Sense of crisis

08-Aug-2020 Intellasia | JakartaPost | 6:50 AM Print This Post

It comes as no surprise that Indonesia’s economy contracted in the second quarter of this year, although at minus 5.32 percent the rate is deeper than the government and economists had estimated and the weakest since the aftermath of the 1998 financial crisis.

Countries around the world from the United States and European countries to China and others in Asia are also seeing negative growth in gross domestic product (GDP). The International Monetary Fund (IMF) expects the global economy to contract 4.9 percent this year.

It is very disappointing, however, to see little contribution from government spending to at least soften the hard blow from the pandemic to the nation’s economy. government spending may be the only part of the economy we can expect to contribute during this tough time.

The government has increased state spending by 7.9 percent to Rp 2.74 quadrillion (US$188 billion), including Rp 695.2 trillion to contain COVID-19, from Rp 2.54 quadrillion in the original 2020 state budget.

However, midway through the year, only 39 percent of the overall budget has been disbursed. Five months into the global pandemic, and four months until the end of the year, only a fifth of this year’s COVID-19 response budget has been disbursed as of August 5.

Alas, government spending contracted 6.9 percent in the second quarter, a deeper contraction than consumer spending, which saw 5.51 percent negative growth.

The numbers are discouraging, especially considering the government’s quick responses and solutions in budgeting and financing to contain the pandemic, focusing on boosting the healthcare system, providing a social safety net and rescuing local businesses.

The government adjusted the budget for the COVID-19 response multiple times to account for the latest updates in the nation’s economy and healthcare system. The finance ministry and Bank Indonesia went as far as introducing the burden-sharing scheme, in which the central bank can directly buy government bonds in private placement to fund the nation’s COVID-19 response by relinquishing interest rate payment.

These solutions can only go as far as ministries and government agencies are able to catch up. They need to step up their game in disbursing the allocated state budget that can improve the nation’s healthcare system, social protection and business rescue programmes. We can afford so much more. The state budget deficit at 1.57 percent of GDP as of June is still far from the 6.34 percent target this year.

No wonder President Joko “Jokowi” Widodo was outraged in a Cabinet meeting earlier in June as he threatened to reshuffle his ministers who fail to take the COVID-19 crisis seriously. Then, he mentioned the Rp 75 trillion health budget, of which only 1.5 percent had been disbursed.

It’s as if there’s no sense of crisis evenly distributed among Cabinet members. The government needs to speed up budget disbursement, ensure quality and accountability of spending, focus on strengthening the healthcare system and support the people’s purchasing power if it is to mitigate the impacts of the pandemic.

The quicker we flatten the COVID-19 infection curve, the speedier economic recovery will take place.


Category: Indonesia

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