The recent drastic resurgence of COVID-19 cases has the government re-coordinate its effort to get the country鈥檚 economic recovery back on track.
The COVID-19 pandemic has resulted in a decline in the per capita income of almost all countries in the world, including Indonesia. In the "World Bank Country Classifications by Income Level: 2021-2022" report, Indonesia's per capita income fell from US$4,050 in 2019 to $3,870 in 2020.
This decline in per-capita income saw Indonesia reclassified as a Lower Middle-Income Country. The World Bank has set the minimum threshold for a country to become an Upper Middle-Income Country this year to US$4,096.
Prior to the resurgence of COVID-19 cases, Indonesia was on a track towards economic recovery. In 2020, the Indonesian economy contracted by 2.07%. The first quarter of 2021 saw a shallower contraction of 0.72%. At around the same time, several indicators showed several uplifting news, such as the country hitting back-to-back record-highs in the IHS-Markit Purchasing Manager鈥檚 Index (PMI). The London-based consultancy firm gave Indonesia a score of 55.3 in its May 2021 report, an increase from its previous score of 54.6 in the previous month. In June, Indonesia鈥檚 PMI score was still above the expansionary line at 53.5.
Furthermore, as reported by the Central Bank, the country鈥檚 consumer confidence index rose for the third consecutive month to 101.5 as of April 2021, an increase from 93.4 points in the previous month, which puts it above the optimistic zone of over 100-point. Meanwhile, the banks鈥� retail sales index also improved to 6.1% as of March 2021, a significant increase from the previous month鈥檚 score of 鈥�2.7%. In June 2021, consumer confidence remains above the pessimistic line at 107.4.
Stricter Lockdown and Economic Impact
In June 7, 2021, Indonesia saw another record breaking high in the number of COVID1-19 infections with over 34,000 infections, as well as the number of deaths exceeding 1,000 for the first time since the pandemic started. In response, the government has implemented a stricter lockdown policy in the island of Java and Bali where the population and cases are the highest in the archipelago.
This policy, which lasts from July 3-20, obliges all non-essential businesses to implement a 100% work-from-home policy and for shopping centers and malls to cease operations, though standalone stores supplying daily basic necessities are still allowed to operate until 8pm while several essential and critical sectors may still operate up to 100% capacity.
International and domestic travel has been further restricted to require vaccination certificates and a longer quarantine period for international travel. Furthermore, the locally developed GeNose test is no longer recognized as a valid pass for domestic travel, requiring travelers to supply a negative test result using either the antigen or RT-PCR testing method.
"According to our analysis, a minimum of 30 percent in mobility reduction is needed, and I have briefed this to all stakeholders, from the police and the military, governors, and regents, mayors," said Coordinating Minister of Maritime and Investment Affairs Luhut Pandjaitan.
He added that, in dealing with the Delta variant of the coronavirus in particular, community mobility would need to be reduced by 50 percent. "We hope that [by the first week of July] we will be close to 50 percent, I think next week we will start to see a flattening, then we will see that slowly [the COVID-19 curve] begins to decline," he said.
In countering the inevitable economic slowdown from this policy, the government has strengthened its social protection, as well as its support for the private sector through the national economic recovery program (PEN). The World Bank estimates that Indonesia's poverty rate in 2020 could reach 11.8% without the PEN program. As of September 2020, the poverty rate was 10.19%. For now, the Ministry of Social Affairs has announced that it will add 10kg of rice to the existing cash aid assistance program for social welfare recipients.
Meanwhile, in support of the private sector, the government has launched a number of measures. For example, the finance ministry will waive added-value taxes for the rental of retail space in malls for the June to August 2021 taxation period. The ministry has also extended the income tax for employees and 50% income tax installment discount for corporation, to the end of 2021 from the initial end of June 2021. It also plans to extend its tax incentives for value-add tax for housing and luxury tax for vehicles to the end of the year.
Vaccination and the health sector
The government has repeatedly stated vaccination remains key to Indonesia鈥檚 economic recovery. Thus far, over 34 million Indonesians have received their first jabs, over 14 million of whom are fully vaccinated since the national vaccination program began in February of this year.
In this regard, Indonesia has seen a respectable increase in the number of vaccinations to around 1 million per day since late June. President Joko Widodo aims to further increase this number of daily vaccinations to between 1.5 and 3 million by August in order to cover the over-181 million inoculations by the end of 2021 or early 2022.
In between the policies of stricter lockdown and economic incentives, Indonesia has further increased its health spending to Rp 193.93 trillion from Rp 172 trillion previously in 2021. The money will be spent on the country鈥檚 national health insurance scheme for 19.15 million recipients, as well as to increase the country鈥檚 capacity to test, trace and treat COVID-19 cases. The hope is that Indonesia will be able to have the COVID-19 pandemic under control and for the country to get back on the economic recovery track.