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Indonesia could enter recession as virus response remains fractured, unclear: Economists

Jakarta Post - April 27, 2020

Adrian Wail Akhlas, Jakarta – Indonesia's economy may enter a recession and experience a much longer recovery than other countries in Southeast Asia if the government's management of the COVID-19 pandemic remains "slow" and "amateurish", economists have warned.

A recession happens when a country sees its gross domestic product (GDP) decline for two consecutive quarters in conjunction with other monthly indicators, such as a rise in unemployment.

University of Indonesia senior economist Faisal Basri voiced concerns over the government's handling of the health crisis, adding that with the current containment measures, the country could see an economic contraction of up to 2.5 percent, or 0.5 percent growth in a best-case scenario.

"The sophisticated economic policy taken by the government will be in vain if the government's COVID-19 containment measures remain amateurish," Faisal said during an online discussion on Friday.

"The trajectory of Indonesia's economy is very hard to predict right now, as the government has been late to ban mudik [exodus] while the large-scale social restrictions have not had much of an impact," he said, warning that the country's economic recovery would take much longer and incur higher costs.

The government's Idul Fitri mudik ban came into effect Friday and will remain in place until May 31 with travel restrictions to be enforced in COVID-19 red zones. The ban comes after the government resisted calls from health experts since late last month.

The SARS-CoV-2 virus has infected at least 8,800 people and killed more than 740 as of Sunday afternoon, according to official data. Several regions nationwide have now moved to implement large-scale social restrictions (PSBB).

As least two provinces and 16 municipalities and regencies across the archipelago have had requests to impose partial lockdowns approved by Health Minister Terawan Agus Putranto.

In addition to the provinces of Jakarta and West Sumatra, other areas of Greater Jakarta, namely Depok, Bogor and Bekasi in West Java and South Tangerang and Tangerang in Banten, have also imposed partial lockdowns, as have Bandung and Cimahi in West Java, Pekanbaru in Riau, Tegal in Central Java and Makassar in South Sulawesi.

Jokowi is recalibrating his large-scale physical distancing strategy and has called for testing to be ramped up.

"The Indonesian government's response to Covid-19 has been slow, unclear and fractured," Fitch Solutions researchers wrote in a research note.

"Given the belated containment efforts in Indonesia, we believe the Covid-19 outbreak will likely last longer than in other countries in the region. As such, containment measures and border closures will also remain in place for longer."

Fitch Solutions has downgraded Indonesia's economic growth projection to 2.8 percent, down from its initial projection of 4.2 percent, as spending and investment are expected to slow. That compares with the government's 2.3 percent GDP growth projection for this year, which would be the lowest rate in 21 years. Under a worst-case scenario, the government foresees an economic contraction of 0.4 percent.

"We assess that the contraction in the economy could be deeper if the outbreak is not contained over the next quarter, and as such further downward revisions to our 2020 growth forecast should not be discounted," the researchers added.

"We believe that private spending will collapse later this year as employment conditions continue to worsen."

Household consumption accounts for more than half of Indonesia's GDP.

The government has unveiled a Rp 436.1 trillion (US$27.92 billion) budget for COVID-19 stimulus packages, equal to 2.5 percent of the country's GDP, that will primarily be channeled into healthcare, social safety net and business recovery programs.

Speaking during the same discussion as Faisal, Finance Ministry special staff member Masyita Crystallin said the country's containment measures were "crucial" for economic recovery.

"The government is currently improving its measures and will always try to fine-tune the policies taken to handle the crisis," she said.

Source: https://www.thejakartapost.com/news/2020/04/27/indonesia-could-enter-recession-as-virus-response-remains-fractured-unclear-economists.html