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The Cost of Reimposing Large-Scale Social Restrictions for Indonesia’s Economy 

NEWS | 16 September 2020
The controversy of reimposing the large-scale social restrictions creates a dilemma to save Indonesia’s economy from shrinking further as the country expects a recovery in the last quarter of 2020. Unsplash/NOW!JAKARTA

The failure to control the pandemic during the transitional period has cost the Indonesian economy a lot. The emerging country is under the threat of recession if this reimplementation of large-scale social restrictions (PSBB Jilid II), with all of the limited supervisions, does not create a serious impact on management of the pandemic.  This time, there must be a lesson to be learned.

Finance Minister Sri Mulyani said during a virtual briefing on Tuesday (15/9) that Indonesia’s gross domestic product (GDP) is expected to contract with a deeper plunge than projected in the third quarter as Jakarta, the country's capital of business, reimposes large-scale social restrictions.

Based on the analysis from the last two quarters, the Indonesian economy might be resuming its flat growth at best or a contraction of 2,1 per cent in July-September. According to Minister Mulyani, the partial lockdown in Jakarta is likely to drag down GDP to the lower end of the prediction. 

Indonesia’s economy shrank by 5,32 per cent in the second quarter and is widely to plunge further in the third quarter which would mark the first recession since the 1998 financial crisis. As the archipelago nation is likely saved from the recession as it was predicted in August, the large-scale social restriction in September is implemented with definitive determination to keep some business sectors open to avoid the economic crisis shrinking to its worst possible scenario.

The data from Statistics Indonesia (PPS) shows that Jakata contributed the most to the national economy compared to other regions with GDP value up to 17,17 per cent of the country’s Gross Domestic Product in the second quarter followed by East Java (14,6 per cent) and West Java (13,45 per cent). On the other hand, these three regions were hit the hardest on the economy as Java, the current epicenter of the pandemic in Indonesia, is still under strong supervision.

“The economic impact will not be as bad. This will be very different compared to march and April when people’s activity [complete;y] stopped,” Mulyani said.

Mulyani stated that the government will secure the national economy from falling by monitoring social mobility data to assess the country’s GDP performance in the third quarter. “The economy may return to grow by 0,4 per cent to 3,1 per cent at best in the fourth quarter but it will depend on the success of managing the coronavirus pandemic,” Mulyani stated.

An economist from the Institute of Development of Economic and Finance (INDEF) Bhima Yudhistira said that the tighter restriction in offices, as well as shopping centres, will contract the national consumption even further with rules only allowing a 25 per cent of its full capacity while crowds in malls must be kept at 50 per cent.

Yudistira added that the success of the reimposing large-scale social restriction will determine the recovery of the economy in the fourth quarter as there are few opportunities to re-energise the economic activity during the festive season on Christmas and New Year.

“The most important thing is that the PSBB is fully reimposed. We can recover the economy and home back to growth by using those moments in the year-end with the condition that the social restriction this time is successful,” Yudistira said. 

To maintain economic activity, the city government allows 11 business sectors to continue operating with some conditions including enforcing the stricter health protocols and following the tighter restriction. As the trend of the disease transmission has risen at some offices in Jakarta, the cooperation among business players are also needed if the country still want economic activity to continue.

Previously, the Indonesian government also committed to launching a financial stimulus for many Indonesian employees below a certain grade to bolster some purchasing power among Indonesian citizens, thus supporting the communities who face everyday challenges during the Covid-19 pandemic. Starting to run in September, the programme will initiate the distribution for a monthly payment of IDR 600,000 over a period of four months for the eligible recipient who earns less than IDR 5 million in the monthly salary. 

Using the data from BPJS Ketenagakerjaan or Social Security Administrator for Workforce, the fund will be transferred directly to the employee’s bank accounts every two months.  State-Owned Enterprise (SOEs) Minister Erick Thohir said that the fund is crucial to create purchasing power and reinvigorate consumer spending to kickstart the recovery of the national economy amid the ongoing pandemic.