IO – While the Coronavirus continues to threaten the health of the Indonesian people, the Government initiates to reopen malls. Contradictions are evident when government authorities push for a “new normal” as active case numbers continue to soar. An additional 400-700 people are estimated to be infected with Covid19 virus every day. A somber note is struck in a New York Times article published with the title “It’s Too Late: In Sprawling Indonesia, Coronavirus Surges”. Yes, we are losing momentum in the effort to combat the virus, by not adopting proper medical or scientific approaches. All the while, business languishes, whether big conglomerates or modest SMEs. This time it is different. The crisis arising from the pandemic and the struggle to fix the economy collide, in one single year. This is nothing like the 1998 or 2008 crises, where small businesses survive and serve as “motors of recovery” within a year.
“New Normal” wrong from the outset
This double whammy of a crisis simultaneously needs dual treatment: public health and economic recovery. The Government seems to prefer economy over protecting public health. Jokowi’s visit of a shopping mall in Bekasi – a sign that it’s all right for the people to return to business as usual. This is no “New Normal”: this is a “New Abnormal”. Previous policy is jeopardized when the government enforces PSBB, ordering social distancing to avoid spreading the virus from person to person. Meanwhile, the government itself is facilitating the spread of viral infections by opening up malls. Such a policy is not only dangerous but also premature by design.
Previously the government failed to enforce a “stay at home” protocol. The Jakarta Governor acknowledged that only about 60% of the public stayed put, while others continued to circulate freely. Further evidence suggests that the number of vehicles leaving Jakarta Metropolitan Area during the annual Lebaran exodus, “Mudik”, was around 200,000. During the ostensible enforcement period for PSBB, McDonald’s at Sarinah Mall allowed a prohibited gathering for a farewell party; they were then fined only IDR 10 million – such a small amount compared to the profits McDonald’s would reap from a single restaurant. It was also observed that the public was not practicing social distancing at the Airport. It is not simply a problem of the public ignoring the government’s PSBB policy; people can justifiably argue “Why should we abide by your rules, while so many other people can violate the same regulations”?
Look what Moody’s already observed in a 2 April 2020 report: “Uncertainty about the Indonesian government’s ability to manage the health crisis is triggering capital outflows, leading to tighter domestic dollar liquidity and Rupiah depreciation.” It is the uncertainty, still, policy-makers fail to understand what they are doing. Instead or decreeing an orderly effort to support public health, and strict social distancing rules, the government did precisely the opposite.
Medical staff and physicians are disappointed and angry because the incentives that the government promised have not been delivered according to plan. While they are fighting for the survival of patients, where’s the funds that the government must provide? Allocation of public health funds are also pitifully small during the pandemic: only IDR 75 trillion from a total IDR 405 trillion for a public health stimulus. Compared to the sum that corporations receive from tax cuts (up to 3 years) the stimulus for public health is practically nothing. Therefore, the public, sympathizing with medical staff, created the hashtag #Indonesiaterserah (“Up to you Indonesia”). Well, the government is not totally focusing on the public health crisis, but instead economic recovery is their priority.
What exactly is a New Normal?
The phrase New Normal is being used in countries that have successfully contained the virus, or at least has flattened the graph of Covid19-positive citizens. Once the graph starts it’s decline, business will start to reopen, but with a new business model. Cafés must enforce social distancing with sufficient space; a strict health protocol and e-commerce or digital transactions are suddenly booming. Look at Vietnam for instance: the government relaxed the lockdown gradually, once deaths from Covid19 declined to zero. Vietnam stands as a great example, not only for Asia but also the whole world. At 27,000 samples per day, the number of tests in Vietnam is very high as well.
Even the World Bank praises Vietnam for its determined efforts to combat the virus from the outset. When the Vietnam government declared “We are in war with the virus”, it was not “Let’s make a peace with the virus”. War with the virus means total war. The location of Vietnam, on the southern border of China, naturally impels Vietnam to struggle to contain the spread of viral infections. The facts relate another story: it is the government’s quick and decisive actions and responsibility that ensured success.
