Stagnating poverty reduction
The open unemployment rate (TPT) in Indonesia has passed a peak of 7.07 percent in August 2020. It then dropped to 6.49 percent the following year, moving onward to 5.86 percent in August of this year. However, despite a downward trend, it is still below pre-pandemic levels. This shows that many workers continue to be affected by the pandemic.
Data from Statistics Indonesia (BPS) reveals that the impact of the Covid-19 pandemic on employment and jobs has yet to completely ease. There are still around 3.48 million people whose working hours are being reduced, with around 0.24 million still unemployed. The challenge will mount in 2023, after a wave retrenchment at the end of 2022. According to the Manpower Ministry, 10,765 workers have been laid off as of September. This is supported by data from the Workers Social Security Agency (BPJS Ketenagakerjaan) which shows that there is a 285 percent surge in claims by recipients of unemployment benefits (JKP) in October, compared to July.
The Government has set the target to reduce TPT to between 5.3-6 percent in 2023. This wide range points to a threat of global recession in the coming year. INDEF projects the TPT rate to be 5.7 percent. It will be difficult to reduce TPT in 2023 due to economic uncertainty and headwinds. This will affect the ability of various economic sectors to absorb labor.
Poverty rate will persist
The Government targets reduction of the poverty rate to between 7.5-8.5 percent in 2023. To be more realistic, INDEF’s own projection is 9.3 percent. The poverty rate has indeed declined, after reaching a peak of 10.19 percent in September 2020. In March 2022 it stood at 9.54 percent. However, in 2023 it is predicted that poverty reduction will not go down meaningfully, considering that there is still a second-round effect from the fuel price hike. It is suspected that the problems with the effectiveness of aid and subsidy programs are the major reason behind the challenge to reduce the poverty rate next year. Therefore, the Government must improve the effectiveness of its various poverty alleviation programs. Efforts to maintain people’s purchasing power, especially in rural areas, should form the crux of government policy, especially in aa political year.
Strategies to slow down an economic slowdown
Given the unfavourable economic trajectory projected for 2023, the Government needs to come up with tactical and fundamental measures to mitigate the risk of economic slowdown. INDEF recommends the following steps to cushion economic slowdown and ensure that 2023 outlook remains bright for Indonesia’s economy.
1. Fiscal management needs to be extra prudent to ensure that the state budget can dampen the impact of economic turmoil and maintain the welfare of the people. Therefore, the Government needs to carefully manage state expenditures, by delaying non-priority spending while accelerating the realization of priority spending.
2. Central government and regional administrations, together with state- and region-owned enterprises (BUMN/BUMD) need to provide market certainty for businesses. This can be done by absorbing domestically-produced goods and services. Amid global uncertainty, the domestic market can be an alternative to ensure business continuity. Through its procurement policy of goods and services, the Government can increase alignment with domestic industries.
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3. The Government also needs to maintain political stability considering that outdoor campaigns will start in 2023. It needs to ensure security to ensure peaceful rallies and an honest, fair, transparent and democratic election process. The Government must stay impartial by not openly supporting or giving preferential treatments to certain candidates.
4. Bank Indonesia’s monetary policy needs to focus on defending and stabilizing the Rupiah exchange rate and getting the inflation under control, to maintain people’s purchasing power and nurture economic growth. This also needs to be done as a mitigation measure against the impact of global economic turmoil, as well as supporting macroeconomic and financial system stability. BI needs to monitor closely and responding to the Fed’s interest rate policies in a quick and timely manner, to ensure that macroeconomic targets can be achieved.
5. As digital technology has permeated almost every aspect of people’s lives, all parties need to be extra vigilant that it will not be used to divide the nation, in the form of black campaigns and spreading of misinformation or hoaxes. Digitalization should be geared toward empowering the digital economy next year, whether e-commerce, ride-hailing, food delivery, online travel, fintech or gaming. The policy to support MSMEs in adopting digitization must be made a priority, because they have been proven as crucial and resilient economic actors who are able to survive economic turmoil and drive the economy in times of uncertainty.