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Jakarta Post

World Bank calls for safety net, drastic action in Indonesia’s fight to contain COVID-19

  • Adrian Wail Akhlas

    The Jakarta Post

Jakarta   /   Tue, March 31, 2020   /   06:19 pm
World Bank calls for safety net, drastic action in Indonesia’s fight to contain COVID-19 The Bintaro Jaya Xchange shopping center in South Tangerang, Banten, looks empty on March 28. Numerous malls have closed temporarily or reduce opening hours to contain the spread of COVID-19. (Antara/Puspa Perwitasari/)

The World Bank has called on the government to prioritize financial incentives for households and businesses to soften their economic pain as COVID-19 requires drastic action that includes strict physical distancing and travel restrictions.

World Bank East Asia Pacific chief economist Aaditya Mattoo said Tuesday that the effectiveness of stricter measures would depend on the level of preparedness in the country, adding that measures like lockdowns would have a harsh economic impact for the public.

“Lockdowns will inflict significant economic pain on those least able to take care of themselves,” Mattoo told a teleconferenced media briefing on Tuesday. “The [government’s] priority has to be to find a way to soften the pain both for households and informal workers.”

President Jokowi has ordered his Cabinet to impose stricter rules on physical distancing coupled with "civil emergency policies" to contain the worsening COVID-19 outbreak.

“I ask that large-scale social restrictions and physical distancing policies be enforced more strictly and more effectively, which is why I said they should be coupled with civil emergency policies," Jokowi said in his introductory statement to a limited Cabinet meeting on Monday.

Mattoo said the pandemic required drastic action, such as strong social distancing and travel restrictions, adding that the government had to provide compensation for informal-sector workers, such as by devising new sick pay arrangements.

“It serves a double benefit: They soften the pain while they also encourage workers to stay at home,” he added.

The government, he went on to say, must try and think of credit liquidity transfers to firms and exempting them from tax payments. “If the firms go bankrupt, this can be durably destructive.”

“These are the complementary economic measures, that in the short run, when people can neither work nor consume as freely as they would have, are absolutely essential to minimize the economic pain and prevent short-term economic shocks,” Mattoo added.

Only one out of five Indonesians is economically secure, according to the World Bank report Aspiring Indonesia. Around 24.8 million Indonesians live on under US$1 a day—9.22 percent of the population— and over 60 million are vulnerable to dropping into poverty.

The pneumonia-like disease has infected more than 1,500 people and killed 136 in the country as of Tuesday afternoon, a day after the government imposed stricter regulations on physical distancing, coupled with the so-called civil emergency.

The financial shock of the pandemic is also expected to have a serious impact on poverty, defined as a situation where an individual earns less than $5.5 a day, the Bank said.

More than 11 million people could fall into poverty in East Asian-Pacific countries, the bank estimates. That is in stark contrast to its earlier forecast that growth would be sufficient to lift 35 million people out of poverty this year.

Millions of Indonesians, including those from poor families and informal-sector workers, lacked economic security, World Bank lead economist for Indonesia Frederico Gil Sander warned, adding that the situation would expose them to shocks caused by the outbreak.

So far, the government has prepared Rp 158.2 trillion (US$9.77 billion) worth of measures to finance the healthcare sector as well as safeguard individuals, workers and businesses affected by the pandemic. This includes Rp 4.6 trillion in cash aid for staple goods for 15.2 million families.

The government is finalizing a new state budget designed to mitigate the health and economic impacts of the COVID-19 pandemic, including widening the state budget deficit beyond its current legal limit at 3 percent of the gross domestic product (GDP).