Teguh Dartanto: Focus on Protecting Vulnerable Groups

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Teguh Dartanto: Focus on Protecting Vulnerable Groups

 

Hana Fajria ~ FEB UI Public Relations Officer

DEPOK – Tuesday (23/9/2020), Kompas daily published an article quoting Teguh Dartanto, Ph.D., Vice Dean, Education, Research and Student Affairs, Faculty of Economics and Business, Universitas Indonesia, entitled “Focus on Protecting Vulnerable Groups”, in its Economic Analysis column. Below is the complete article.

Indonesia is set for recession. The government should focus on protecting vulnerable groups and business players so that they can survive.

JAKARTA, KOMPAS — The government has once again revised down the economic growth projection for Q3/2020 to minus 1%-minus 2.9%. This means Indonesia is set for a recession because economic growth has remained in the negative zone for two consecutive quarters.

According to Finance Minister Sri Mulyani Indrawati, the economy cannot as yet move to the positive zone because household consumption hasn’t recovered. On the other hand, investment, export and import performance has tanked even more. The economy relies solely on government spending. Household consumption growth in Q3/2020 is projected to hover within the range of -1.5% and -3%, while investment is projected to be within the range of -6.6% and -8.5%; export is projected to be within the range of -8.7% and -13.9% and import is projected to hover at between -16% and -26.8%. Government spending is expected to post a positive growth of between 9.8% and 17%.

Economic contraction is also caused by a halt in production. An improvement in the manufacturing purchasing managers’ index (PMI) couldn’t drive the manufacturing and trade sectors to the green zone. Tourism activities remain sluggish, which drag down the transportation, accommodation and restaurant sectors.

“All these projections are influenced by the development of the Covid-19 pandemic. Global and national economic growth is mostly determined by the ability to handle the virus,” Sri Mulyani said at a press teleconference on Tuesday (22/9/2020).

Statistics Indonesia noted that after posting a 2.97% growth in Q1/2020, Indonesia’s economy came under pressure and contracted by 5.32% in Q2/2020. Indonesia will plunge into a recession if its economy posts negative growth in Q3/2020.

Sri Mulyani said that nearly all countries are projected to book negative growth in Q3/2020 although not as deep as in Q2/2020. Southeast Asia’s economies will contract quite deeply. A number of European economies even posted negative growth for three consecutive quarters.

In Indonesia, the socio-economic and financial risks are still real due to the Covid-19 pandemic. A number of major provinces, such as Jakarta, West Java, East Java and Central Java, have seen an escalation in Covid-19 infections. The rise in the number of Covid-19 infections in those major provinces will affect the national economic performance.

“The equilibrium (between economy and health) is still being sought after because Covid-19 will still be with us, it’s not going to stop anytime soon, it will remain until year-end, or even until 2021, depending on when a vaccine is found,” Sri Mulyani said.

Separately, Teguh Dartanto, an economist from the Economic and Community Research Institute at the Faculty of Economics and Business, Universitas Indonesia, said the government should focus on protecting the people and the business world so that they can survive amid uncertainties stemming from the Covid-19 pandemic.

There is no need to set a too high economic growth target. Nearly all countries have suffered from a contraction, even a recession. A positive economic growth or an improvement from the previous quarter should be sufficient. Right now, the most important thing is to protect the people and to show signs of recovery.

“Economic growth should not be the main target; it’s about how to protect the people and the business world so that they can survive amid the pandemic,” Teguh said.

Earlier, Institute for Development of Economics and Finance (Indef) senior researcher Enny Sri Hartati said the government should focus on two priority programs, namely the social aspect and the economic aspect. Budget size is not a crucial point of a program’s effectiveness; it’s clarity of the concept and the speed and accuracy of the execution that matter.

The social protection program is an intervention from the demand side, namely preventing a decline in people’s purchasing power. The target is the poor and the economically vulnerable. The economic recovery program is aimed at the micro, small and medium-sized enterprises (MSME) that contribute 99% to the national economy.

Pressure on State Budget

Economic contraction in Q3/2020 was hinted at in the state budget performance as of 31 August 2020. Tax revenue fell by 15.6% to Rp676.9 trillion. The deepest decline was recorded by income tax on imports (PPh 22), which grew -38.44%, while corporate income tax grew -27.52%.

According to Sri Mulyani, nearly all tax classes saw a contraction throughout the period January-August 2020, except personal income tax that grew by 2.46%. In addition to economic slowdown, pressure on tax revenue also came from fiscal incentives that are given as a countercyclical policy measure.

On the other hand, state expenditure increased by 10.6% to Rp1,534.7 trillion, driven by the disbursement of national economic recovery funds worth Rp254.4 trillion and fiscal transfers to regional administrations and village funds worth Rp557.4 trillion. The state budget deficit as of 31 August 2020 stood at Rp500.5 trillion or 3.05% of the gross domestic product (GDP).

Director General of Budget Financing and Risk Management Luky Alfirman said that the 2020 state budget deficit target was set at 6.34% of GDP. Deficit widening is still possible, depending on the development of the current situation. However, deficit widening will lead to higher debt and interest burden. The Finance Ministry manages state budget financing and risks. Funding should stay as low as possible through various strategies, including burden sharing with Bank Indonesia. On the other hand, debt risks are reduced through diversification of debt instruments.

Social assistance

The government is boosting the social assistance program to spur consumer demand and consumption. Social assistance disbursement is projected to surge to Rp242 trillion by year-end. As of 18 September 2020, 60.7% or Rp123.77 trillion of the national economic recovery budget for social assistance has been disbursed.

Raden Pardede, Executive Secretary I of the Covid-19 Handling and National Economic Recovery Committee, said the government is striving to massively stimulate the economy to avoid a prolonged recession. The social assistance is expected to encourage people to purchase local products to drive the economy.

Source: Kompas daily, Tuesday, 23 September 2020 edition. Economic Analysis column, Page 1, continued to Page 15.

(lem)