Not only were they prompt in suppressing spread of the virus, in terms of an economic stimulus Vietnam also provided food supplies for households struggling with the pandemic. The Vietnamese were already prepared and in motion while other countries attempted to provide food for their citizens. In the Global Food Security Index, Vietnam ranks 54th out of 113 countries, while Indonesia is in 62nd place. Other data also suggests that Vietnam is still better than Indonesia in terms of food security. The Global Hunger Index in 2019 put Vietnam in 62nd and Indonesia 70th. That’s why Vietnam was able to push a lockdown, while Indonesia dithered about locking down – which carries consequences: according to Indonesian law, the central government is obliged to provide food for citizens and fodder for livestock during any lockdown. There is no tradeoff between public health and economic interest, when government intervention is sufficient. So the Vietnamese-style “New Normal” should be a lesson for other countries too.
The New Normal and the Digital Divide
Now let’s look at what the Indonesian-version of New Normal means. Shopping malls will open soon, but the tenants should be worried. Consumers target for shopping malls consist of middle-and upper-class citizens. Such people tend to be highly-informed, especially related to the current virus crisis. If they feel hanging out at the mall will increased the risk of getting infected by a virus, then they will stay at home. Shopping malls will stay empty, while operational costs will soar: electricity bills, tenant rent and security burden the business.
China’s reopening of its shopping malls stands as an important lesson: even though the lockdown has been relaxed, shopping malls are empty. Retailers need to adjust to a real new normal: it is not in-person shopping at the mall but online transactions which should be the first priority. Life in a new normal means more digital shopping. It is a mistake to open shopping malls too soon: New Normal does not signify malls, but rather shifting business to digital.
In the article by Daniel Knapp, a Chief Economist at IAB Europe, theorized that “It will take the overall ad market about three years in total to recover from this downturn, with a 12 to 14-month time-frame for digital.” We need to rush to digital as soon as possible, not attempting to revive legacy business.
However, data shows that only 13% of Indonesia’s small and medium enterprise use a digital platform. Other SMEs still struggle with the new normal. This is how government should intervene, not only embracing a new term for the media only but also proffering meaningful help to SMEs, so they may adopt the new normal. Otherwise the new buzzword will end up like ‘Industry 4.0’. At one time every seminar and talk in the 2019 campaign was about moving towards industry 4.0, a revolution in manufacturing sectors, robotic and artificial intelligence. Many government officials exuded confidence about raising SME competitiveness in a new Industry 4.0 era. Where’s all that talk today? We have another buzzword, called the New Normal. Yet another term means more confusion for SMEs.
The Inclusive Internet Index created by The Economist shows Indonesia in 57th position, lagging behind ASEAN member countries such as Vietnam in 50th, Thailand in 39th and Malaysia 35th. Inclusive internet means people can easily access websites, in terms of affordability, availability, readiness and relevance. The infrastructure problem of the internet is one thing; meanwhile, the other is digital knowledge, especially for small businesses, and this is problematic. The type of legacy family business in Indonesia still works in traditional and conventional ways. This then is homework for the government to expedite infrastructure in parallel with providing assistance for small players.
Malaysia’s fast and relevant policy needs to be mentioned here. In March, Malaysia’s PM launched an internet subsidy of up to 50 GB of high-speed internet per day. This internet stimulus helps local business adapt to a new normal, while enabling public school and university students to learn through an online platform. How can we think similar to Malaysia in supporting a real new normal? It should be the duty of the Indonesian government to speed up internet adaptation to all levels of society, from school to business, from big players to small ones.
Let’s look at other data provided by Speedtest Global Index in May 2020: Indonesia internet speed ranked 113th, with a score of only 14.02. Indonesia’s position is almost the same as that of Nepal, Pakistan, Namibia and Sri Lanka. It is no coincidence, as Indonesia’s rank in providing tests for Covid19 is similar to that of Sri Lanka and poor countries as well. In the new normal, Indonesia’s readiness to face new competition is endangered by other poor countries, not middle-income countries. Such a shame. If a big startup chooses a new headquarters after the pandemic, and it won’t be Jakarta; probably they’ll pick Singapore, or Kuala Lumpur and finally Hanoi. Government rhetoric about a new normal is simply a gimmick, nothing more without sufficient preparation for transforming society into an internet economy.
Who will be the Winner of the New Normal?
