For Whom the Hundreds Trillion of New Money
Yopie Hidayat (Contributor)
EVERY country in the world is practically adopting similar method to restore the economy: stimulus. In the plain term, this means showering the economy with as much money as possible, just on a different scale from country to country.
The total stimulus in the developed economies has reached US$4.2 trillion. On average, the government budget deficit has swollen to 17 percent of gross domestic product (GDP). Similarly, the central bank balance sheet has grown to 10 percent of GDP from the mass money printing required for the stimulus.
This unlimited stimulus has succeeded in stabilizing the financial market. There is no financial system collapse. The banking industry stayed relatively healthy.
The real sector, however, is still suffering. Practically, manufacturing activities are still hampered. The service sector that requires physical interaction is far from recovery. And tourism undoubtedly remains in a state of near death.
As a result, the trillions of dollars being poured are still unable to heal the economy. Economic recession will come to nearly all countries, including Indonesia. Bank Indonesia (BI) and the finance ministry have sent out a signal that our economy will be going through a recession because of contractions in the second and third quarters this year.
A heavier problem is the deepening inequality due to the pandemic. This time, the upper classes are nearly unaffected. Their consumption did decrease in relative terms, if that could be called suffering. Dining in restaurants and clubbing had to be put on hold. But their financial assets that are helped by the abundant dollar liquidity continue to give good yields. The price of gold is rising, and so is the value in foreign currency savings as the rupiah declines.
This next example is truly comical. Demand for Brompton folding bikes are seeing an incredible spike during the pandemic. The price for this London-made bike has doubled to tripled since before the crisis to around Rp50 million for the cheapest class. There is a waiting list for buyers which extends for at least three months. Is Indonesia in a crisis? Measured by the Brompton market, Indonesia’s economy is seeing an extraordinary boom.
The middle class, white-collar workers, are still safe because they can work from home. The greatest damage falls on the lower group. Ojek (motorcycle taxi) and taxi drivers, shop and restaurant waiters, and street vendors have had their incomes dashed. This recession will throw them back to below the poverty line.
Like in other countries, the government and BI have also put in massive amounts of money. The government is ready to shoulder a deficit of up to Rp1,039 trillion this year. BI is also ready to print Rp397.5 trillion in new money to finance that deficit, and up to an additional Rp177 trillion. But it looks like no matter how much is put in, it will not help growth. With only five months left in 2020, the realization of that money is still far from optimal.
Indonesia is not alone in this situation. Maybe we can learn from other countries that dare to take a heterodox approach. In an unimaginable twist until few months ago, the government is now paying for the wages of millions of workers in Europe through furlough scheme. In the US, seven out of 10 workers that just lost their jobs are getting a bigger handout than their previous salary when they had jobs. It is as if the government is bailing out the masses.
Certainly, Indonesia is still not capable of taking such an extreme move. But the idea of helping the affected groups directly is worthy to be implemented. The budget for various stimuli programs can be combined into an integrated direct aid. This is the most effective method compared to giving out basic necessities in kind or combining it with unnecessary training programs, which take away the bigger part of benefits from those who need it.
The President cannot avoid the task of directly leading the recovery effort so that it proceeds effectively. Creating committees like the Covid-19 Response and National Economic Recovery Committee (PEN) only reflects business as usual, not the extraordinary measures that the government is clamoring for.