The Economy Will Recover Next Year, If ….

KOMPAS/RADITYA HELABUMI

Residents queue to get non-cash food aid (BPNT) which is distributed through e-warong in South Kembangan, West Jakarta, Wednesday (11/11/2020).

JAKARTA, KOMPAS - Indonesia\'s economic growth is considered to have passed its lowest point after being hard hit by the Covid-19 pandemic early this year. Next year, the economy is estimated to grow between 4.8 and 5.8 percent. However, vaccination and the strict use of health protocols to halt the spread of Covid-19 will be the keys to achieve the growth target.

Bank Indonesia (BI) governor Perry Warjiyo has estimated the Indonesian economy will grow in the range of between 4.8 and 5.8 percent in 2021. The main drivers of the economic growth would be, among other things, an increase in exports, private and government consumption, as well as portfolio investment and direct foreign investment (PMA), he said.

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"The investment flow is projected to increase sharply due to a positive response to the implementation of the Job Creation Law. Growth in all regions will also increase, especially in Java and eastern Indonesia, namely Sulawesi, Maluku and Papua," Perry said in his remark at the opening of the 2020 Bank Indonesia Annual Meeting themed "Synergize to Build Economic Recovery Optimism", which was held virtually, on Thursday ( 3/12/2020).

According to him, macroeconomic stability in 2021 can be maintained with a low inflation rate of between 2 and 4 percent. The rupiah exchange rate is also expected to be more stable and to further strengthen. The balance of payments will also record a surplus, supported by a low current account deficit of between 1 and 2 percent of gross domestic product (GDP).

Also read: Pushing Back Inflation

Perry, however, said economic growth could be achieved on the condition that there would be widespread vaccination and strict implementation of health protocols to curb the spread of Covid-19. The increase in people’s mobility due to the vaccination will result in an increase in household spending, which is the main contributor to the country’s GDP.

“If the spread of Covid-19 can be stopped, policies such as opening the productive sector, accelerating the realization of fiscal stimulus and increasing credit disbursement to the business world can be well implemented," he said.

BANK INDONESIA UNTUK KOMPAS

Governor of Bank Indonesia Perry Warjiyo in a presentation on the latest economic developments in Jakarta, Thursday (2/4/2020).

In addition, Perry continued, the synergy between the government and economic and monetary stakeholders should be further strengthened. The synergy is quite important in implementing a number of policies, such as opening up productive sectors, accelerating the realization of fiscal stimulus, increasing corporate loans, digitalization of the economy and finance, especially micro, small and medium enterprises.

In his speech at the BI Annual Meeting, President Joko “Jokowi” Widodo, encouraged all parties to focus on efforts to move forward as well to get out of the pandemic. One of them is by preparing Covid-19 vaccines and conducting a nationwide vaccination program.

Also read: Extra Paradox in the Middle of a Recession

"We have to move fast because there is still a lot of work that has not been completed. We will have a large number of unemployed people due to layoffs during the pandemic. We will have a large workforce that needs employment," he said.

The August 2020 national labor force survey by Statistics Indonesia (BPS) indicated that as many as 29.12 million people, or 14.28 percent of the 203.97 million working-age population, were affected by the Covid-19 pandemic.

Also read: Deflation Amid Threat of Recession

The number of unemployed people increased by 2.56 million people to 9.77 million people compared to those recorded in August 2019. The average wage of workers also decreased 5.18 percent to Rp 2.76 million per month.

The President also asked all stakeholders to move quickly and accurately. "Get rid of sectoral and institutional egos. Do not build up high walls, take cover behind each other\'s authority. We have to share the burden, share responsibility for the benefits of the nation and state," he said.

Kompas/Priyombodo

Aerial photo of residents\' activities on the banks of the Ciliwung River, Manggarai, Tebet, South Jakarta, Thursday (12/11/2020). Based on a study by the National Development Planning Agency (Bappenas), the poverty rate in Indonesia at the end of 2020 is estimated at 9.7-10.2 percent or 26.2 million-27.5 million people of the total population in Indonesia.

4 percent growth

DBS Bank has estimated Indonesia’s economy will grow by at least 2 percent in 2020 and 4 percent in 2021. Economic recovery will be overshadowed by the estimated low inflation rate of 2 percent in 2020 and 2.2 percent in 2021.

"Indonesia is one of the Asian countries whose economy is most depressed because the Covid-19 cases continue to rise. Sustainable fiscal stimulus is needed, but it must be accompanied by optimal and timely disbursement,” said Taimur Baig, the chief economist and managing director of DBS Bank.

Also read: Absorbing the Cost of Recession

Senior economist and Finance Minister from 2012 to 2013, Chatib Basri, warned that Indonesia was at risk of experiencing a K-shaped economic recovery pattern in which the upper middle class will grow and the lower middle class will decline.

As a result, inequality will further widen. The upper middle class will survive the Covid-19 crisis because they have sufficient savings and good internet access. They are also able to transform themselves into the digital world. The opposite occurs in the lower middle group, which has limitations in almost all aspects.

"There is a risk that there will be an economic recovery pattern in the form of the letter K. Those who will survive the Covid-19 pandemic are the upper middle class," said Chatib in a national tax conference, which was held virtually on Thursday.