If the new normal signifies more reliance on a digital economy, we should worry who will win the new competition. The Ministry of Trade during Jokowi’s first term already complained that more than 90% of the products sold on digital platforms were imported – flooding Indonesian households. Cheap but dangerous for the domestic economy. If we agree that a new normal will endure a long period, then we should worry that this e-commerce boom will lead to steeper imports, backstabbing our local products in the long term. China’s proven power to dominate and overwhelm with startup capital in Indonesia, especially in e-commerce is too late to counter.
Billions of dollars flowing from China into Indonesian startups creates a vicious cycle. China’s digital companies are not only interested in capturing consumer behavior data from Indonesia’s huge retail market, but also serve as supply-chains to Chinese producers. Imagine a startup with funds injected by foreign venture capital, selling imported products. The rules of e-commerce are also too loose to manage the balance of imports and local products, while in supermarkets they already have legislated restrictions on imported products. The digital market is a wild one. Now the government plans to add VAT of 10% for all e-commerce transactions. Is the problem of import domination resolved? Not really – it only reveals how the government is intending on extracting new income from taxes, not regulating imported products.
People enjoy buying electronics such as modems for internet connection, not realizing the product is made in China. Then housewives buy kitchen accessories from online shops so they can cook while restaurants are closed – also not paying attention to where the items comes from. But for domestic producers who manufacture the same type of electronics and kitchen accessories it is a nightmare. In the new normal, domestic producers are not gaining market share, while imported products seize more market share. The greater the internet access for consumers, the larger the volume of imported goods flows to the village.
Mr. Jokowi may be correct to his critics who ask why we import simple agricultural tools such as hoses? Why can we not substitute a domestic unit for the imported product? As the President becomes irritated, the new normal will soon see more imported hoses coming in. The pandemic should be a time for us to ponder and arrange new strategies to substitute domestic goods for import dependency. But the government is always busy with something else; it is of no concern to the authorities to impose strict import rules and tariffs; on the other hand, the government eases many regulations for imports, in the name of fulfilling people’s needs, during and after the pandemic. This paradigm is wrong.
Shocking data also published during the pandemic: imports are not only flooding in for e-commerce but in the agricultural sector as well. Farmers in Malang protested by throwing their vegetables into the river because of overproduction. Hotels and restaurants closed during pandemic pose a nightmare for local farmers. However, BPS data shows vegetable imports have increased by 145% between January-April 2020 compared with same period last year. The value of vegetable imports was US$193.4 million. Who in the world is importing vegetables during a pandemic? This is the question the government needs to answer.
Again, Why Reopen Malls?
Why then should the President go strolling through a shopping mall? This question is not simple to answer. In the ‘New Normal’, we talked about shopping on-line, through the internet, and not going to a shopping mall. It should be better the President visit a traditional market, rather than a shopping mall. In our traditional markets, people are struggling to adopt the new public health protocols. Even now, not many sellers are wearing facial masks to protect themselves and buyers from viral infections. More than 60% of total retail transactions take place in traditional markets. It should be the first priority for ordinary people, middle and bottom-level consumers to secure when buying food in a traditional market. It shows how government is not only supporting the survival of property moguls, and traditional markets are only a secondary priority.
People in the ‘New Normal’ tend to work from home: an office is not necessary. In fact, the pandemic may kill offices, but then what kind of work? The Economist published research shows that less than 10% of the bottom decile of workers are able to work from home. The rest of these lower-class workers, such as cleaning services, security officers and gardeners have to work outside. The research did not take place in Indonesia, but in the United Kingdom, where the internet connection is faster than ours. So, it is clear in that in countries where the digitalization is superior to that in Indonesia, not all types of workers can work from home. The UK ranked 8th in the Inclusive Internet Index.
The government should then pay more attention to the lowest category of labor. How can such people benefit from a new normal? What kind of incentives and public health protocol is suitable to support low-skilled workers? They need to work outside and risk encountering a virus every single day. Are the incentives enough for them to survive? These questions are problematic when the government always emphasizes highly-skilled and well-paid jobs like managers to work from home. Even if the government did not emphasize to work from home, that sort of manager already works remote, long before the pandemic struck.
Can the economy rebound soon?
