Game Changer: Have the tables been turned?

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Ninasapti Triaswati SE, MSc, PhD University of Indonesia lecturer

IO – President Joko Widodo has warned his ministers to work harder to achieve Indonesia’s economic growth as set forth in the 2021 State Budget, namely, around 4.5%-5.5%. However, come May 2021, several indicators indicate that this is turning out to be an uphill battle.

The government has announced three main strategies as “game changers” for Indonesia’s economic recovery. First, the free vaccination program is expected to be on course to achieve herd immunity to defeat the Covid-19 pandemic in Indonesia. 181.5 million Indonesians are set to be inoculated within 15 months, from January 2021 to March 2022.

Second, the implementation of the Job Creation Law was passed in October 2020 is expected to effectively jumpstart the Indonesian economy immediately, so economic growth of 4.5%-5.5% can be achieved. It is hoped that this can spur consumption and investment to create more jobs.

Third, the realization of an expansive fiscal policy and an effective and efficient bureaucracy are expected to promote rapid economic growth.

As it turns out, the vaccination program has fallen short, despite the government’s allocation of Rp54.4 trillion in the state budget (APBN) to procure vaccines – money from the reserve fund of Rp18 trillion and the unrealized health budget in the 2020 National Economic Recovery program which amounts to Rp36.4 trillion.

The vaccine procurement program, which started in December 2020, aims to vaccinate 181.5 million of the population with 420 million doses to achieve herd immunity which according to WHO, should have an efficacy level as high as 50 percent. Four months later, as of May 2, the number of people who received their first dose stood at 12.4 million (6.85% of the target) and second dose 7.67 million (4.22% of the target). It is clear this is way below target, so it is hard to imagine how the target for a vaccinated population of 181.5 million people can be achieved by April 2022.

The obstacle encountered in the vaccination drive is one of supply, namely, the intense competition between countries vying for a limited supply of vaccines in the global market. Health Minister Budi Gunadi Sadikin at the end of December 2020 issued Ministerial Decree No. HK.01.07/MENKES/12758/2020 on Types of Vaccines for Covid-19 Vaccination, in which seven vaccine brands are to be used, namely, PT Bio Farma, Astra Zeneca, China National Pharmaceutical Group Corporation (Sinopharm), Moderna, Novavax Inc, Pfizer Inc and BioNTEch, and Sinoval Life Sciences Co. Ltd. On January 9, 2021, the government announced it has secured a supply of 329.5 million Covid-19 vaccines from various countries. According to Communication and Information Minister Johnny G. Plate, as of April 30, 65.5 million doses in raw materials and 8.4 million doses in finished products have been procured from Sinovac, Sinopharm and Covax/GAVI (Astra Zeneca).

The second game changer is the Job Creation Law, which was passed in October 2020, and its raft of implementing regulations to be completed in early 2021. However, in reality, the implementation of this program still takes quite a long time to really make an impact on Indonesia’s economic recovery and achieve the growth target of 4.5%5.5%.

Indonesia’s structural problems in the investment sector are reflected in its capital-output ratio (ICOR) score of 6.8. This means that to produce one unit of output, 6.8 units of investment are required. The higher the ICOR, the lower the productivity of capital. The Investment Coordinating Board (BKPM) announced that the investment realization figure for January-March 2021 was Rp219.7 trillion, up by 4.3% YoY. Based on an ICOR ratio of 6.8, that realization is still too low to achieve 4.5% growth in 2021. There needs to be multitude of effective policy breakthroughs to lower Indonesia’s ICOR rate.

The establishment of the Investment Ministry as mandated by the Job Creation Law is one the breakthroughs expected to increase investment realization and simultaneously reduce the country’s ICOR ratio, to generate higher growth and employment opportunities. The main challenge lies in the government’s ability to work quickly, effectively and efficiently.

The third game changer realization is an effective fiscal policy. This has always been a challenge in the implementation of various economic recovery programs. Increased corruption cases during the pandemic have led to the downgrade of Indonesia’s Corruption Perception Index from Transparency International, dropping from 85th position in 2019 to 102nd in 2020, out of 180 countries surveyed. The fall in Indonesia’s corruption perception index is indicative of weak supervision and a general decline in corruption eradication performance in Indonesia. It is clear that corruption remains the main virus that afflicts the nation, leaving its economic recovery languishing.