Change Before It’s Too Late
Yopie Hidayat (Contributor)
INDONESIA’s economy has been hammered extremely hard by the pandemic. Covid-19 shaved 2.07 percent off the economy in 2020. For the first time since 1998, the year-on-year economic growth is negative. But what is done is done, and there is no use crying over it. A more important question is: can Indonesia’s economy get back on its feet this year?
The government, as always, stays optimistic. For 2021, it has set a growth target between 4.5 percent and 5.5 percent. In other words, the government is confident that the economy can recover very quickly. In graphical terms, Indonesia’s economic growth chart will form a sharp V-shape curve.
There is little chance that such a scenario will become reality. The main cause of the economic downturn throughout 2020 was the pandemic. If the government wants the economy to recover, the mitigation of the pandemic must become its highest priority. All policies and resources should be focused on the effort to contain Covid-19. This is a prerequisite condition for the economy to recover. Unfortunately, the government is still taking various policy options that do not meet that necessary conditions.
The national budget, for example, still places infrastructure projects as a priority. In fact, the national defense budget is still deemed more important than the health budget, even as we witness hospitals around the country being overwhelmed and overcrowded by Covid patients.
Investors see the government’s true colors and intentions through the national budget, not through speeches nor official statements. If the Ministry of Health only has a Rp84.3-trillion budget while the Ministry of Public Works and the Ministry of Defense will be spending Rp149.8 trillion and Rp137.3 trillion respectively, it is clear that Covid mitigation is not the government’s main concern.
What is more absurd is that the government is planning an ambitious program to attract US$20 billion of foreign investment through the Indonesian Investment Authority or LPI. To that end, the government is willing to put in Rp75 trillion as the initial capital. And the LPI, should it be able to attract the investment, will channel it to various infrastructure projects—not for the pandemic mitigation.
To overcome Covid, the government is putting all its hopes on vaccination. It is true, vaccinations that can generate herd immunity will allay public fears, and human mobility will return and the economy can get back rolling. However, a vaccination program for a country as big as Indonesia, with a target of 181.5 million vaccine recipients, will take quite some time to complete.
The government estimates it will take at least 15 months to complete the vaccination. That means Indonesia will only achieve herd immunity by March 2022. So throughout 2021, Covid will continue to gnaw at the economy as it did in 2020. To make the matter worse, entering the year of 2021, Covid cases have been spreading out of control. The pandemic curve has climbed rapidly. Indonesia is now the country with the highest number of cases in Asia.
The main cause of the economic slump in 2020 is still there. So how is it possible for the government to estimate growth with such optimism when the main cause of that slump remains relatively unanswered?
There is still time for the government to reevaluate all its priorities. Bigger stimulus packages that directly affect consumer’s purchasing power is very worthy of consideration. If the government insists on putting hundreds of trillions of rupiah into infrastructure, their effects on the economy and aggregate consumer’s demand will not be immediate. Infrastructure construction clearly can wait until national health and the economy recovers. Much less important are the funds allocated to purchase weapons that have little effect on the domestic economy.
Just imagine: the Rp75 trillion allocated as starting capital for the LPI is almost as big as the total budget for the Ministry of Health in a year. That much money will clearly be more meaningful if it flows directly into the economy or to pandemic mitigation efforts.