Abstract

The COVID-19 crisis is one of the most serious challenges in Indonesia's 75-year history. It is testing all aspects of government and society, from health and social security systems to macroeconomic management and administrative capacity. The country's health system has struggled, owing to past underinvestment and inconsistent management during the crisis. Macroeconomic management has been more surefooted, although the fiscal stimulus has been comparatively small and initially slow to reach its intended recipients. The social impacts are still unfolding, reversing the past decades of declining poverty and unemployment. Nevertheless, through a combination of good luck and effective management, the overall economic impact on Indonesia is considerably less than most of its middle income Asian neighbours. The economic decline in 2020 is also much smaller than that experienced during the Asian financial crisis. Predictably, there have been substantial subnational variations in socioeconomic impacts, ranging from the steep decline in tourism-dependent Bali to much smaller impacts in more remote, lightly settled regions. There is so far little evidence that the Widodo administration will change policy directions in any fundamental way as a result of the crisis.

Introduction

The COVID-19 crisis is a defining event for the world. It is the most serious pandemic in a century, and the sharpest peacetime global economic contraction in 90 years. It is truly global, it was unanticipated (at least in the form that it took), and it is everywhere testing all aspects of government and society, from macroeconomic management and health systems to societal resilience and personal wellbeing. It is also occurring at a troubled time for the world, with the rise of populism, authoritarian leaders, democratic regression and a serious dispute between the world's two economic superpowers, and a concomitant weakening of cooperative global institutions and coordinated action to address pressing global economic, political and environmental challenges.

The COVID-19 crisis is also a perfect illustration of the phenomenon of John Kay and Mervyn King's (2020) ‘radical uncertainty’, of ‘unknown unknown’ events that are inherently unpredictable. Writing in the midst of the crisis (October 2020), with no immediate end in prospect, is a perilous exercise.

Abstract

An outbreak the size of the COVID-19 pandemic would surely significantly impact not only the economy but also human capital development. In Indonesia, however, the true size of this pandemic and its human capital impact is unclear since the number of COVID-19 tests has been low. In this chapter we attempt to estimate the true magnitude of the pandemic and outline a conceptual framework to understand channels from which the COVID-19 pandemic will affect human capital development, particularly in health and education, in Indonesia. We find that the number of casualties due to the pandemic could be much larger than those formally announced. The pandemic is expected to increase cases of other morbidities, maternal deaths, and less healthy babies and children. In the long run, there is evidence that a pandemic of this size could increase overall mortality cases.

Introduction

By mid-October 2020, there were around 349,000 formally confirmed cases of COVID-19 in Indonesia and the number of confirmed casualties was approximately 12,000. The pandemic has been spreading to all provinces and the numbers are increasing. Figure 10.1 shows the regional spread of COVID-19 by mid-October 2020. Most confirmed cases are in Java and the Bali Islands. This is understandable since about 58 per cent of Indonesians live in Java and the Bali Islands. Approximately 22 per cent of Indonesians live in Sumatra, but only 15 per cent of cases are on that island. It is predicted, hence, the spread of the pandemic in Sumatra is smaller than the spread of the pandemic in Java and the Bali Islands.

The spread of the pandemic in remote areas of Indonesia, Sulawesi and eastern Indonesia has been relatively equal to the proportion of the population in those areas. However, the number of cases in Sulawesi and eastern Indonesia has increased since July 2020. Hence there are indications that the speed of the pandemic spread in these areas was faster than in other parts of Indonesia between July and October this year. Health facilities and public health programs have been typically weaker outside Java and the Bali Islands, so there is a significant possibility that the pandemic might stay much longer in remote areas of Sulawesi and eastern Indonesia.

Abstract

Like in the Asian financial crisis of 1998, many jobs have been lost during the first year of COVID-19, especially for young people locked out of the labour market. The informal sector seems to have been hit much harder than during the Asian financial crisis, partly because of mobility restrictions and lockdowns. So too have industries heavily dependent on international markets, such as tourism and labour-intensive manufacturing, while non-tradeable transport and construction have also suffered badly. Nonetheless, despite the severity of COVID-19, the Indonesian economy and labour market are doing better than several more globally networked countries in Southeast Asia. Extensive use of the internet has facilitated work from home and skills development, such as through the new Kartu Prakerja (Pre-employment Card). The Unified Database has facilitated government help for the poor, despite delays in disbursals. However, the wide geographic spread of COVID-19 and its effect on labour supply makes support for jobs costly and uneven. Although off to a rocky start in October 2020, reforms seeking to promote investment and employment in the omnibus law Cipta Kerja have the potential to create better jobs during the recovery if managed more wisely.

