Edy Priyono: Signal of Economic Recovery
Nino Eka Putra ~ PR of FEB UI
DEPOK – (28/8/2020) Lecturer at the Faculty of Economics and Business, Universitas Indonesia and Head Expert at the Presidential Staff Office, Dr. Ir. Edy Priyono, M.E., released his article published by Kompas Daily, Opinion rubric, page 6, entitled “Signals of Economic Recovery”, Friday (28/8/2020). Here’s the article.
“Signals of Economic Recovery”
The Central Statistics Agency (BPS) recently announced that Indonesia’s economic growth in the second quarter of 2020 was minus 5.32 percent (year on year / yoy). This figure is certainly worse than the previous quarter, which was still a positive 2.97 percent, and worse than many predictions.
While not good news, it really shouldn’t come as a surprise. Various parties (government, observers, international institutions) have predicted that the second quarter will be the toughest conditions for the economy.
The government has not failed to anticipate this condition. The National Economic Recovery Program (PEN) has been prepared since early May through Government Regulation No. 23/2020 and involves a budget of around IDR 695 trillion. For the economic sector, the essence of the PEN program is to encourage both the demand and the supply sides (production) as a unit.
On the demand side, public purchasing power is encouraged through various social protection programs, both in the form of social assistance and various reliefs such as discounts on electricity payments. On the supply side, the government provides various incentives for MSMEs and corporations so that the business world will rebound again through capital assistance, placement of government funds (to encourage credit), interest subsidies, tax breaks, credit guarantees and other incentives .
The poor growth in the second quarter does not mean there is no hope for the economy to revive. Various indications towards economic recovery have even begun to appear since June 2020.
Even though it is still pessimistic (less than 100), the Consumer Confidence Index has improved. The IKK in May was 77.8. This figure rose to 83.8 in June and rose again to 86.2 in the following month. This shows that consumers are starting to become more positive.
The Purchasing Managers Index (PMI) also increased, from 28.62 in May to 39.07 in June, and again in July to 46.9. Although the value is still less than 50 (indicating a contraction), this increase is an indication that it is leading to a recovery in demand for manufactured products.
Indications of improving demand can also be seen from motorcycle sales, which are often seen as an indicator of consumption for the middle class. In May, sales of motorcycles hit a low of 3,551 units, but then increased significantly to 12,623 in June. Even though it is still far below the sales figure before the Covid-19 pandemic, this picture fosters optimism.
Overall, retail sales have improved. The retail sales index in June 2020 was minus 14.41 percent (year on year). This means that compared to conditions in the same month in 2019, retail sales decreased (contracted) by around 14 percent. The contraction rate was lower than the contraction that occurred in May 2020, which was 20.61 percent.
Indonesia’s trade balance continues to improve. Non-oil and gas exports in June 2020 reached 11.45 billion US dollars, higher than the figure for June 2019 (11.05 billion US dollars). Imports (which were dominated by raw and auxiliary materials for domestic industrial needs) in June 2020 were still much lower than the conditions before Covid-19, but had improved compared to the previous month. This shows that the domestic industry is starting to revive itself.
In addition, the financial sector has also shown improvements in general. The Jakarta Composite Index (JCI) continued to improve to 5,150 in early August, yields on Government Securities (SBN) decreased to 6.83 percent at the same time, while the rupiah exchange rate was stable.
The various indicators above are signals for recovery in economic activity, with several notes. The notes referred to include: still weak public purchasing power (especially for the middle to lower class), as well as cement consumption that has not improved (indicating that construction activities have not progressed well).
Regardless of the detected signal towards economic recovery, at least two things are important for the attention of all parties. First, the term “economic recovery” needs to be put in the context of a new normal. The Covid-19 pandemic has triggered an acceleration of change in various aspects.
Some of them are even structural in the sense that they are difficult or even unable to return to their pre-Covid-19 conditions. Therefore, expectations about economic recovery must also be pinned proportionately. Realistically, the Coordinating Minister for the Economy once said that the Indonesian economy might only truly recover in 2022.
Second, the process of economic recovery is very dependent on controlling the spread of Covid-19. If Covid-19 is controlled effectively, economic recovery will proceed faster. On the other hand, if the spread of Covid-19 cannot be controlled, especially if it worsens, the economic recovery will be slower and longer.
That is the background of the government’s decision to form the Committee for Handling Covid-19 and Economic Recovery, which is essentially an integration between controlling the spread of Covid-19 with efforts to restore the national economy. The analogy for the move is to put the brakes and gas in one vehicle. Thus this “vehicle” for economic recovery can be expected to accelerate accordingly.
Another thing that should not be forgotten are the demands for change that must be met by the government, society and the business world if the economy is to rebound quickly. The government needs to increase the effectiveness of its programs and budgets. The corona control program must be truly effective and supported by scientific (technocratic) considerations.
From the expenditure side, the government budget must truly be able to play a “counter-cyclical” role: stimulating growth at a time when the private sector and households are experiencing a slump. Coordination between ministries / agencies, between central and regional levels and between government and non-government agencies needs to be continuously improved.
Meanwhile, the community is expected to really understand and undergo the adaptation of new habits in the new normal era. Adherence to health protocols will greatly affect the success of efforts to control Covid-19 and in turn will greatly determine the speed of economic recovery.
The business world also needs to adjust. Running a business in the new normal era is clearly different from what it was in normal times (before Covid-19). Just for example, the limited mobility of society causes the seller to be closer to the customer rather than waiting for them to come to the sales location. The demand for health protocols in business locations is also a challenge in itself, because it has implications for changes in work systems and operational costs.
In other words, integration and synergy need not only be done internally within the government, but also in relation to other institutions outside the government. All parties must have the same “awareness ” and take a unified step towards controlling Covid-19 and economic recovery. (hjtp)