An artisan makes ornamental dowry from colored papers in Malang, East Java, on Saturday. (Antara Photo/Ari Bowo Sucipto)

Gov't Plots Rebound After Covid-19 Sends Indonesia Into First Recession in 22 Years


FEBRUARY 06, 2021

Jakarta. The government is confident Indonesia's economy would return to an expansion mode in the first quarter this year, banking on the government spending increase, manufacturing growth, and exports, after a persistent rise of the Covid-19 cases prevent the country from escaping its first recession in 22 years last year. 

The Central Statistics Agency (BPS) announced on Friday that Indonesia's economy shrunk by 2.07 percent in 2020, compared to a 5 percent expansion in 2019. The largest economy in Southeast Asia declined by 2.2 percent in the fourth quarter from the same quarter a year earlier.


That was the third straight quarter Indonesia's economy stayed in the negative territory, placing it in a first recession since the 1998 Asian Financial Crisis.

Still, the 2020's slump was not as severe as many predicted. For example, the World Bank expected Indonesia's economy to drop by 2.8 percent in its flagship report "Global Economic Prospects" last month.  

That, coupled with a narrowing contraction in manufacturing and consumer spending, has lent confidence to the government that Indonesia's economy would recover in the first quarter of this year. 

"The government targets an economic growth of between 4.5 percent to 5.5 percent this year," Coordinating Minister of Economic Affairs Airlangga Hartarto said on Friday. 

"Of course, we hope that there will be a positive growth in the first quarter, of between 1.6 percent to 2.1 percent," Airlangga said. 

The government hoped household consumption, which accounts for 55 percent of the economy, would recover soon, as well exports fueled by demand from China, the only world's economy that managed to expand amid the pandemic. 

Household consumption decline narrowed to 3.6 percent year on year, compared to a 5.5 percent slump in the second and 4 percent drop in the third quarter. Export has also recovered slightly, posting a 7.7 percent drop compared to 11.7 percent decline in the third quarter. 

This year, the government set aside close to Rp 149 trillion for social safety net programs, including cash transfer for the poor to prop up the consumer's demand, up from Rp 125 trillion last year, Airlangga said. 

The government would also revamp its Covid-19 program to better track, trace, and isolate cases to reign in the pandemic.

The country only managed to traceless than 2 close contacts for each positive Covid-19 cases eleven months into the pandemic. President Joko "Jokowi" Widodo has issued a new direction to Covid-19 Task Force, which Airlangga headed to track at least 30 close contacts for each positive case. 

"We will deploy [more personnel] from the task force in the central and regional government as well as [the military]," to help in the tracing program, Airlangga said. 

Airlangga also pointed to the fact that the manufacturing sector was back to expansion mode. BPS's data showed that manufacturing only shrunk by 3.14 percent in the fourth quarter last year from the same period a year earlier, compared to a 6.2 percent contraction in the second quarter and a 4.3 percent decline in the third. 

IHS Markit's purchasing manager index (PMI) for Indonesia was back above 50 in the past three months, two months this year, signaling that the sector was growing.  

He believed Jokowi's landmark 2020 Law on Job Creation, also known as the omnibus law, would clear many of the red tapes holding back the country's industry. Last week Airlangga had submitted 38 out of 49 regulations to make the law operable to Jokowi to sign. 

"Job creation law is a game-changer for investment in the medium and long term and to encourage [micro-, small- and medium enterprises] to embark on new projects and create more jobs," Airlangga said. 


Eric Alexander Sugandi, an economist at the Institute of Strategic Studies at Kebangsaan University, also agreed that Indonesia was likely to grow year on the back of household demand and investment, which declined 4.95 percent last year. 

Kamrussamad, a lawmaker from the Great Indonesia Movement Party (Gerindra) who served at the House of Representatives' Commission XI, which oversees economy and finance, said Indonesia's economic recovery rests entirely on how the country controls Covid-19.

As long as Indonesians still neglected the health protocol, the virus would continue spreading. The government might have to pull the break and impose a lockdown, which could stutter the recovery, Kamrussamad said. 

"The first quarter would still be negative, as well as the second if the government decided to tighten the [restrictions]," he said. 

Indonesia has accumulated the largest number of Covid-19 cases and deaths in Southeast Asia, with more than 1.13 million Covid-19 cases and 31,202 deaths in total. The number of cases has declined in the past week but has yet to reach the halfway point of its peak, one of the epidemiological criteria to say that the pandemic is under control.