Introduction

In the first six months of 2020 the spread of COVID-19 was already a severe setback to labour markets in countries across the globe (IMF 2020a). Indonesia has not been spared, with gross domestic product (GDP) growth declining by a huge 5.3 per cent in the second quarter of 2020. Measures to control the spread of COVID-19—social distancing, lockdowns and restrictions on mobility—that were introduced from April to June 2020, had significant effects on economic activity, which have been reflected in job and labour incomes.

In this chapter I explore Indonesia's labour market adjustments in the first eight months of 2020, covering the six-month period from March to August when COVID-19 spread across the country. It is clear that the impact of COVID-19 on jobs and hours of work—and hence on labour earnings—was already severe in the period of large-scale social restrictions (pembatasan sosial berskala besar, PSBB) from March to June 2020, even though the database for evaluating these effects on labour is slim.

Beginning in December 2019 the novel coronavirus swept quickly through all regions of the world. COVID-19 has wreaked social, political and economic havoc everywhere and has shown few signs of entirely abating. The recent development and approval of new vaccines against the virus, however, now provides at least some reasonable hope that we may be coming to the beginning of the end of the pandemic. This volume collects papers from a conference organised by the Australian National University's Indonesia Project titled Economic Dimensions of COVID-19 in Indonesia: Responding to the Crisis, which was held 7–10 September 2020. It constitutes the first thorough analysis of the impact of the pandemic in Indonesia and government's initial response to its deleterious effects.

Collectively, the chapters in this volume focus for the most part on the economic and socioeconomic elements of COVID-19 in Indonesia. After the overview, the remaining chapters can be usefully organised according to three broad topics: monetary and fiscal affairs; trade, labour and poverty; and health, human capital and gender. We begin this introductory chapter by summarising the main points of each chapter. We conclude with a brief discussion of Indonesia's path ahead.

Overview

Hal Hill emphasises that the pandemic represents one of the most serious challenges faced by Indonesia in its 75-year history as a nation. While the country's health system has struggled to respond successfully, macroeconomic policy has been reasonably adept. COVID-19's impact on poverty and unemployment has been generally significant but varied in its severity across Indonesia's vast geography. Overall—thanks to good luck and effective management—negative economic effects have been restrained, at least as compared to those of other countries in the region. Hill argues it is unlikely that the crisis will force the Widodo administration to change its general policy direction in any fundamental way.

Monetary and fiscal affairs

Stephen Grenville and Roland Rajah discuss the two main tasks for monetary policy in the context of the ongoing pandemic: to mitigate short-term portfolio outflows and to help finance the budget deficit. The authors demonstrate that financial outflows, which rose considerably at the beginning of the crisis, quickly stabilised thanks to government intervention in the currency and bond markets.

Abstract

Prior to the COVID-19 pandemic, Indonesia's health system was already facing some daunting challenges: the increasing burden of non-communicable diseases (NCDs), including mental disorders, that threatens to drain the financial sustainability of the universal health system, and the persistent problems of maternal health, and infectious and nutritional diseases. Health and economic costs of NCDs from labour supply and productivity loss are likely to be high and increasing. This chapter discusses the channels through which the COVID-19 pandemic may have medium- and long-term impacts on NCDs and their risk factors. The immediate and long-term effects of the disruption of services, the ‘long-haul’ effects and the effects on mental health may further increase the burden that NCDs place on the Indonesian health system. Indirect effects through income loss and job loss, and long-term tolls on health workers, present challenges for those with NCDs to access services. The effects of the pandemic on NCDs are likely to be heterogeneous across socioeconomic gradients and may exacerbate the existing health inequities.

Introduction

At the end of August 2020, Indonesia was in the midst of a health crisis, with the COVID-19 pandemic showing no clear sign of slowing down. Official figures reported the number of positive cases had surpassed 120,000, with more than 7400 confirmed deaths. Several key economic indicators have also shown that the crisis has hit the economy in full force. By the first quarter of 2020, gross domestic product (GDP) growth had slowed markedly, and official poverty numbers had risen from 9.2 per cent in September 2019 to 9.8 per cent in March 2020 (Olivia et al. 2020). A number of non-representative rapid surveys have suggested that the employment shocks have been severe (Windya 2020; Purnamasari and Sjahrir 2020).

