IO – The costs of the COVID-19 virus outbreak, on a global scale, will in most estimates, be unprecedented. Countries across Europe, which is now the epicenter of the crisis, are preparing huge stimulus packages. Germany alone has lined up over $600 billion, and KfW, the state bank, is prepared to lend as much as $610 billion to companies to ensure they survive the pandemic and shield their workers from the impact. China, which is expecting its worst economic performance in decades, announced an emergency package amounting to over $700 billion dollars. And in the United States, the Trump administration has prepared a $850 billion stimulus proposal in an effort to prop up the economy.
Whether or not these measures will be sufficient to stave off what economists fear could turn into a depression remains to be seen. Neither how many people will end up being infected once the disease subsides, nor when it does cease to be a threat, is known. Estimates of the final toll on human life once the crisis ends vary tremendously, with scientists predicting anywhere from a few million to as many as 50 million deaths.
What should Indonesia, with over 260 million people, be doing? The answer is clear: do what others are doing. Besides ramping up for tests, ordering partial lockdowns in hot zones, providing medical supplies and the infrastructure that will be needed to treat people who test positive for the COVID-19 virus, the Jokowi administration must take to heart the worst-case scenario and assume the economic impact will be far-reaching and affect every corner of the economy for as long as two years.
My earlier forecast, before the COVID-19 virus came to light, was the Indonesian economy could drop from five percent to just four percent GDP growth due to poor underlying fundamentals. Now, with supply and demand side shocks almost a certainty as the virus continues to spread and cause serious economic damage throughout the global economy, a conservative estimate is the Indonesian economy will possibly grow as low as two percent or lower.
In order to avoid a prolonged and severe downturn in economic activity, the Jokowi administration must refrain from its habit of wishful thinking. The COVID-19 virus must be seen for what it is, namely an existential threat.
What this means, first and foremost, is the government must reallocate its financial resources and economic agenda in a radical way. The central bank must stop trying to prop up the rupiah, which is akin to throwing water in the ocean. Rather, the Jokowi administration must focus on boosting consumption and making sure businesses can keep their doors open.
Instead of fretting about the costs, one sensible place where the government can start is to delay all infrastructure projects, which would free up over $20 billion to cover an emergency fund targeted at mitigating the impact of the virus. Yes, a modern infrastructure will bring economic benefits to Indonesia, but those benefits will only come in the long-term. What we need now is an immediate fix.
The first priority and responsibility of the government should be to safeguard the welfare of the people. State banks should be given sufficient liquidity injections to distribute enough money for every family across the archipelago so they can weather the storm comfortably, and they should channel sufficient funds to small businesses affected by the crisis in order to avert unnecessary bankruptcies and layoffs. Finally, banks should be instructed to issue a temporary moratorium on corporate and personal debt.
Still, Indonesia needs to think beyond short-term policy measures. Even if the world manages to dodge an economic meltdown and the threat of COVID-19 is diminished once a vaccine is created and deployed, we should recognize the world will not simply hit a reset button and go about business as before. People will realize more lethal pandemics can emerge. Leaders and policymakers will seriously probe the merits of globalization. The risk of highly interconnected nations and companies subjecting us to unexpected shocks will give reason for everybody to pause and realize how vulnerable we are because of globalization itself.
In a word, it is highly likely that countries will start to look more inward. The unquestioned faith in neoliberal economics that started in the Reagan-Thatcher years and drove economic policy for decades will also come under question. With a move towards less interdependence in the global economy a distinct possibility, policymakers will also focus on self-sufficiency, especially in strategic industries such as energy and agriculture.
For many years, Indonesian politicians have been talking about self-sufficiency. Now is an ideal time for them to act. Indonesia’s agricultural sector, in particular, has a huge upside potential, but it has never been properly developed in comparison to peers such as Thailand. Indonesia imports too much of its food, especially horticultural products from China, and if the government were to wisely spend more money on providing farmers with technical assistance, seedlings and fertilizers, Indonesia could very quickly become more self-sufficient. As the old adage goes, with every crisis there is opportunity. Jokowi should take the opportunity