies by providing incentives that favor national interests and weak economic actors. The economy must be reestablished to build glory and grandeur.
Microeconomic joint
Half of the stagnant economy can recover automatically following the outbreak, but some will not move optimally without interference from the authorities. At the microeconomic level, they need thorough details to ensure that everything runs like before the pandemic. The most fundamental vulnerability of the microeconomic joint is the loss of capital capacity for small and informal businesses. The savings are very thin, some have none at all. Social aid only supports daily life. It does not produce ammunition to start businesses (again).
This is where the main government programs, such as ultra-micro financing (UMi), PNM Mekaar, which provides small loans to groups of women, Micro Wakaf Bank, Revolving Fund Management Institution, and others must be intensified targeting this group. The key task is to identify targets and the amount of assistance to provide. Data must be accurate, and there should be no room for rent-seeking. Local governments and the central government must join hands.
This is complicated for the government, especially in a tight state budget situation.
Another microeconomic task is the threat of swelling poverty and unemployment. The drop in economic performance must be linked to vulnerable groups, especially the poor. Even, the population around the poverty line has the potential to suffer. An increase in the severity index and depth of poverty is almost certain. This is complicated for the government, especially in a tight state budget situation.
The poor who are included in social aid schemes are guarded, so that there is no delay in assistance. If necessary, the aid amount is increased (this has been announced, in fact). Residents around the poverty line are included in the same program. That means, there is an expansion in the number of recipients. Regarding unemployment, the new or old workforce is included in the Pre-Employment Card Program while waiting for things to get better. This means there needs to be an increase in the target audience of this program. The agrarian reform program and social forestry and village funds are linked to this problem, especially for controlling unemployment in the villages.
The trade, hotel, restaurant, tourism and entertainment sectors are the hardest hit sectors. The number of people involved in this business is very large. Trade accounts for about 18 percent of the workforce. Meanwhile, hotels, restaurants, entertainment, tourism and the creative economy are economic activities that are at the top, so their growth is high.
In this specific sector it is necessary to design a special economic stimulus, so that its performance soars. Beyond capital, this sector needs other sector support schemes, so that it has more power to revive. For example, the transportation subsector (airlines, trains, ships, buses) may be given a subsidy scheme to encourage tourism. Local governments have more maneuvering space to support this scheme.
Morally imperative
Development is a totality of social change that is designed as a whole, but it turns out that, so far, it only supports the economic interests. The economy has even been narrowed down just for the sake of growth, not the transformation of welfare based on three pillars: humans, natural resources and ethics. This means that economic development must be upheld on the altar of humanity, sustainability and virtue.
In reality, humans are only equal to other factors of production, such as capital and land. They have no voting rights in decision-making, nor are they involved in businesses through ownership. Natural resources are exploited to spur economic growth. The implication is that environmental destruction cannot be stopped and sustainable development is only wishful thinking. Material incentives continue to be driven beyond moral imperatives. At this point, there is no question that there are (economic) actors who are selling masks at exorbitant prices to the detriment of other citizens or medical personnel who struggle to save patients.
For decades the world economy, as well as Indonesia, practiced such a development model. Jakarta as the capital city is a perfect mirror. The economy is being pushed on continuously without pause.
All economic tools are built, so that economic sugar is scattered. Residents like ants come from all directions to hunt for the promised material. Each curve of space is filled with crowds of people fighting over economic stalls. Jakarta is inhabited by around 16,000 people per square kilometer. Actually, the average population density of Indonesia is only 150 people per square kilometer! The poor distribution of the population is due to wrong economic incentives. The consequences: economic disparity and an escalation of social, ecological, legal and transportation-related problems.
Against this background, the COVID-19 outbreak must be used as an opportunity to change the course of development. For Indonesia, this is the right time to correct three main issues of development. First, the benefits of development must be spread evenly to all citizens, not just attached to a handful of people. Humans are not merely a factor of production, they are decision-makers, planners and implementers of the economy.
Therefore, the economic ratio does not only come from production/productivity. Second, moral imperatives are used as guides beyond material incentives. Economic design is not enough as a matter of growth, as what is far more important is justice and wisdom. We must pursue economy adequacy based on need rather than economic growth based on greed. Third, development must be in line with the carrying capacity of the environment. Development that damages nature will surely end in disaster, causing yet more misery. If these three doctrines of virtue are fully practiced, a pandemic will not bring down the economy.