ASEAN Beat | Economy | Southeast Asia

Indonesia’s COVID-19 Response Pivots to Support Economic Recovery

Indonesia’s restructured COVID-19 task force has a clear economic bias.

By Jefferson Ng for
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Indonesia’s COVID-19 Response Pivots to Support Economic Recovery
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Indonesia has set up a new COVID-19 Handling and National Economic Recovery Committee to improve coordination and execution of the national COVID-19 response. The Committee merges the original COVID-19 Task Force helmed by Head of the National Disaster Management Agency Doni Monardo with the National Economic Recovery Task Force led by Coordinating Economic Affairs Minister Airlangga Hartarto.

The new structure will help to improve policy coordination between ministries and reduce the likelihood of conflicting ministerial regulations being promulgated. First, a ministerial policy committee led by Hartarto will integrate and determine the country’s strategic policy. Second, Minister of State-Owned Enterprises (SOE) Erick Thohir, concurrently the executive chairman in the new structure, will coordinate policy implementation carried out by the renamed COVID-19 Handling Task Force and the National Economic Recovery and Transformation Task Force.

A clear economic bias is evident in the new structure, with three out of four key leadership positions on the committee led by economic ministers, suggesting that Indonesia has decisively shifted policy attention toward facilitating an economic recovery.

Thus far, the central government’s rollout of health care and social assistance to mitigate the pandemic has been underwhelming, leading President Joko “Jokowi” Widodo to issue a stinging rebuke against some of his cabinet ministers in late June.

There has also been a litany of bad economic news. Minister of Manpower Ida Fauziah recently announced that 3 million people has lost employment as a result of the pandemic, bringing the official unemployment figure to around 10 million. The knock-on impact on the informal sector is probably far greater — Ridwan Kamil, the governor for West Java, highlighted that demand for government social assistance in West Java has skyrocketed from 9 million to 38 million (out of the West Java population of 50 million).

The new structure puts Thohir and Indonesia’s SOEs at the forefront of the economic recovery effort. The minister has been widely credited for his efforts to overhaul the SOE’s troubled corporate governance, and opinion surveys indicate that he is the most well-liked minister by the Indonesian public.

One of his first high-profile actions after his ministerial appointment was to fire the ex-president director of Garuda Indonesia for his involvement in smuggling a Harvey Davidson motorcycle aboard a Garuda plane. Since then, Thohir has worked to restructure, dissolve, or merge SOEs into 12 industry clusters in a bid to rationalize and restore SOEs to profitability. By making the SOE minister the executive chairman of the new COVID-19 response, Jokowi is relying on Thohir’s track record as a trouble-shooter to harmonize potentially competing health and economic interests in policy implementation.

The appointment of the SOE Vice Minister Budi Gunadi to lead the National Economic Transformation and Recovery Task Force also highlights the Indonesian government’s continued reliance on SOEs for policy intervention. For instance, the state-owned Bank Negara Indonesia is channeling credit assistance to micro, small, and medium enterprises through partnership with Grab. Additionally, Bio Farma, Indonesia’s pharmaceutical holding company, will play a key role in domestic efforts to manufacture a COVID-19 vaccine.

Prior to COVID-19, Jokowi looked set to double down on a pro-growth agenda to build infrastructure, invest in human capital, and pass structural reforms to increase private investment and accelerate Indonesia’s economic growth. The follow-through on those ambitions has been stalled as a result of COVID-19.

The Indonesian government has rightly focused policy attention on tackling three major upcoming challenges. Public health care in Indonesia must be prepared for an extended battle against COVID-19, especially with the worsening of the pandemic situation in Jakarta and East Java. At the same time, the central government is concerned about drought and food shortages arising from a climatic anomaly, where about 15 provinces will face drier weather than usual. Natural disasters are also a perennial problem, including the risk of forest fires, floods, and other disaster risks.

Funding constraints mean that infrastructure projects, such as the new capital relocation, will likely be affected, while the omnibus bill on job creation, a major economic reform package targeted at reducing regulatory bloat and simplifying licensing requirements, remains mired in controversy. A recent nationwide survey on the omnibus bill indicates that only 26 percent of respondents are aware of the bill, and the latest protests in front of the Parliament building suggests that building national consensus on the bill remains an uphill struggle.

Nonetheless, the new National Economic Recovery and Transformation Task Force indicates that the economic development agenda remains a key administration priority. Indonesia has persisted in efforts to import foreign expertise to support industrial activity, such as skilled Chinese workers for lithium battery production, and has indeed pulled out all the stops to attract factories seeking to relocate out of China. Many infrastructure projects across Indonesia are also still ongoing, highlighting that the administration is looking for an opportunity to return to its economic agenda.

The downside risks remain high. COVID-19 cases are still far from the peak in Indonesia, and the growing unemployment figures and budget deficits will likely impede efforts to promote economic recovery. The government first urgently needs to bring the virus situation under control and effectively roll out existing assistance schemes to help both the public health sector and ordinary Indonesians. If that can be accomplished, it will be possible for Indonesia to pull off a credible economic recovery program in late 2020 and 2021.

Jefferson Ng is a senior analyst, Indonesia Programme, at the S. Rajaratnam School of International Studies (RSIS), Nanyang Technological University, Singapore.