Despite being hit hard by Covid-19, Indonesia is keen to show the world that it remains firm in its commitment to structural reforms that will address fundamental issues triggered by the pandemic, improve confidence and the ease of doing business.
Sri Mulyani Indrawati, Finance Minister of Indonesia Photo: Kemenkeu Foto/Biro KLI
"This is what we want in 2021," Finance Minister Sri Mulyani Indrawati said at a forum last week.
Following negative growth of 5.3% year-on-year in the second quarter -- the first contraction in gross domestic product (GDP) since the first quarter of 1999 amid the fallout of the 1998 Asian financial crisis -- some indicators suggest GDP is still in the red but not as deeply as before, she said.
The government is expecting slightly better conditions next year and has set a target for economic growth to rebound to close to zero by the end of this year, the minister said during a webinar, "Reimagining the Future of Indonesia's Economy", organised by The Jakarta Post newspaper.
The continued recovery will also depend on whether the coronavirus outbreak can be contained in Jakarta and elsewhere on the main island of Java, where the three provinces with the most cases are are located.
A return of widespread infections that could trigger new curbs on social and economic activity would be a major risk to economic revival in the country of 265 million.
Indonesia had reported 147,211 confirmed Covid-19 cases as of Aug 20, with 6,418 deaths and 100,674 recoveries from all provinces. In Jakarta, Governor Anies Baswedan extended a transitional phase of large-scale social restrictions until Aug 27, amid warnings from hospitals that bed occupancy rates had increased to 70% in intensive-care units and 66% in isolation wards.
But Indonesia's low testing capacity is a real cause for concern that in reality, the outbreak is much more widespread than the figures officially reported. Of all 34 provinces, only Jakarta mets the World Health Organization benchmark for testing, which is one suspected case tested per 1,000 population per week.
In its latest country situation report issued on Aug 20, the WHO said its assessment of epidemiological criteria for six provinces in Java from July 27 to Aug 16 showed that none had shown a decline of at least 50% for three weeks since the latest peak. Most provinces in Java experienced an increase in confirmed Covid-19 cases in the last week.
Still, the finance minister said there were signs of hope for continued recovery in August and September.
"Recovery does not mean a jump from minus 5% to 5%, it means we are closing in near zero, because catching up with last year's level is a struggle in this outbreak," she pointed out.
Akhmad Akbar Susamto, economist, Center of Reform on Economics (Core Indonesia) SUPPLIED
REFORM MOMENTUM
The pandemic also provides momentum to reform the sectors that matter most to citizens: health, education and the social safety net. This was reflected in the 2021 budget that President Joko Widodo introduced in a speech before the parliament on Aug 14, in which the government set its economic growth target for 2021 at 4.5% to 5.5%.
Infrastructure, which has been the main focus of the president since his first term in office, gets the largest allocation with 414 trillion rupiah (US$28.1 billion). Mr Widodo said the focus would be on developing infrastructure to support economic recovery, provision of basic services and improve connectivity.
Ms Indrawati said that the "very pressing short-term challenge" such as the pandemic could trigger more institutional and structural reforms to pave the way for a better legal framework, improved law enforcement, and a clean and efficient bureaucracy. These, she said, would be fundamentally important for Indonesia in the medium and long term and could pave a better future for all citizens in a more equitable way.
"Next year, a technical rebound hopefully will be possible under conditions that some reforms will provide confidence," she said.
"We do hope that the omnibus law can be passed so that it creates the reputation that even during this Covid-19 crisis, Indonesia is still carrying out very serious and hard reforms," the former managing director of the World Bank said, referring to a controversial, business-backed bill on job creation.
Workers and civil society groups are strongly opposed to the bill, saying it contains some provisions that have the potential to violate workers' rights. The government expects lawmakers to pass the bill into law by the end of the year.
The human rights group Amnesty International (AI) Indonesia last Wednesday urged the government and lawmakers to scrap the problematic articles in the bill, which amends 79 laws, including three existing laws related to labour and employment: the Manpower Law, the Social Security Law and the National Social Security Agency Law deemed as obstacles to investment. They are being reorganised into 11 clusters comprising 1,244 articles.
The declaration by Amnesty International is the latest in a string of objections raised by workers' unions and civil society groups since the bill was introduced last year.
