An Indonesian Red Cross officer disinfects Sarinah department store in Central Jakarta in April. (JG Photo/Yudha Baskoro)

Greater Jakarta Faces 15.2% Output Loss From Pandemic: Economist

BY :TARA MARCHELIN

MAY 20, 2020

Jakarta. The damage to economic income and output stemming from the coronavirus pandemic in the capital Jakarta has mostly been caused by a sudden halt to activities in the micro, small and medium enterprise sector, or MSME.

Bank Mandiri economist Andry Asmoro estimated the output loss in the Greater Jakarta area could reach up to 15.2 percent of its gross regional domestic product.

"We've done a simulation assuming three months of very little activities in the MSME sector. In Bogor, Depok, Tangerang and Bekasi, the output loss could be up to 15.2 percent. In Jakarta, the number is likely to be around 3.41 percent," Andry said on Wednesday.

In terms of income, Andry said Jakarta could lose up to 1.09 percent of its GDP, while its satellite cities could lose up to 4.75 percent.

The capital's large-scale social restriction (PSBB), which includes a work from home policy, is a huge factor in the income and output losses since it stops people from coming to work. 

The worst affected have been MSMEs that are unable to move their operations online. 

"Potential economic losses for MSMEs in Jakarta are much lower than in the surrounding areas because Jakarta's economy is largely made up of medium and large companies," Andry said in an online discussion.

Andry said the economic slowdown will also increase the unemployment rate. 

"People can't depend on their salary anymore. They will have to earn some income from their assets or businesses," he said.

Meanwhile, the Finance Ministry has also issued its worst-case scenario unemployment projection.

"Unemployment might increase by more than 5 million this year and people living in poverty by more than 4 million," Maysita Cristallin, a special advisor to the Finance Minister, said.

Different to 1998 and 2008

Maysita said the Covid-19 pandemic has affected MSMEs differently compared to the Asian financial crisis in 1998 and the global financial crisis in 2008.

In the two past crises, the informal sector and the MSMEs were able to function as a shock absorber for the local economy.

"Those crises started off in the financial sector. Businesses that were immediately affected were linked to that sector. The informal sector and MSMEs are not linked directly to the financial sector," Maysita said.

Meanwhile, the current crisis, especially the physical distancing policy issued to try to contain the pandemic, had hit the informal sector and MSMEs first and hard. 

However, according to Andry, the economic impact from the pandemic could also spread to the corporate segment.

"So far, the pandemic has slowed cash flow in the MSME and informal sectors to a trickle. But this could spread to the corporate segment and further down the value chain," Andry said.

Locked Chain

Yongky Susilo, a member of the Indonesian Shopping Center Tenants Association (Hippindo) board, said the pandemic has created a "locked chain" between MSMEs, malls and retailers.

"Malls can't open because retailers don't want to open. They're worried about their cash flow [due to few visitors]. Meanwhile, these retailers still have to pay their rental fees, service charges and taxes. Malls can't give free rent because they also have to pay taxes to the regional government and pay off loans. This has resulted in MSMEs and manufacturers supplying the retailers getting locked out of this value chain," he said.

According to Hippindo data, lifestyle retail sales have dropped to 40 percent–95 percent between March and April.

Yongky said to save malls and the trade industry in general the government – especially the provincial government – could begin by eliminating taxes.

"Scrapping building tax, parking tax and advertising tax until December 2020 will help malls to survive. It will also help retailers and MSMEs," he said.

Yongky also said the government should focus on maintaining the purchasing power of middle- and lower-income families rather than helping out those in the upper income bracket.

He said consumption among middle- and lower-income families has not been helped by the government's direct cash aid (BLT) since it has been ineffectively distributed. 

Yongky said consumer behavior would return to normal only after the pandemic is over. 

"I'm sure consumer behavior will eventually return to normal. The rush for online shopping is temporary. People will come back to visiting brick and mortar stores once they are able to do so," he said.

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