Kiki Verico: Corona Outbreak and Economic Wheel Turnover
Kiki Verico: Expert Minister of Finance for Industry and International Trade, and Lecturer at FEB UI
Last Monday, March 2, the first patient disease caused by the corona virus Covid-19 was confirmed in Indonesia. Central and local governments run several protocols, from opening call center services, prevention, inspection, monitoring, to treatment in a referral hospital. The government provides information to the public about Covid-19 so that people together take care of their health and check themselves if they experience similar symptoms. In the short term, prevention and treatment protocols are a priority.
More than 100 years ago, the world had experienced a massive attack of influenza viruses that infected about 27 percent of the world’s population. This pandemic is known as the Spanish flu. Unlike the Spanish flu, Covid-19 occurs when the production chain and transportation system between countries are increasingly connected and supported by information and communication technology revolution. Now everyone can find out in real time, for example, through Johns Hopkins CSSE, the number of people infected by country, as well as the number of survivors and survivors. World War I conditions and technological levels make Spanish flu data limited and highly variable. Now the challenge lies not in the quality of the data, but the ability to choose information to avoid hoaks that can trigger unnecessary worries. Valid information about Covid-19 is provided by the World Health Organization, WHO.
Covid-19 will weaken the world economy. The Chinese economy, a large country whose economy always grows above the world growth average, is expected to grow below 6 percent. World economic growth, which has been weakening since 2019, will be weaker, from 2.9 percent to 2.4 percent (OECD, March 2). According to this report, in general countries will experience a decline in growth ranging from -0.1 percent to -1.1 percent.
Transmission of the decline in economic growth starts from the decline in imports needed for exports and slowing the flow of long-term foreign investment that affects economic growth. The decline in Indonesian exports was greatly affected by the slowdown in the Chinese economy because, apart from being the main national export destination country, China is one of the world’s largest importers for the prima donna of national exports, such as oil and gas, palm oil and natural rubber.
Never before, except during the world war, has the massive world economic pressure on the supply side. The core of the supply side is production, and the core of production is human resources. It can be imagined, when the core of the core of economic growth, namely human resources, is exposed to the threat of viruses, all economic activities, from processing raw materials, production of semi-finished and finished goods, goods transportation services, physical investment, to the mobility of people, will decrease. Artificial intelligence technology is not able to run when the real intelligence, namely humans, is facing a problem.
In terms of tourism, the closure of several world production centers and the delay in foreign investment will reduce the number of business trips and erode the profits of the transportation, hotel and restaurant businesses. In 2019, tourists from China are the biggest foreign tourists in Indonesia with 2.1 million visits or around 14 percent of the total foreign tourists entering Indonesia.
Covid-19 simultaneously reduces the flow of goods, services, and people. From an economic standpoint, what should be done first if the threat of this virus can be overcome? The answer is investment. Why? Because investment drives production activities, such as exports, imports, absorbs employment, and creates a flow of business travel.
When the world production network returns to normal, Indonesia has the potential to receive shifts in world investment, such as for textiles, clothing, footwear, jewelry, bicycles, automotive parts, and electronics. A valuable lesson from Covid-19 is that Indonesia must immediately improve its capabilities to become a large part of the world production network for intermediate goods, upstream industries such as chemicals, and machinery for downstream industries.
The role of the government is very important to encourage investment that supports the transformation of the national economy. The contribution of manufacturing value added to the national economy is expected to return above 25 percent with the export-oriented manufacturing sector able to grow higher than the national economic growth. When the manufacturing sector is able to become a driver of economic growth and a source of foreign exchange, the national economy will grow faster than the current growth rate. Ultimately, this exposure reminds us that the wheels of the Indonesian economy must continue to move forward.
Source: https://kolom.tempo.co/read/1317130/wabah-corona-dan-perputaran-roda-ekonomi/full&view=ok