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Jakarta Post

Jokowi calls for regional spending as economy contracts

  • Arya Dipa

    The Jakarta Post

Bandung, West Java   /   Thu, August 13, 2020   /   08:03 am
Jokowi calls for regional spending as economy contracts President Joko "Jokowi" Widodo speaks during a visit to the national COVID-19 task force office at the National Disaster Mitigation Agency (BNPB) headquarters in East Jakarta. (Courtesy of Presidential Press Bureau/Muchlis Jr)

President Joko “Jokowi” Widodo has called on local administrations to accelerate their regional budget spending to help boost the economy after Indonesia’s gross domestic product (GDP) contracted in the second quarter.

About Rp 170 trillion (US$11.5 billion) in funds from local administrations were left sitting in banks, waiting to be disbursed, he said.

“I am optimistic [the economy in] the third quarter will be better than in the second quarter,” Jokowi said during a coordination meeting in Bandung on Tuesday. “We want to grow positively but we need to work hard.”

The President expressed hope for spending to occur between July and September to prevent a recession in the third quarter.

The Indonesian economy shrank 5.32 percent year-on-year in the second quarter, the worst since the first quarter of 1999, as pandemic restrictions hit economic activity hard. Government spending, which was expected to anchor the economy and boost people's purchasing power amid cooling private sector activity, plunged 6.9 percent during the period.

Finance Minister Sri Mulyani Indrawati expected the economy to grow at no more than 0.5 percent or even contract further in the third quarter, which means the country could fall into recession.

A recession is typically defined as an annual economic contraction in two consecutive quarters.

Jokowi further noted that Indonesia’s economic contraction of 5.32 percent was still better than that of other countries, such as Germany, France and the United States at 11.7 percent, 19 percent and 9.5 percent, respectively.

“Local administrations must prioritize their spending in the third quarter as the sooner the spending happens, the better our chance of returning to a positive economic trajectory,” he said.

The government has earmarked Rp 695.2 trillion toward its pandemic response, including economic, social and health needs.

However, it has only spent Rp 145.4 trillion, dominated by social aid and a micro, small and medium enterprises (MSMEs) stimulus, while the disbursement of stimulus funds for health care and corporate financing lagged behind.

West Java Governor Ridwan Kamil said at the same meeting that 10.7 million families had received social aid as of Tuesday because only 25 percent of West Java’s population of 50 million were eligible for the assistance. He claimed that, in actuality, 72 percent of the population needed social aid.

The West Java economy contracted 5.9 percent in the second quarter, shrinking further than the national contraction over the same period.

The province reported 2.73 percent economic growth in the first quarter but the pandemic had brought its manufacturing industry down, resulting in a deep contraction the following quarter, Ridwan added.

Around 40 percent of West Java’s regional GDP is sourced from the manufacturing industry.

Ridwan said his administration would employ people affected by the pandemic in its projects and asked the government to buy consumable goods from local manufacturers in West Java, adding that some companies, such as state-owned weapons manufacturer PT Pindad and state-owned aircraft maker PT Dirgantara Indonesia, had pivoted their business toward health needs by producing ventilators as a way to survive the COVID-19 pandemic.

“The central government can buy uniforms and other consumable goods from our manufacturers, so this can be a win-win solution,” he said. (eyc)