Recovery Needed Not Just To Avoid Recession

KOMPAS/LASTI KURNIA

Trucks park besides shipping containers at Operation Terminal 3, Tanjung Priok Port, Jakarta, Thursday (20/2/2020). Statistics Indonesia (BPS) noted the value of non-oil exports and imports to and from China decreased in January 2020.

JAKARTA, KOMPAS - Indonesia needs to implement an inclusive and sustainable economic recovery program not only to avoid a recession. Therefore, post-Covid-19 economic recovery efforts must be also directed to aspects based on technology and the environment.

In reality, the government must also give a clear direction in its economic recovery agenda in order to help attract investment while at the same time growing new sectors that can support the economy. The new sectors should be created through transformation to deal with the massive disruption caused by Covid-19.

Also read : Purchasing Power Must Be Increased to Avoid Recession

"The government has actually started the first step in its economic transformation. However, can Covid-19 make the transformation work better or not? “, the rector of Atma Jaya Catholic University, A Prasetyantoko, said during a virtual discussion "New Order and Economic Recovery in the Middle of the Covid-19 Pandemic" held by Kompas daily in Jakarta on Thursday.

Other speakers at the discussion chaired by Kompas ‘ senior editor Ninuk Mardiana Pambudy were McKinsey Indonesia\'s managing partner Phillia Wibowo; chairperson of the steering committee of the Indonesia Business Council for Sustainable Development, Shinta W Kamdani; and lecturer in environmental economics at the Climate Change Research Center of the University of Indonesia, Sonny Mumbunan.

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Indonesia is on the verge of an economic recession after the economy shrank 5.32 percent in the third quarter, 2020. If the economic contraction continues in the third quarter, this year, Indonesia will technically fall into a recession. This year, the government expects the economy to fall 0-1 percent. Prasetyantoko emphasized that implementing an inclusive and sustainable economic recovery program would not be easy. In the short term, the government must increase the disbursement of economic recovery stimulus funds in order to boost economic performance in the second half of 2020. Government spending, which accounts for 8.67 percent of gross domestic product (GDP), plays a key role in the domestic economy. An acceleration in the disbursement of government expenditure is needed to protect vulnerable people, namely in the health and social protection sectors. "The aim is not only to avoid a recession, but in what direction the economy will be driven," Prasetyantoko said.

Meanwhile, Phillia said that the Covid-19 pandemic would encourage changes in the structure of the Indonesian economy. According to the latest survey conducted by McKinsey, people\'s attitudes and preferences changed during the Covid-19 pandemic. For example, they were more concerned with the important aspects of health, looking for local products, and buying fresh food. The change will create new sectors that will support the economy.

The economic structure will change as the Covid-19 pandemic will last for a long time. So, the government must immediately move and take advantage of the momentum of the economic transformation caused by Covid-19.

The aim is not only to avoid a recession, but in what direction the economy will be driven.

Technology and the environment

The economic transformation should not ignore technological and environmental aspects. One of the reasons is that the information and communication business sector grew 10.88 percent annually in the second quarter of 2020 when other business sectors mostly contracted. The sector will help sustain Indonesia\'s economic growth until the pandemic is over. Prasetyantoko explained that sustainable economic recovery efforts in several countries now include environmental aspects. He gave an example of South Korea, which allocated US$95 million in its economic recovery budget especially for green investment and tackling climate change.

According to Sonny, the issue of climate change no longer serves as an attachment in economic issues. A study by the National Development Planning Agency (Bappenas) shows that low carbon economic development could push economic growth to as high as 6 percent by 2018-2030. However, if development is conducted according to an “as it is” scenario, economic growth will continue to decline. "Various studies prove low carbon development is good for the economy," he said.

Also read : The Impact of Recession on Poverty

SUMBER: BANK DUNIA

Projected economic growth in Indonesia. Source: World Bank

Meanwhile, Shinta W. Kamdani said the performance of the real sector in the remainder of this year depended on the realization of the disbursement of government stimulus funds to the public and the business world. "The stimulus of the national economic recovery must find a shortcut so it will quickly arrive without obstacles," said Shinta.

Shinta said that one of the stimulus programs that could be distributed quickly to its recipients would be the relief aid for low-income workers currently being prepared by the government. She was quite optimistic that such a relief aid would be able to increase people’s purchasing power and stimulate economic activity.

Also read: Synergy Between Braking and Acceleration

People’s purchasing power plays a crucial role in the Indonesian economy. In the second quarter of 2020, household spending, which accounts for 57.85 percent of GDP, fell 5.51 percent year-on-year. Meanwhile, the realization of the disbursement of funds to finance Covid-19 mitigation efforts only reached about 20 percent of the total budget of Rp 695 trillion as of July 3.

Indonesia, according to Shinta, also needs to undergo economic policy reform, especially in improving the business and investment climate. In this way, the performance of the real sector will not only be supported by the stimulus packages and domestic capital, but also by foreign investment.