But the pandemic was first and foremost a health crisis. It has challenged the resilience of health systems in countries around the world, including Indonesia. By many accounts, the Indonesian government's immediate health response in dealing with the pandemic has been inadequate (Djalante et al. 2020; Olivia et al. 2020). The delayed response, lack of data transparency and logistical bottlenecks surrounding protective equipment and testing plagued the initial response and continued to be a problem even until August 2020.

Abstract

In Indonesia, and globally, there is increasing evidence that COVID-19 is having varying negative impacts on different social groups. Those already experiencing poverty are less able to take necessary measures to protect themselves, while vulnerable groups are in danger of being plunged further into poverty. Most notably, there are indications of deleterious impacts on women, particularly in regard to domestic and intimate partner violence, and time burdens. In assessing and projecting the impacts of COVID-19, in developing immediate responses, and in identifying longer-term policy directions, it is important to adopt a multidimensional definition of poverty and to ensure analyses are sensitive to gender and to those groups experiencing deepest deprivation prior to the pandemic. This chapter provides an overview of the implications of COVID-19 for people living in poverty. We draw on data from a 2018 study on multidimensional poverty in South Sulawesi, which used the Individual Measure of Multidimensional Poverty (IMMP) to demonstrate the value of measuring multidimensional poverty at the individual— rather than the household—level, and to identify the social groups that were experiencing multidimensional poverty prior to the COVID-19 pandemic. Those findings now have important implications for projecting how COVID-19 is likely to affect different social groups, and for COVID-19 responses.

Introduction

In Indonesia, and globally, there is increasing evidence that COVID-19 is having different negative impacts on different social groups. Those already experiencing poverty are less able to take necessary measures to protect themselves, while vulnerable groups are in danger of being plunged further into poverty. Projections also indicate the likely emergence of the ‘new poor’, those groups that had moved out of poverty but remain susceptible to shocks. Most notably, there are indications of deleterious effects on women, particularly in regard to domestic and intimate partner violence, and time burdens.

Projections of poverty indicate the likely impacts of COVID-19 in terms of income, but are less able to provide insights into the ways different social groups are likely to be affected by the combination of health crisis, economic downturn and declining incomes, and mobility restrictions. In projecting and assessing the impacts of COVID-19, in developing immediate responses, and in identifying longer-term policy directions, it is important to adopt a multidimensional definition of poverty and to ensure analyses are sensitive to gender and to those groups experiencing deepest deprivation prior to the pandemic.

Abstract

We examine the potential effects of COVID-19 on district government revenues, district and household spending, and ultimately local public service access. We find that the government forecasted decrease in economic growth and knock-on effects on central government budget revenues might lead to a 5.5 per cent decline in district intergovernmental transfer revenue, a 6.0 per cent decrease in district spending and a 7.5 per cent decrease in household spending. We estimate that the combined downturn in district and household expenditure would result in a 2 percentage point reduction in household access to local services from the projected baseline, a modest impact. We conclude that while COVID-19 may have a significant negative impact on local public services it will likely not derive from districts’ reduced access to funding or lower household spending. Central government has already organised a program of conditional cash transfers to needy households and this may help dilute any negative service effects related to declining household expenditure. Some observers have argued for a large increase in intergovernmental grants to combat the adverse effects of falling district spending. We do not advocate this approach, given the longstanding ineffectiveness of districts in using their considerable fiscal resources to enhance local service delivery.

Introduction

COVID-19 continues to have severe negative health and economic impacts across the vast majority of countries in the world. Indonesia has not escaped these destructive effects. As of this writing, Indonesia has experienced 320,000 cases of COVID-19 and 11,500 related deaths. Many observers believe these figures significantly underestimate the reality. Indonesia has not yet managed to ‘flatten the curve’ and COVID-19 cases and associated deaths are increasing at a rapid rate. COVID-19 is expected to have a large negative effect on economic growth in 2020 and possibly beyond into 2021. The Ministry of Finance estimates that the economic growth rate in 2020 may drop to between 2.3 per cent and −0.4 per cent from about 5.0 per cent in 2019.

