Rough road to recovery
On the verge of recession, Indonesia struggles to keep Covid in check.
Residents of Jakarta are enduring new restrictions to keep Covid-19 in check, amid political wrangling between the Indonesian capital’s leader and a central government that is growing more worried about the economic consequences of the pandemic nationwide.
Jakarta Governor Anies Baswedan announced the return of some social restrictions, effective from Sept 14. While not as strict as those first imposed in April, the shock announcement triggered a 5% plunge in the Jakarta stock market on Sept 10.
Investors see a slowdown in economic activity in Indonesia’s biggest city as a threat to the national recovery effort, which includes a target for economic growth to rebound to close to zero by year-end.
The target was set after the release of second-quarter GDP data that showed a 5.3% year-on-year contraction — the first contraction since the first quarter of 1999 amid the fallout from the Asian financial crisis.
Unlike during the first round of social restrictions — locally known by the acronym PSBB — which lasted for two months and were followed by gradual relaxation, streets in Jakarta were still crowded with cars early last week.
The new rules, in effect for two weeks but extendable if needed, allow government and private company offices in non-essential sectors to operate at 25% capacity. Community houses of worship are still allowed to open with strict adherence to health protocols. Restaurants can serve delivery and take-out only, while ride-hailing motorcycle taxis can still take passengers.
But even with some alterations, the second round of PSBB in the capital, which accounts for 18% of the country’s economic activity, has put Indonesia on the verge of recession, said Izzudin Al Farras Adha, an economist with the Institute for Development of Economics and Finance (Indef ).
“The reinstated social restrictions have indirectly marked a recession, following the contraction in the second quarter,” he said during an online forum on Sept 17. “While we still have to wait for the official announcement from the statistics agency at the end of this quarter, we are 99 percent about to fall into recession.”
Piter Abdullah Redjalam, research director at the Center of Reform on Economics (Core), told Asia Focus that longer that the restrictions are enforced — he believes they will last at least a month — the greater the impact will be on the economy.
Before the Jakarta governor’s announcement, he said, the Indonesian economy was experiencing a rebound and consumption was picking up, albeit still below normal.
“The renewed social restrictions in Jakarta, even though they are on a local scale, will, however suppress Indonesia’s economic recovery,” he said. “They could result in GDP growth in the third quarter to contract by deeper than three percent.”
But the government remains optimistic that various economic stimulus packages that the national recovery task force has been disbursing since July 20 could give a lift to GDP.
Budi Gunadi Sadikin, the head of the task force, said on Sept 16 that it had disbursed about 87.6 trillion rupiah (US$5.9 billion) and was on course to reach 100 trillion rupiah by the end of September.
“The 100-trillion-rupiah disbursement target is part of the crucial process to compensate for negative GDP in the second quarter,” Mr Sadikin said.
He acknowledged that the new restrictions in the capital had hurt investor sentiment, but noted that the Jakarta Stock Exchange recovered most of its losses in the first two days of last week. “It was good that stock market players’ sentiment has quickly bounced back and I hope it will continue to improve.”
As of Sept 16, Indonesia had reported 228,993 confirmed cases of Covid-19 and 9,100 deaths, while 164,101 people have recovered. The most populated island, Java, accounts for 59.4% of all cases nationwide.
According to the World Health Organization (WHO), a total of 1,622,769 people out a population of 267 million had been tested as of Sept 16. Jakarta and West Sumatra were the only two provinces to reach the WHO benchmark for testing and surveillance for three successive weeks, while
West Papua met the benchmark in the last week.
Indonesia’s testing capacity remains one of the lowest in the world, with high positivity results. The hurried reopening of social and economic activities provided an “illusory sense of security” for people, said Fajri Azhari, a public health researcher at the Institute for Demographic and Poverty Studies.
Consequently, he said, people have been caught off-guard by the gravity of the outbreak. The lack of compliance with health protocols resulted in a surge in cases even though the curve of the first wave had yet to be flattened sufficiently, he said.
It was made worse by government officials’ contradictory statements on how to control the outbreak, Mr Azhari said. He noted a recent statement by Coordinating Minister for Economic Affairs Airlangga Hartanto that Jakarta still had enough hospital beds to treat Covid-19 patients when in fact it was facing a shortage, which was one of the reasons that Governor Baswedan applied the brakes on public activity again.
“It was probably meant to reassure the people not to worry but the statement was counterproductive and the main focus should not have been on the availability of beds but on how to curb the spread of the virus by limiting people’s mobility,” Mr Azhari told Asia Focus.
According to a new Asian Development Bank (ADB) report released on Sept 15, Indonesia’s economy is forecast to contract by 1% this year before rebounding to 5.3% growth in 2021.
The bank also projected negative growth in developing Asia overall, with Malaysia contracting by 5.0%, the Philippines by 7.3%, and Thailand by 8%.
“Despite strong macroeconomic fundamentals, Indonesia can expect a difficult growth path for the rest of 2020, with much uncertainty surrounding the scope and trend of the pandemic in Indonesia,” said Winfried Wicklein, the ADB country director for Indonesia.
“Moving forward, consistent and coordinated policy priorities that balance between protecting lives and livelihoods, and ensuring the safe restart of business activities, remain crucial to ensure a swift and inclusive recovery.”
“The renewed social restrictions in Jakarta, even though they are on a local scale, will, however suppress Indonesia’s economic recovery”
PITER ABDULLAH REDJALAM Center of Reform on Economics