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Return to Jakarta lockdown will hit economy this quarter, but bitter pill needs to be swallowed: Economists

JAKARTA: The decision to re-impose a partial lockdown in Jakarta will hit the Indonesian economy this quarter, but these restrictions are necessary so that the economy can again grow positively in the long term, said experts interviewed by CNA.

Jakartas Governor Anies Baswedan announced last week that the capital city would return to a partial lockdown, known locally as large-scale social restrictions, amid a continuous increase in the number of daily infections, lack of isolation wards and intensive care unit (ICU) rooms for patients as well as an increase in the fatality rate.

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The following morning, the Jakarta Composite Index fell as much as 5 per cent, triggering a temporary trading halt at the stock exchange.

Coordinating Minister for Economic Affairs Airlangga Hartanto attributed the plunge to Mr Baswedans announcement, while Coordinating Minister for Political, Legal, and Security Affairs Mahfud MD said that the announcement has caused the country to lose 300 billion rupiah (US$20 billion).

There are signs that the city government and Cabinet may not be on the same page over the necessity of reimposing a lockdown in Jakarta starting Monday (Sep 14).

Mr Bhima Yudhistira, an economist with Jakarta-based Institute for Development of Economics and Finance (INDEF) said that the drop in the stocks market was not entirely attributable to the governors announcement.

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“Stricter large-scale social restrictions are needed. The claim of the coordinating minister for the economy is wrong because the Jakarta Composite Index has been experiencing pressure from foreign selling in the last three months,” Mr Yudhistira told CNA.

“Without focusing on handling the pandemic, it will be difficult for the economy to recover. The government has been experimenting with the transitional large-scale social restrictions but the fact is the malls are still quiet, the mobility of the population is also low. Especially the upper-middle class, (they) are still hesitant to shop if the threat of a pandemic is still high,” he added.

Local officials carry a mock coffin to promote awareness of COVID-19 in Jakarta, Sep 15, 2020. (Photo: AFP/Bay Ismoyo)

Similar views are shared by Ms Dian Ayu Yustina, an economist from Indonesias largest financial institution Bank Mandiri.

Ms Yustina said what is now urgently needed is for people to comply with health protocols so the implementation of the large-scale social restrictions would not be in vain.

“The important thing is that people comply with wearing masks and malls and offices comply with the large-scale social restrictions so that infections can be suppressed,” Ms Yustina stated.

Jakarta recorded its first COVID-19 cases in early March and began implementing a partial lockdown on Apr 10.

In June, the city entered a transition period for the large-scale social restrictions, when businesses could gradually reopen after COVID-19 cases started to drop.

But over the past few days, Jakarta has consistently recorded more than 1,000 new infections daily resulting in almost fully occupied isolation wards and ICU rooms.

As of Tuesday, Jakarta has more than 55,000 COVID-19 cases and more than 1,400 deaths, making it the epicentre of the pandemic in Indonesia.

There are now more than 220,000 cases nationwide.

READ: Six months after COVInD-19 strikes Indonesia, questions linger over healthcare capacity and equipment

READ: Spike in occupancy rate for Jakarta's COVID-19 wards over the past 2 weeks

Starting from Monday, only 11 essential businesses were allowed to operate from the office, while the remaining sectors must work from home.

Citizens have also been told to study and pray from home, while parks and entertainment venues are closed.

Restaurants can only serve takeaways but unlike during the previous restrictions, malls may still open.

This time, non-essential businesses may also operate from their premises if they have a special permit but only at 25 per cent of their capacity.

NEGATIVE ECONOMIC GROWTH AGAIN EXPECTED IN 3RD QUARTER

As Jakarta is the centre of the Indonesian economy where 70 per cent of its cash flow is circulating, the large-scale social restrictions this time round will have a negative impact on the economy in the third quarter which will last until the end of September, said economists.

A worker wearing a protective mask walks past a mockup coffin of a COVID-19 victim displayed on the sidewalk of a road to encourage adherence to health protocols, as the coronavirus disease (COVID-19) outbreak continues in Jakarta, Indonesia, September 10, 2020. REUTERS/Willy Kurniawan

However, Ms Yustina believes the effect wont be as severe as compared to the second quarter, when the economy contracted by 5.32 per cent.

“The large-scale social restrictions will certainly have a negative impact on the economy, but because the restrictions are not as strict as before, the impact will not be as big as the first implementation of the large-scale social restrictions in the second quarter,” she explained.

“The third quarter will be better than the second, especially because during July to August when the restrictions were first eased, people started to commute and there was a quite significant increase in activities. Sales indicators also showed an improvement,” she said.

READ: Business braces for impact as Jakarta heads into second COVID-19 lockdown

Economist and chancellor of the University of Indonesia Ari Kuncoro concurred.

“The effect (of the restrictions this time) wont be as drastic (as during the first restrictions).

“This time there probably will still be a negative growth between 1 per cent to 2 per cent,” Prof Kuncoro predicted.

He noted that this round of restrictions are more targeted to curb the disease which has been spreading in offices and industrial zones.

Face mask-clad commuters walk to their train platform at the Tanah Abang railway station in Jakarta, Indonesia, on Aug 18, 2020. (Photo: AFP/Adek Berry)

Prof Kuncoro said that malls can remain open because so far no major cluster has been found in malls, presumably because peoples behaviour in malls is easier to control.

With malls and retailers still allowed to operate, people can still spend which would contribute to some economic growth, he added.

Meanwhile, Mr Yudhistira predicts the economic growth in the third quarter to be between minus 3 per cent to 5 per cent. He also said that a recession is on the cards.

With the economy underperforming, Mr Yudhistira also warned of further layoffs brought about by the new restrictions.

“What has to be anticipated is the wave of layoffs and the increasing poverty rate,” he stated.

It is predicted that there will be about 15 million people laid off nationwide in various sectors until the end of the year, he said.

“The victims of the layoff will migrate to rural villages and change their profession to become farmers. Moreover, if they do not have land, it is feared that there will be villages that become new pockets of poverty,” he said.

A woman wearing a protective face mask works at a food stall as Indonesia's capital Jakarta returns to large-scale social restrictions amid the COVID-19 outbreak in Jakarta, Sep 14, 2020. (Photo: Reuters/Adi Kurniawan)

But Prof Kuncoro is not too concerned that the current restrictions will lead to more people being unemployed.

“The layoffs wont be as dreadful as the first time when the large-scale social restrictions were implemented,” Prof Kuncoro told CNA.

He gave examples of how bicycle factories were on the brink of collapsing but then suddenly saw a huge spike in demand as Jakartans were obsessed with Read More – Source

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