T

he government'€™s economic policy package to be released this week should focus on prompt solutions to boost sluggish purchasing power, economists and industry groups have said.

Institute for Development of Economics and Finance (INDEF) executive director Enny Sri Hartati said that restoring purchasing power would aid domestic demand, which constituted 55 percent of the country'€™s economy but had not been sufficiently addressed in the first and second economic packages released in September. The September packages focused primarily on boosting investment and cutting red tape.

'€œIf there is no increase in purchasing power, then there will not be an increase in investment and production,'€ she told The Jakarta Post on Saturday. '€œThe intervention should be immediate because purchasing power has been dropping very fast.'€

Central Statistics Agency (BPS) data showed that consumer spending grew 4.99 percent by the end of the first half of the year, the lowest figure since 2011, while economic growth slowed to a six-year low of 4.7 percent.

Enny also said that the deflation figure released recently had also shown alarming signs of weakening purchasing power, as the consumer price index (CPI) deflated by 0.05 percent month-on-month in September, triggered by a decline in food prices and other sectors such as transportation and communications.

'€œThe decrease in food prices could mean either that there is decreasing demand or an improvement in supply. But with the current prolonged drought, it is not rational to attribute it to productivity,'€ Enny said.

According to Enny, the government could boost purchasing power by stabilizing food prices and lowering oil prices, as was proposed by President Joko '€œJokowi'€ Widodo last week.

'€œSo, people can save on transportation and buy other things, even though the lower oil price does not necessarily mean that other prices will also go down,'€ she said.

INDEF economist Imaduddin Abdullah said that the government also needed to take short term actions to quickly boost purchasing power.

'€œThey could intensify various cash transfers. Even though it is more short term, they immediately need additional income,'€ Imaduddin said.

Direct cash transfers (BLT) were implemented in previous administrations to aid the poor in times of need. In 2008, after skyrocketing global oil prices caused a significant hike in fuel prices, the government earmarked Rp 41.1 trillion (US$2.78 billion) for distribution to the poor, during which 19.1 million families received monthly cash assistance payments of Rp 100,000 plus cooking oil and sugar handouts from June 2008 to February 2009.

'€œIn conditions of economic slowdowns such as the one at present, where we cannot expect much from a global economy still racked with uncertainty, quick action is required,'€ wrote Destry Damayanti, chief economist and executive director of Bank Mandiri'€™s Mandiri Institute.

Destry also said that direct cash transfers or developing rural facilities and infrastructure would benefit low-income communities with high ratios of consumption to income levels.

'€œThis means that however much money they receive will be spent, as their needs are of a primary nature. In this way, additional demand would be generated, which, in turn, would bolster domestic production,'€ argued Destry.

The government attempted to boost consumer spending in the first policy package by providing incentives to low-income people such as accelerating village fund disbursement through cash-for-work programs, as well as providing more rice to the poor and providing fuel converter kits for fishermen.

Meanwhile, the second economic policy package focused more on simplifying licensing procedures and providing a speedier process for business permit issuance, as well as encouraging exporters to park their funds in domestic banks.

The Indonesian Young Entrepreneurs Association (HIPMI) also said it hoped that the third batch of economic policy would address the demand-side of the economy by increasing purchasing power and employment, such as speeding up labor intensive projects in a number of regions. (fsu)
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