Where's the Demand?: Jokowi Wants Ministries, Regions to Speed Up Stimulus Spending

Jakarta. President Joko "Jokowi" Widodo has told ministers and regional leaders to speed up spending of the government's Covid-19 stimulus package, as persistently low inflation in the past few months signal a worrying deterioration in people's purchasing power. 

The government had set aside Rp 695.2 trillion ($47.4 billion) for the so-called economic recovery program (PEN) but only managed to spend 49.5 percent of the budget by last week.

The bulk of the stimulus went to social security spendings like unemployment benefits and cash transfer. Spending for ministries and regional programs lagged, with only xx percent of the budget has been used since the President's announced the stimulus package in March. 

The consequences have been dire. Indonesia's economy shrunk by 5.3 percent in the second quarter from a year earlier, its first negative growth since 1998. Household consumption, which accounts for 57 percent of the economy, shrunk by 5.5 percent.

The country's inflation rate also slow down to 1.3 percent in August, the lowest level in two decades due to weak consumer demand,  before bumped up a bit to 1.42 percent in September. 

Bank Indonesia Governor Perry Warjiyo said the central bank now expects inflation to be below 2 percent this year, in line with weak demand, muted inflation expectations, stable exchange rate, and availability of harvests in many production centers low global food commodity prices.

Still, weak consumer demands remain, and the government's spending has not been quick enough to counter the downturn.

"I want the ministries and local governments to speed up their spending," Jokowi told his ministers in a meeting on Thursday. 

"Realize social assistance and capital expenditures that support economic recovery, especially the micro, small- and medium-sized enterprises," the president said. 

Finance Minister Sri Mulyani Indrawati said regional government spending was still minimal due to "non-budget problems" like bureaucracy capacity or regional regulations.

For example, the region only managed to spend only half of Rp 22.8 trillion of social safety nets that they need to spend so far. Reports from the regions showed that many districts or provincial governments do not have a verified database of all eligible people for cash transfers.

"The central government sees that the allocation, distribution, and absorption of PEN programs at the regional level still need to be improved," Sri Mulyani said.