We don’t think it will help economic recovery any time soon. The New Normal version of Indonesian governance, in conclusion, is making the situation worse. Economic recovery as estimated by the IMF at 8.2% in 2021 is delusional, in view of the current public health crisis and fiscal stimulus. It should be focused on suppressing the spread of the virus, but here’s where government fails. Without certainty and consistency in formulating policy, there will be no new normal; instead there will be a New Abnormal. The previous abnormal showed up before the pandemic, boosting spectacular infrastructure projects while SOEs struggle to maintain cash flow, because infrastructure utility is so low. The gleaming new Airport Train from Sudirman to Soekarno-Hatta – regularly running only 20-30% capacity. SOEs and operators struggle even to pay monthly operational expenses and maintenance. Look what the Asian Games infrastructure tells us: a story of a big stadium and LRT in Palembang, empty. So long Asian Games! Here come the financial troubles. Haven’t government acknowledged that?
While we are worried about a crisis, the Government pushes for a new capital in Kalimantan. Such a move at this time is ridiculous. Then arises other problems of mis-allocation of fiscal stimuli. Protests have bloomed, due to fake policies about social safety net in the form of Kartu Pra Kerja and programs to provide the unemployed with online training. IDR 20 trillion is spent for this not-so-useful program. Kartu Pra Kerja is not evidence of a New Normal, but rather a New Abnormal. The training is no better than a YouTube version of free training. Rather than providing trillions of Rupiah for Kartu Pra Kerja, why doesn’t the government provide free internet to the unemployed, so they can be entrepreneurs selling products in online stores, rather than learning how to do something by watching YouTube or another free platform?
With so many policy inconsistencies, recovery of the economy will not be a “V-shape”, quickly rebounding. Instead, we predict recovery will follow a U-shape, or even worse an L-shape. It may take more than 3 years to achieve a full recovery, or get back to the 5% GDP growth marked just before the pandemic. The stimulus is also too small, and needs to be evaluated. First, start from the largest stimulus: do we need to give billionaires and corporate conglomerates a tax cut? In 2018, the government already spend IDR221 trillion in tax expenditure, a large chunk of tax stimulus. The wave of layoffs still continued even before the pandemic.
Nissan, an automotive industrial giant, has concluded it does not see Indonesia as a prospective manufacturer. Instead, Nissan announced that they will focus producing cars in Thailand rather than Indonesia. Tax incentives during the pandemic are problematic. There is no guarantee a company that receives tax cut, dropping from 24% to 17% in three years, will allocated the surplus profits to re-investment. Once the tax amnesty program is finished, no one can guarantee where the profits of large companies will flow.
Rather than cutting tax rate, the government should stimulate demand directly. Let’s assume government cancels the tax rate cut, then formulates a Universal Basic Income. The money delivered to the poor and aspiring middle class will be consumed directly into the economy. As Zizek, a philosopher, said in the book of Pandemic: How Covid19 Shakes the World, “In the crisis we are all socialists”. We should not provide large businesses with many tax cuts, exerted only a minimal impact on the economy, as we experienced before.
What else can be done? The sources of uncertainty can be traced back to who is at the President’s right hand in dealing with the economic crisis. The President needs to replace politicians who fail to understand current economic situation with persons capable of delivering a true new normal. It is strange that during the crisis the government has hired an inexperienced economic team. Too bad: Sri Mulyani, ex- World Bank Managing Director with both a national and international reputation, must work with a weak economic personnel.
A sense of crisis is notably absent from the room; instead there is a smell of politics filling every move of the decision-makers. How to deal with the pandemic and economic crisis, if politicians become economic chiefs? Policies that create jeopardy should be replaced as soon as possible, before it’s too late. The New York Times provides a caution: “The world’s fourth-most-populous country, Indonesia offers both a cautionary tale for how dithering leadership can thwart public health and a medical puzzle for why an unprepared nation’s hospitals have so far not been overwhelmed by the virus.” In a world of ‘New Normals’, we need strong leadership or we will continue to encounter a new abnormal, for certain. (Bhima Yudhistira Adhinegara)
Bhima Yudhistira Adhinegara, is a researcher at INDEF (Institute for Development of Economics and Finance). He received a Bachelors degree from the faculty of Business and Economics, University of Gajah Mada and later on continued his education at Bradford Univesity, England, where he received his Masters degree.