The Jakarta Post
President Joko “Jokowi” Widodo called on ministers and regional leaders on Thursday to keep inflation in check and expedite stimulus spending in an effort to boost purchasing power amid the COVID-19-induced economic downturn.
The country had to keep inflation at a “balanced point”, Jokowi said, so that businesses could continue their operations while the movement of prices remained under control. This would help increase consumption and boost micro, small and medium enterprises (MSMEs).
“Therefore, balancing supply and demand is crucial so that when the economy recovers and purchasing power returns to normal, there is no significant pressure on prices,” he told a national gathering of ministers and regional leaders. “We are hoping that regions can speed up budget disbursement, particularly in capital goods and social spending, to support the economy.”
Indonesia recorded monthly deflation of 0.05 percent from July to September, the latest sign of weakening purchasing power and cooling economic activity. Annual inflation was 1.42 percent, below Bank Indonesia’s target range of 2 percent to 4 percent.
The country’s gross domestic product (GDP) shrank 5.32 percent in the second quarter as a result of plunging consumption, which typically accounts for more than half of the economy, and investment. It is widely expected to contract further in the third quarter. The government predicts the economy will contract by 1.7 percent at worst this year, the first annual economic contraction since the 1998 Asian financial crisis.
The government has earmarked Rp 695.2 trillion (US$47 billion) in stimulus to revive the economy, boost purchasing power and strengthen the health response to the pandemic. However, critics say the disbursement of the funds remains slow as the government has spent only 48.6 percent of the total stimulus package after seven months of the pandemic.
Jokowi urged ministers and regional leaders to pay attention to food availability, warning that the pandemic could trigger a food crisis in the country. “We need regional leaders to be careful and pay special attention to food availability in their respective regions.”
Speaking in the same forum, Finance Minister Sri Mulyani Indrawati voiced concerns about slow budget disbursement by regional administrations, saying that regions should expedite spending for the remainder of the year.
“The budget disbursement from regional administrations related to the national economic recovery program is still minimal,” she said, citing the lack of spending in healthcare and economic stimulus. “This shows that there are many challenges that we need to solve so that businesses and the public can benefit from the designated state and regional budget.”
Millions of Indonesians have lost their jobs this year and have fallen into poverty as the pandemic takes a great toll on economic activity.
Indonesia’s poverty rate declined gradually from 24.2 percent of the population in 1998 to its lowest point of 9.22 percent in September of last year. The figure rose again to 9.78 percent in March of this year as a result of the pandemic.
The open unemployment rate, however, fell to its lowest level since at least 1997 in February of this year – 4.99 percent – but the outbreak’s economic impact is expected to push the rate up. Some 3.7 million people lost their jobs from the beginning of the outbreak to August, according to data from the National Development Planning Agency (Bappenas).
Indonesia will likely post higher inflation in the medium-term when the pandemic subsides and economic activity goes back to normal, said Center of Reform on Economics (CORE) Indonesia research director Piter Abdullah.
"The key to boost purchasing power and reversing the adverse impact of the pandemic on the economy will be to get the pandemic under control by implementing strict health protocols and providing vaccines when available," he told The Jakarta Post.
"Otherwise, the economy and people with lower incomes will continue to suffer."