Govt relying on vaccine drive, economic stimulus to script recovery

Govt relying on vaccine drive, economic stimulus to script recovery

A journalist receives a CoronaVac shot during a mass vaccination program at the Youth Center in Pekanbaru City on Monday (March 1, 2021). (ANTARA/FB Anggoro/yas)

Indonesia has rolled out several measures to stimulate economic recovery, both on the demand and supply side. The pace of economic activity, however, has not met expectations.

This week marks the beginning of efforts to fortify and test various measures undertaken by the government to stimulate economic recovery.

From Monday (March 1, 2021), the government has exempted current value-added tax and luxury tax (PPnBM) for 21 types of new cars.

The central bank -- Bank Indonesia (BI) -- has also relaxed the loan to value (LTV) ratio for motor vehicles and housing loans for the period from March to December, 2021.

To encourage home purchases, the Ministry of Finance has slashed value added tax (VAT) by 50-100 percent for homes with a value of up to Rp5 billion and purchased until August 31, 2021.

Considering some recovery efforts conducted in the last decade, the automotive industry, which is included in the manufacturing sub-sector, has indeed become one of the sectors driving economic activity.

The manufacturing sector contributes 19.8 percent to Indonesia's gross domestic product (GDP), and also accounts for a large number of jobs.

Meanwhile, the property sector contributes 13.6 percent to the GDP, with a broad economic activity chain covering 174 industries, such as cement, steel, paint, and furniture.

Therefore, the government is relying on the two industrial sectors to provide multiple economic benefits to society and is seeking to restore production activities to create more jobs.

To stoke economic activity, the government has not only relaxed its fiscal policy, but also the monetary policy. For instance, Bank Indonesia has lowered its reference interest rate -- through the BI-7 Day Reverse Repo Rate (BI7DRR) -- to 3.5 percent, the lowest level since it was first introduced in April, 2016.

The central bank has continued to reduce the reference interest rate in order to lower rates in the money market, banking and capital markets to boost financing for production and consumption.

Those fiscal and monetary policy relaxations are expected to revive some economic activities that stagnated in 2020. Last year's economic performance, nevertheless, has highlighted the importance of efforts to restore public health to support economic recovery.

In keeping with the Keynesian macroeconomic theory that suggests economic output is strongly influenced by aggregate demand, consumption should be created to drive the economic cycle.

Related news: Government to boost state expenditure to revive economy: Minister

In the midst of uncertainty due to the pandemic, however, public consumption has been greatly influenced by expectations and purchasing power. Hence, if the handling of the pandemic improves, consumption will most likely increase.

But, if the handling of the pandemic worsens, consumption will be restricted, and that will, in turn, affect the economic cycle.

Shot in the arm

President Joko Widodo (Jokowi) has said that the COVID-19 vaccination program is going to be a game changer for the economy.

He has expressed the belief that vaccination will be a key determinant of how quickly people and the economy return to normal.

The President, therefore, has ordered that COVID-19 vaccination be carried out as effectively as possible to cover some 181.5 million targeted recipients within one year, or sooner than the Ministry of Health's plan of 15 months, to achieve herd immunity.

"Vaccination is a very crucial key to enable people to go back to normal work, our children can study in school again, and the economy can immediately revive," he remarked.

After vaccinating some 1.5 million healthcare workers in the first phase of the national vaccination program, the government inoculated some market traders and service sector actors as part of the second phase of the program in February, 2021.

The second phase, which targeted about 17.4 million recipients, was aimed at stemming COVID-19 transmission in markets, shopping centers, hotels, restaurants, and tourist destinations so that economic activities in those sectors could recover quickly.

Related news: Jokowi highlights condition to surpass growth forecast in 2021

The government launched the second phase of the vaccination program on February 17, 2021, focusing on traders at the Tanah Abang wholesale market in Central Jakarta, which was visited by President Widodo.

The President also witnessed mass vaccinations at Beringharjo Market in Yogyakarta on Monday (March 1, 2021). The vaccination of market traders is expected to be carried out in all provinces in Indonesia.

The government will roll out the third phase of mass vaccinations in March this year, which will target some 63.9 million people living in vulnerable areas. The fourth wave of vaccinations will be carried out in April this year, with about 77.2 million vaccine recipients identified based on clusters.

Mutual cooperation

To achieve herd immunity quickly, the government has also initiated mutual cooperation with the private sector, allowing businesses to carry out independent vaccinations for their employees.

By carrying out independent vaccinations instead of waiting for the government vaccination program, business entities could restart operations more quickly.

While the national vaccination program is being funded by the government, independent vaccinations for employees and their families are being funded by corporations, businesses, and other legal entities.

The government has assured that independent vaccination programs will not interfere with the ongoing government program. Mutual cooperation vaccinations will only be administered through companies, so they cannot be conducted individually.

"Independent vaccination will not interfere with the main vaccination initiative run by the government. All citizens have the right to get vaccines provided by the government," said Siti Nadia Tarmizi, Health Ministry spokesperson for the COVID-19 vaccination program.

Apart from vaccinations, the government is also continuing to step up contact tracing, mass testing, and treatment of COVID-19 patients.

To support the government's efforts, the public has been urged to remain disciplined in implementing health protocols, such as wearing masks, maintaining distance in public places, and washing hands with soap.

Ensuring public discipline to prevent the further spread of the coronavirus as well as making the vaccination program a success is expected to promote economic recovery, though the results may not show instantly.

Nevertheless, if vaccination is successful and is accompanied by the successful containment of the coronavirus, the government will have a chance to script an economic revival for Indonesia in 2021.

Related news: Govt highlights increased 2021 PEN budget to reach Rp699.43 trillion  

 

 

 

Comments