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Government positive economic recovery on horizon

Government positive economic recovery on horizon

Indonesia's economy is getting back on track. ANTARA FOTO/Hafidz Mubarak A/rwa.

The Indonesian government is optimistic the economy will grow positively this year with indications of an improvement emerging amid the pandemic and containment measures, which have plunged the global economy into a deep contraction.

After Indonesia recorded its first coronavirus cases in March, 2020, economic growth spiraled to minus 5.32 percent in the second quarter to reach minus 3.49 percent in the third quarter and minus 2.19 percent in the fourth quarter of last year. Overall, the Indonesian economy shrunk 2.07 percent year-on-year (yoy) in 2020, a figure that is considered better than several other countries.

In the first quarter of this year, the country saw a significant improvement, with the economy recording a smaller contraction of 0.74 percent as the Retail Sales Index, Consumer Confidence Index, and manufacturing Purchasing Managers’ Index strengthened. A rise in car sales, electricity consumption, and cement production also provided a positive impetus to Indonesia's economic recovery.

The government is optimistic that the national economy would continue to improve and grow at a high rate of 4.5 percent-5.3 percent by the end of 2021.

However, to achieve this figure, the economy needs to grow positively in the range of 6.9 percent-7.8 percent in the second quarter of 2021.

The government believes that positive economic growth can be attained through state budget stimulus programs, acceleration of the vaccination program, and consistent implementation of the health protocols.

Furthermore, the government plans to encourage the strengthening of local industries in various key strategic fields, such as palm oil, chemicals, aluminum, electronics, and footwear, to help boost the economy.

"Our economic growth rate indicates a positive trend. It is expected to reach seven percent (in the 2021 second quarter)," Coordinating Minister for Economic Affairs, Airlangga Hartarto, observed on May 15, 2021.

As of March, 2021, the realization of foreign direct investment reached 54.6 percent, while the consumer confidence index among people with expenses below Rp5 million was recorded at 90.1, inching towards the normal zone of 100, the minister stated.

A positive trend was also evident in the growth of Indonesia's exports and imports, gross fixed capital formation (GFCF), and government spending, Hartarto pointed out.

Related news: Mandiri records encouraging trend in Indonesia's economic recovery

A surge in the prices of commodities, such as palm oil, rubber, nickel, copper, and coal also bolstered the government's efforts to revive the economy. The rising prices of those commodities helped improve economic conditions in several regions during the first quarter of 2021.

The economic improvement was also supported by the realization of the national economic recovery budget (PEN), which, as of May 11, 2021, touched Rp172.35 trillion, an increase of Rp49.01 trillion compared to the first quarter of 2021, or late March this year, Hartarto told the press following a limited ministerial cabinet meeting on May 17, 2021.

The PEN realization accounted for 24 percent of the total state budget of Rp699.43 trillion allocated for the program this year.

A spurt in budget disbursement was recorded in several fields, specifically health, where budget realization reached Rp24.9 trillion, or 14.2 percent of the total ceiling of Rp175.22 trillion.

The budget realization for social protection programs reached Rp56.79 trillion, or 37.8 percent of the total ceiling of Rp150.28 trillion, while for priority programs, it was recorded at Rp21.8 trillion, or 17.6 percent of the total ceiling of Rp123.67 trillion.

Budget realization for MSMEs and corporate support was recorded at Rp42.03 trillion, or 21.7 percent of the total ceiling of Rp193.5 trillion, while the realization for business incentives was pegged at Rp26.83 trillion, or 47.3 percent of the total ceiling of Rp56.72 trillion.

Speaking on expediting the distribution of social protection funds, the minister highlighted that budget disbursal for the family hope program (PKH) had reached Rp13.8 trillion, or 48.19 percent of the total budget of Rp28.71 trillion.

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"Budget disbursal for the basic food card program reached 38.2 percent, or Rp17.24 trillion. Furthermore, cash social assistance reached 98.39 percent, or Rp11.8 trillion, while direct village cash assistance was clocked at 17.41 percent, or Rp2.51 trillion," he disclosed.

Earlier, Hartarto had said the government has prepared several strategies to sustain a national economic recovery.

The first is continuing with the national economic recovery (PEN) program as the main instrument for economic growth in 2021.

The second is accelerating the free COVID-19 vaccination program, which started in January, 2021, and aims to cover 181.5 million of the population to build herd immunity.

The third is continued provision of government incentives to strategic sectors and several other incentives to drive economic growth in the second quarter of 2021. The incentives include the government-borne luxury sales tax (PPnBM) for the automotive industry, and the government-borne value added tax for the property sector.

Commenting on the outlook for the economy and industry this year, director of treasury and international banking at Bank Mandiri, Panji Irawan, said that the continuing recovery trend is supported by front-loading in the stimulus packages, government capital spending, and rising exports, in accordance with a spike in global commodity prices.

Moreover, an improvement has been recorded in various economic indicators, such as a restoration in the level of public confidence in the March-April period, fueled by a decline in the daily cases of COVID-19 and the ongoing implementation of the vaccination program.

The Consumer Confidence Index (IKK) in April, 2021 returned to an optimistic level, as seen by the frequency and value of transactions, indicative of consumer optimism regarding economic conditions in the future.

Furthermore, investment also showed a recovery, represented by a surge in imports of raw materials (10.2 percent yoy) and capital goods (11.5 percent yoy) in the first quarter of 2021.

Irawan said he believed that the recovery in consumption and investment will be able to support future economic recovery, which, during this year, is projected to enter the positive growth territory.

Related news: Indonesia's economic growth rate believed to reach 7%: minister

"Those are the three signals that we believe in and hope to continue in the next three quarters, so that the economic pace will be positive," he stated.

Sharing a similar sentiment, the Asian Development Bank (ADB) has also projected a 4.5-percent economic growth for Indonesia for this year, and 5 percent next year.

"Indonesia passed 2020 well thanks to a well-coordinated and communicated crisis response and strong leadership in tackling the pandemic," ADB director for Indonesia, Winfried Wicklein, said in Jakarta, last April.

He, however, warned of several risks, including disruptions to a global recovery due to the threat of coronavirus mutations, uneven vaccination rates in the world, and unexpected global financial tightening.

Meanwhile, at home, economic recovery could slow if there is a spike in COVID-19 cases during the month of Ramadan, or there are delays in vaccination efforts, or a weakening of government revenues, he added.

Therefore, ADB has recommended that Indonesia mobilize domestic resources and ensure environmentally friendly economic development. “Also, encouraging an environmentally friendly recovery will protect the environment and support economic growth and create jobs," Wicklein said.

Excessive debt can be overcome through fiscal reforms to broaden the tax base, improve tax administration and compliance, and close tax loopholes, he added. 

 

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