Opinion | As Indonesia faces recession, failure to help informal sector will cost it dearly

Covid-19 has hit Southeast Asia’s largest economy hard and a US$48 billion stimulus is not really addressing the needs of informal workers

During the Asian Financial Crisis, the informal sector kept the economy going

Reading Time:4 minutes

People shop at a market in Jakarta. Indonesia’s informal sector makes up between 60 and 70 per cent of the economy, and is where the country’s most vulnerable make their living. Photo: Reuters

Published: 10:00am, 21 Aug 2020Updated: 10:08am, 21 Aug 2020

In a dramatic fallout from the Covid-19 pandemic, the Indonesian economy contracted by 5.32 per cent for the first time in 20 years between April and June this year. The figure exceeded a previous forecast by economists of 4.61 per cent. If there is a second contraction in the third quarter, it will spell out an economic recession for Southeast Asia’s largest economy.

This is something President Joko Widodo had vowed to prevent. But many experts, including those at the country’s central bank, are coming to the conclusion that a recession may be unavoidable. If so, is the government doing enough to ensure that Indonesians will have what they need to weather the storm?

In an eerie repetition of its initial response to the Covid-19 health crisis, there are signs that the government is more interested in presentation than substance. It has continued to paint a rosy narrative on the economy, playing down the consequences a recession may have for Indonesians.

The president’s right-hand man, Coordinating Minister for Maritime Affairs and Investment, Luhut Pandjaitan, recently tried to understate the matter by way of a boast. “A recession is a possible scenario but we have strong [economic] infrastructure and programmes in place. So we feel comfortable”, local media reported him as saying.

He claimed that his confidence is shared by bodies like the IMF and World Bank. “They keep telling me our programmes are comprehensive and to a certain extent the best among the emerging economies.”

In a speech at the recent annual joint session of the country’s legislative chambers to which the diplomatic corps was invited, Widodo smugly compared Indonesia’s 5.32 per cent economic contraction to the “17 per cent experienced by many developed countries”.

He added that their setbacks “have provided an opportunity and momentum for [Indonesia] to catch up with them at a faster rate”.

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