JAKARTA – Delays in vaccine shipments have set back plans to inoculate a targeted 181.5 million Indonesians by this time next year and could put a damper on the first early shoots of economic growth. As former finance minister Chatib Basri told a recent webinar: “No vaccinations, no economic recovery.”
By May 23, 14.9 million people had received their first shot and another 9.8 million had been fully vaccinated, with the government giving the go-ahead for a self-funded private vaccination initiative involving 22,700 companies and 10 million workers.
The government’s enforcement of a comprehensive ban on Indonesians traveling during the post-Ramadan holiday appears to have at least headed off a major new surge in Covid-19 cases.
Official figures recording between 5,200 and 5,700 new infections and an average of 170 deaths a day indicate a small and persistent increase, but not a widely feared super-spreader event on the scale of India’s disaster.
Statistics Indonesia (BPS) reported a first quarter contraction of only .074% year-on-year, down from -2.9% in the final quarter of 2020. The improvement was mostly due to government expenditure and better-than-projected growth in exports, which helped make up for still-sluggish domestic consumption, normally the main driver of the economy.
That has set the stage for a return to positive growth in the second quarter, but much still depends on current uncertainties, including the availability of vaccines, the potential harm done by new Covid variants in the wake of the Eid al-Fitr festivities and an uneven global recovery triggering capital outflows.
While Indonesia has had 81 Covid deaths per million, the highest in the region after the Philippines, its economy contracted by only 2.1% in 2020, far better than neighbors Thailand (-6.1%), Malaysia (-5.6%) and the Philippines (-9.5%). Vietnam was the only country in Southeast Asa to show positive growth, at 2.9%.
Indonesia’s better performance can be put down to the government’s refusal to introduce strict lockdown measures, with President Joko Widodo well aware it could lead to widespread social unrest, perhaps with a greater impact than the pandemic itself.
But as a result, most concern now rests with the pace of the recovery. Analysts say if GDP growth continues on a relatively slow course, local banks will have a mounting problem with loan repayments and unemployment will continue to put a brake on consumption.
Compared with the previous year, exports and imports in the first quarter grew by 6.74% and 5.27% respectively on the back of growing demand from China and the United States for palm oil, pulp and paper and mineral commodities, which are fast becoming one of the mainstays of the export trade.
The only two provinces to record robust growth in 2020 were Central Sulawesi and North Maluku, both at 4.9% and both home to major Chinese-run nickel processing plants. Two other provinces, Gorantalo and Bengkulu, recorded zero growth and the rest saw their economies shrink, with tourism-dependent Bali by far the worst at -9.3%.
Supportive fiscal and monetary policies and an explosion of pent-up demand is eventually expected to prompt a rebound in household spending, which was still down 2.23% in the first quarter, with transportation and other tourism-related sectors the hardest hit and unlikely to regain their balance until year-end or beyond.
Echoing the thoughts of most analysts, Finance Minister Sri Mulyani Indrawati and other senior officials say the strength of the recovery will depend on the pace of the vaccination rollout and on a high level of integrated policy coordination aimed at encouraging businesses to begin considering expansion plans to sustain the momentum.
Businesspeople agree that the recovery process will be improved by better handling of the pandemic, faster implementation of the Job Creation Law, which is already attracting potential investors from overseas, and banks providing liquidity to business enterprises that need it the most over the remainder of the year.
According to BPS, which released the latest figures last week, fixed asset management suffered only a year-on-year contraction in the first quarter of 0.23%, a vast improvement on the 6.15% contraction in the fourth quarter of last year.
Importantly, the manufacturing sector, which accounts for about a fifth of gross domestic product (GDP), shrank only 1.72% compared with the corresponding period in 2020, again a significant improvement over the -3.14% in the final months of 2020. The highest annual growth of 8.72% was recorded in the information and communication sector.
Analysts note that Indonesia’s worst performance was in the second quarter of 2020 when GDP sank by -5.3%, but then was followed by a quick rebound attributable to government stimulus spending. That, they say, suggests Indonesia’s recovery curve could well be similar to that of Nike’s swoosh symbol, with major gains expected in May, June and July.
Bank Mandiri research shows that while workers on fixed income were forced to stay at home, they were generally unaffected by the crisis as long as they kept their jobs.
Informal workers, on the other hand, lost about 30% of their income, which underlines the value of the government’s cash transfer program as a substitute for the social security scheme offered by more advanced economies.
While the lower class spent most of their income on food, the upper classes focused on the stock market, on home entertainment and on unusual items like bicycles, which have been sold out across Jakarta. “The rich people have money, but they don’t know how to spend it,” says Basri, a keen observer of how spending behavior has changed during the pandemic.
Clothes and other personal apparel weren’t high on Indonesian shopping lists. The country’s No 1 lifestyle retailer, PT MAP Aktif Adiperkasa Tbk (MAPI), saw its net profits decline from 69.1 billion rupiah (US$4.8 million) to an eye-watering 5 billion rupiah ($349,400) in the first quarter.
Restricted operating hours for main shopping centers also hampered sales, with PT Ramayana Lestari Tbk suffering a 53% fall in revenue from 916 billion rupiah ($64 million) to 490 billion rupiah ($34.2 million) between January and March. PT Matahari Department Store Tbk announced plans to close as many as 23 outlets.
Property prices have softened, but not so much that the sector has seen a noticeable increase in sales, Basri says. The liquidity offered by the stock market, on the other hand, has allowed investors more flexibility in what they do with their money when traveling abroad is out of the question.
Home-delivered food has now become such a permanent feature of everyday life that ride-hailing start-up Gojek began making money for the first time last October and recently announced US$18 billion joint venture with electronic commerce giant Tokopedia.
Economists say the real challenge for the rest of 2021 is whether private investment will start to kick in, or whether the pandemic and its social distancing regime will keep businesses like hotels (46%), restaurants (68%) and retail (32%) below what is considered to be their break-even points. If the volume is below that, then there is no incentive to expand.
The solution lies with Indonesia’s ability to vaccinate the targeted 67% of the population by May next year. After a fast start, mostly due to an early order for China’s Sinovac vaccine, supply constraints in recent weeks already mean it has fallen behind the one million shots needed each day to reach that objective.
In the short to medium term, analysts say the government will be faced with the policy choice of either inducing investment or pumping up consumption.
For Basri, a close associate of Finance Minister Indrawati, the latter is the obvious approach. In Indonesia, he points out from his experience in the Yudhoyono government, investment always depends on demand: “What we need in the short term is disaster relief. In other words, enough money in order for people to survive.”