Wrong medicine, wrong time


IO – Looking to boost investment and hopefully stave off the economic headwinds caused by the COVID-19 virus that has inevitably reached Indonesia, President Jokowi is pushing for his omnibus bill to be passed by the National House of Representatives, or DPR. Meanwhile, civil society groups, labour unions and farmer groups are loudly protesting the draft bill, mostly out of the fear that the new laws, if passed, will hurt their welfare. 

In general, many of the new laws contained in the omnibus bill will make Indonesia more competitive. For example, in the labour bill, severance payments for Indonesian workers, which have long been considered overly burdensome for employers, will be relaxed and placed more in line with other emerging markets. This is fine, but it is definitely the wrong medicine given the fact we are living in an unprecedented period, 

For the moment, Jokowi has gotten his priorities wrong. The spreading COVID-19 virus is causing massive supply chain disruptions that is affecting manufacturing around the world. Factories are scaling back production and laying off workers. Tourism-related businesses, starting with airliners, hotels, taxi companies and the restaurants that service tourists have come to a grinding halt. In the Maldives, for example, this correspondent heard reports of nearly empty resorts and zero bookings. In Bali, hotels are starting to empty out as well, and like hotel operators elsewhere, they are now conducting stress tests to figure out how many staff they will need to send home in the coming weeks and months. And here in Jakarta, as the reports of new COVID-19 cases rise, malls are eerily silent. Taxi drivers are complaining of a severe drop in passengers. One taxi driver complained that he had to wait eight hours at the Soekarno Hatta airport just to find one lone customer. 

Just a look at the crashing financial markets should give Jokowi a reason to pause and reconsider. Even countries that rank at the top of the World Bank’s ranking on business climate and competitiveness will not be attracting any new investment soon. Rather, the world’s economies will be experiencing negative investment flows—this will remain the case until the COVID-19 crisis subsides, but when it will subside is something that even the world’s best medical minds can’t predict. 

It is true that the government has taken monetary measures and the economics cabinet has prepared a stimulus package, but it much too little and off target. Part of the package, which looks to boost tourism, is laughable. The total amount of the stimulus, which is USD742 million, pales in comparison to what other countries are doing. Singapore, for example, is looking to spend USD5 billion to keep their economy afloat. Indonesia’s could easily sink unless more drastic measures are taken. 

What, then, should Indonesia do in order to prepare for the coming economic pain? Instead of trying to coax people to travel when they are even afraid to leave their houses, the government should be allocating money for workers laid off from their jobs. At the very least, the government should take emergency actions to ensure that anybody left without a job will be provided with enough money to feed their families and pay their bills. Electricity and gasoline prices should be eased by increasing subsidies. Civil servants should be helped, as well. If the government were to temporarily increase their salaries, it would go a long way in boosting domestic consumption and hence improve the economy. 

Companies also need assistance. For those reporting significant revenue losses, the government should provide special tax relief for as long as the crisis persists. State banks should be instructed to hold off on delinquent loans to give business the breathing space they will need to keep their doors open, and they should fund banks to lend to companies that need extra working capital, all of which are measures that would help avert needless bankruptcies and lay-offs. 

We are still in the early days of the COVID-19 crisis. Dangerously, Jokowi and his team might believe that, somehow, Indonesia will escape the crisis without too much damage. Such wishful thinking is wrong-headed and will pose damage to his legacy unless he corrects his course. Now is the time for extraordinary measures.