Pondering at THE V, U or L Trajectory
Yopie Hidayat (Contributor)
THE economic destruction caused by Covid-19 pandemic is becoming more widespread and real. The European Union’s economy shrank 3.8 percent in Q1 2020 compared to the previous quarter. The United States also saw serious contraction. Year-on-year, the US economy grew by negative 4.8 percent at the end of Q1 2020. This global economic decline is already far deeper than in the 2008-2009 financial crisis. A worse comparison only exists in the Great Depression which happened a century ago.
This is not even the worst of it. The Federal Reserve Chair Jerome Powell gave a reminder that there is a further risk of deeper economic contraction. One of his biggest concerns is the unpredictability of Covid-19 trajectory. Will there be a more intense second wave? Or is Covid-19 truly defeated soon?
This uncertainty makes it difficult for leaders around the world to formulate accurate policy responses. In Indonesia, the government seems to lean on the positives, inviting the public to stay optimistic. President Joko Widodo believes that Covid-19 will be in its lighter phases by July. And after that, the economy will bounce back.
All stakeholders, from consumers, corporations to politicians, naturally wish for a fast recovery and want to see a V-shaped curve for economic movement. After touching its lowest point, the economy immediately rises like a rocket flying into space. The Indonesian economy has the chance to produce that V-curve. At least, that is what the International Monetary Fund (IMF) predicts: our economy can bounce back to 8.2 percent growth in 2021.
Unsurprisingly, many government officials like to quote this prediction. And it is indeed the government’s task to keep spreading optimism—as long as there is a serious effort to properly handle the pandemic behind that optimism. This condition is crucial. The IMF based that prediction on one basic yet important premise: that the pandemic is over quickly and Indonesia is spared from severe economic damage. Otherwise, instead of getting a V-curve, we will enter a U-shaped trajectory, where the economy must stay at the bottom for a longer time before it can recover. Worse still is getting an L-curve. After reaching the bottom, the economy does not get up again.
The truth is the Indonesian government is more than just serious in fighting this pandemic. It is going all-out against Covid-19. However, many critics see these efforts are still off the mark. The root of the problem is unreliable data. Reopening the economy, for example, must be done based on factual data so that paranormal whispering or political insinuations are not factors into the consideration. Currently, due to the dismal low number of test conducted compared to the country’s population, there is no reliable data representing the real situation of the Covid-19 pandemic in Indonesia.
This situation poses a high risk. The government can make the wrong choice and reopen the economy too early. Understandably, nobody wants to see the economy suffer even more due to widespread restrictions. However, historic records show that reopening the economy before the pandemic is truly over incurs the risk of a second wave that will be even worse.
On the other hand, the ineffectiveness of government stimuli, also making it harder for the economy to recover. The distribution of various social aid programs are still mired in confusion. The government uses too many channels of aid distribution with discrepancies over the data of its beneficiaries. This is not to mention the poorly-aimed initiatives, such as the pre-employment program that drew criticism because it was deemed ineffective in supporting the economic needs of the newly unemployed.
There is still time and opportunity to fix all of this. The government must make haste and evaluate all its options. Please don’t let the economy slipping into the path of a U-curve, or even worse, fall down to an L-shape growth trajectory.