People resumes their activities in Petamburan market in Jakarta last week. (Antara Photo/Aditya Pradana Putra)

Slow Spending of Covid-19 Stimulus Condemns Indonesia to Worst Contraction in Two Decades


AUGUST 05, 2020

Jakarta. Indonesia's economy has shrunk by 5.3 percent in the second quarter this year, worse than many predictions, as government's sluggishness in stimulus spending did all but exacerbated the drawbacks Covid-19 pandemic had brought onto consumers demand and investments.

That was the first time Indonesia experienced a contraction on its gross domestic product since the aftermath of the Asian Financial Crisis in 1999. 

The government projected a 4.3 percent contraction for the second quarter, while Danareksa Research Institute expected a far milder decrease of 3.58 percent. The reality, however, was much worse. 

"In the first quarter of 2020, our economic growth had slowed down to 2.97 percent. Due to the terrible impact of the Covid-19 pandemic, Indonesia's economy contracted by 5.32 percent in the second quarter," Suhariyanto, the head of the Central Statistics Agency (BPS), said on the official announcement on Wednesday. 

Household consumption, the mainstay of the Indonesian economy, shrunk by 5.5 percent in the three months, compared to the same period last year, while spending on investments dropped by 8.6 percent, the BPS data showed. 

The government spending dropped by 6.9 percent, despite having earmarked Rp 695 trillion ($47.8 trillion) in fiscal stimulus to prop up the economy. 

President Joko "Jokowi" Widodo has slammed his ministers several times for being slow in disbursing the stimulus spending. So far, the government only spends a low 20 percent or Rp 141 trillion out of the total stimulus.

On the supply side, the transportation and warehousing sector suffered the most drawbacks in the second quarter, contracting 31 percent. 

Hotel and restaurant dropped by 22 percent while the manufacturing sector, which accounts for about a fifth of the Indonesia economy, also shrunk by 6.2 percent.

On the bright side, the agricultural sector managed to grow by 2.19 percent, as well as real estate (2.3 percent) and financial services (1 percent). 

The information and technology sector grew the fastest in the period, expanding by 10.9 percent from the same quarter last year, Suhariyanto said. 

"The increase in internet usage data traffic during Covid-19 and the increase in internet subscribers and interactive pay-TV put the sectors among those that are still growing," he said.

All regions in Indonesia saw their economy contracted in the period except Papua. 

Papua and West Papua can still grow positively because, in the same period in 2019, economic growth contracted 23.91 percent. West Papua, in the second quarter of 2019, also contracted 0.49 percent. 

"In the second quarter of 2020, there was an increase in copper and gold ore production so that economic growth in Papua grew 4.5 percent," Suhariyanto said.

Java remained the epicenter of the Indonesian economy, accounting for 58.6 percent of the country's total output.