COVID-19 will also likely have a substantial negative impact on local public service delivery, especially in the education, health, and water and sanitation sectors. Hard data are difficult to come by at this stage, of course, but anecdotal evidence confirms the expected adverse effects.

Abstract

Monetary policy has a limited role in the COVID-19 crisis, with the main macro challenge falling to fiscal policy. That said, Bank Indonesia has two important tasks. The first is to ensure the continuity of short-term portfolio inflows. So far so good: the outflows that occurred early in the crisis have largely stabilised, though vulnerability remains. We make several suggestions on currency and bond market intervention policy. The second, more challenging and unaccustomed task is to help fund the expanded budget deficit. An important element in Indonesian macropolicy has been fiscal discipline—with recent deficits funded largely by raising funds in the rupiah bond market. Faced with the COVID-19 crisis, Bank Indonesia is now directly purchasing government bonds, including some ‘burden sharing’ of the interest cost. This funding mode, often dubbed ‘money printing’, has become routine in many developed economies but is less common in emerging economies. It presents risks to macrostability and Bank Indonesia independence, particularly if the crisis persists, but is justified by the vital need for budget funding and the lack of alternatives. However, Bank Indonesia needs an exit strategy to limit this resort to unconventional funding. In the longer term, the emphasis needs to be on mobilising domestic savings as a more stable way to fund the budget.

Introduction

COVID-19 represents a twofold global challenge—how to handle the health aspects while softening the economic recession caused by the combined effect of imposed restrictions and the public's behavioural changes. The main economic task is to support the incomes of those put out of work and the viability of businesses in temporary forced hiatus. Thus the main macropolicy response is fiscal expansion.

Nevertheless, Bank Indonesia is playing several important roles. It is playing a traditional central banking function by cutting interest rates, ensuring adequate system liquidity and providing support for on-lending by banks. It has also intervened heavily in the currency and bond markets to stabilise these in the face of very large capital outflows, mostly in March and April. Finally, it is providing significant direct financing to the government—a process often (if incorrectly) called ‘money printing’.

Descent of Lord Jagatpramāṇa

It is told that in former times the island of Java (Yawaḍipa) was an unstable land mass, without mountains or inhabitants; a condition which prompted the Supreme Lord Jagatpramāṇa (Bhaṭāra Guru) to descend to earth, together with his consort Bhaṭārī Umā. Setting up an initial residence at Ḍihyang, the divine couple proceeded to perform yoga. The gods Brahmā and Wiṣṇu were then instructed to create human beings. Kneading lumps of clay, Lord Brahmā created the male and Lord Wiṣṇu the female, an act which is said to have taken place on the mountain named Pawinihan.

As already observed, the name Ḍihyang refers to the misty heights of the Dieng Plateau in central Java (see Figure 2). The fact that this region preserves some of the island's earliest surviving Hindu-Javanese temple remains can hardly be regarded as accidental, but rather indicates that the author of the TP acknowledged the antiquity of Ḍihyang, both as a “senior” religious centre and cradle of the Śaiwa cult in Java. This in turn implies that an ancient network of ascetic communities maintained an unbroken dialogue throughout the Hindu-Javanese period, impervious to the shifting of the royal courts and accompanying political turmoil. Both the inscriptional and literary records provide evidence of such a continuity. In the region of Dieng itself, R.D.M. Verbeek already noted the existence of a rock inscription displaying the Śaka date 1132 (AD 1210–11), and a stone image of Wiṣṇu dated Śaka 1216 (AD 1294–5) was reported by N.W. Hoepermans. More recently, S. Satari has proposed a fourteenth or fifteenth century dating for an important yoni pedestal preserved in the district of Petungkriyono (discussed below). Further indication of an ongoing tradition is provided by the Old Sundanese poem recounting the journey of Bujangga Manik. Composed in around the year 1500, this work is of particular interest for its reference to quite a number of religious institutions mentioned in the TP, several of which were situated in central Java. There is, in addition, a collection of lontar manuscripts popularly known as the Merapi-Merbabu corpus, preserved in the National Library at Jakarta.

The Old Javanese text of the Tantu Panggĕlaran (Pigeaud 1924, pp. 57–128)

Archaeological Record for the Tengger Highlands and Hyang Plateau