"The bill in its current form has the potential to violate human rights and have a regressive effect on Indonesia's international human rights obligations, namely on the right to work and rights at work," said Usman Hamid, executive director of Amnesty International Indonesia.
The contentious articles in the bill include one that would no longer take into account the inflation rate to set the minimum wage. City or district-level minimum wages, regardless of differences in cost of living in each areas, could also be scraped.
As well, the bill would enable employers to keep workers on temporary contracts indefinitely and exempt employers from their obligation to place workers on permanent contracts. It would also eliminate certain forms of paid leave in addition to the statutory 12 days of annual leave, such as personal leave for marriage, circumcision, baptism, or death in the family, parental leave, and the two-day menstruation leave -- Indonesia is one of the few countries to allow the latter to female workers.
Economic analysts, meanwhile, believe the government is being overly optimistic with its targets and expectations that the situation would soon get better next year.
"The target could be achievable if we were fortunate to contain the pandemic, such as by having a vaccine soon," Akhmad Akbar Susamto, an economist at the Jakarta-based Center of Reform on Economics (Core Indonesia) told Asia Focus.
"Even with a moderate estimation, the growth target of 4.5% to 5.5% is still too high. I think the government has to prepare a scenario for lower economic growth."
PANDEMIC HANDLING
Mr Susamto acknowledged that the main challenge would be to prevent the coronavirus outbreak from worsening. Otherwise, the government is merely giving an impression of recovery when a real crisis is looming.
The next challenge, he said, would be to consistently communicate the policy that the government has chosen: to reopen the economy despite the outbreak and for the public to adapt to new habits of complying with health protocols.
Ms Indrawati agreed, saying that the outbreak remains a health threat for the people and that the government is taking serious steps to mitigate. These include allocating more financial resources of 695.2 trillion rupiah ($46.7 billion) for healthcare and economic recovery, in addition to the regular budget allocation for the health sector that accounts for 6.2% or 169.7 trillion rupiah in the total budget.
Other efforts that show the government's focus on its multi-dimensional approach to mitigate the pandemic include involving non-traditional players in the health sector such as the police and the military, she said. As well, authorities are educating people to always wear face masks, as well as comply with social distancing rules in order to be able to resume social and economic activities without compromising their health.
Didik J Rachbini, a senior economist at the Institute for Development of Economics and Finance (Indef), said during a recent online discussion that the 2021 economic growth target is unrealistic given the lingering outbreak and low government spending, which was expected to be the main driver of recovery.
"We are still feeling the pinch of the government's slow response at the beginning of the outbreak and the result of easing the restrictions too soon, when cases of infection were still very high," Mr Rachbini said.
Unlike many countries, the Indonesian government did not choose to have a full lockdown to stem the spread of the virus, and instead opted for a partial lockdown, which it called large-scale social restrictions. The decision to impose the restrictions was left to regional leaders to make, depending on the severity of infection in their respective regions.
Jakarta and its satellite cities, where the outbreak was initially confirmed, were the first to impose restrictions back in April, following approval from the health ministry.
There were also missed opportunities due to the initial mishandling of the pandemic, as other countries have managed to lower the cases and recharge their economies, said Eko Listiyanto, the Indef executive director.
Indonesia has not succeeded on either front yet, with the economy slumping and the virus more widespread, he said.
Mr Susamto of Core Indonesia described the steps the government has taken to respond to the pandemic and to reopen the economy by adopting new habits and complying with health protocols as "grey" and "slippery".
"Recovering the economy would be pointless without recovering from this Covid-19 health crisis," he said. "It would work if it was the other way around. Even if we must do both simultaneously, the health recovery should remain the priority."
But officials defended the central government's decision not to resort to a full lockdown, saying that the large-scale social restrictions had allowed some economic activities to remain afloat.
Luhut Binsar Pandjaitan, the Coordinating Minister for Maritime Affairs and Investment, said the results are evident, with the contraction of growth comparatively less severe when compared to other countries that imposed lockdowns.
State-Owned Enterprise Minister Erick Thohir, who also chairs the national committee for economic recovery acceleration and outbreak mitigation, pointed out that the number of those who died because of the coronavirus is lower than in other countries, based on the total number of the population.
"No one can claim they are better than others (at handling the pandemic). We believe in Indonesia that we can go our own way," Mr Pandjaitan said.