COVID-19’s impact on Indonesia and its global standing

Author: Editorial Board, ANU

As the world looks upon the horrifying images of Indonesia’s COVID-19 crisis, many naturally wonder whether, or how, the country will be diminished at home and on the world stage by its experience and its management of the pandemic. That perhaps reflects an underestimation of the resilience of Indonesian society, the country’s economic fundamentals and, as Liam Gammon writes in our lead article this week, the political status quo.

Indonesia’s capacity to steer a steady path to recovery from its current COVID-19 travails and secure the future of its development will, nonetheless, be under increasingly intense international scrutiny over the coming year as it assumes the presidency of the G20.

Hosting the summit in Bali is just one aspect. Navigating the crafting of an agenda that will secure its standing as a global player with the moral authority to make a difference to its own and the world’s recovery and development outcomes is a far more important one.

Indonesia’s President Joko Widodo (or Jokowi) has ‘staked every ounce of his political capital on his economic development agenda’ since coming to office. His government’s management of the COVID-19 crisis resisted experts’ calls to lockdown in May and June, when they might have made a difference to health outcomes, afraid of upsetting the economy and disrupting civic and religious life.

Despite the anger of many Indonesians at the government’s handling of the pandemic and criticism, especially in the international media, polls have shown that the President’s approval ratings remain healthy, with voters split on whether the economy or health should be the government’s priority. Aware of numbers like these, the administration ‘thinks it has judged the politics of the pandemic well’.

With its political standing at home secure, Jokowi’s senior ministry looks likely to continue to lead Indonesia through the slow but steady process of vaccination and towards economic recovery.

Indonesia had a relatively benign recession in 2020, with annual GDP shrinking 2.1 per cent. The IMF perhaps optimistically reckons the economy will grow by 3.9 per cent in 2021, even considering the Delta wave. The 2022 budget, introduced by President Jokowi last week, continues emergency stimulus packages for business and workers, and targets a healthier 5–5.5 per cent growth next year, almost back to pre-pandemic levels.

Put a huge asterisk against such projections given the myriad uncertainties. But it’s true that one big thing holding Indonesia back from its economic potential — its relative marginality in global supply chains — protects it to an extent from external shocks, as was the case during the global financial crisis.

But engineering national and global recovery and development strategies will require close attention to the high diplomacy of securing open international trade and investment through global trade reform and getting international protocols in place that allow people to move again.

The international collaboration needed to give Indonesia’s and the world’s tourism industry a boost has to be high on that agenda. And there’s no reason for complacency about Indonesia’s current and future foreign direct investment performance. As the World Bank keeps reminding the government, a broad and secure middle class will be built on the back of greater formal employment that foreign investment will be key to creating.

Ten months ago the government used the cover of the pandemic to pass an unpopular Omnibus Bill that amended labour and investment laws. Whether the laws will attract investment in the labour-intensive industries and create stronger employment growth is hard to say as long as Indonesia remains a reservoir for current and future strains of COVID-19. Whatever impediments the law might have removed, a bigger deterrent to investment for now is that a large proportion of Indonesia’s workforce will be vulnerable to getting sick until effective vaccines are freely available and widely administered.

Indonesia went into this crisis spending less than per capita on public health than some of its less prosperous ASEAN neighbours. The collapse of the healthcare system over the past six weeks reflects chronic under-investment in the healthcare infrastructure and workforce as much as the failings of its pandemic control. The pandemic has exposed how much work there is to do to keep the social safety net crisis-ready, despite strong increases in the welfare budget in the Jokowi years. Politicians have used ad hoc emergency assistance for personal political ends — including the former social affairs minister, who was caught booking private jets and making campaign donations with money skimmed off aid funds. It’s appropriate that corruption is being given a prominent place on the G20 agenda next year.

Public health, the social safety net and anti-corruption are less the stuff of photo ops for politicians: it’s hard to cut a ribbon on an improved governance indicator. But a healthier and less financially vulnerable workforce will be as much the basis of future middle-class prosperity as new highways and factories.

The pandemic has reminded the government of the enormous development challenges that lie ahead once the pandemic is over, and that will hopefully be front and centre in its national and international agenda in the last few years of Jokowi’s presidency.

Attending to the huge national problems and alleviating the costly policy trade-offs that confront Indonesia will be made easier by making the most of the opportunity of its G20 presidency to achieve a close alignment of its national and international policy objectives.

This may indeed be among the worst of times the world has seen in a generation or two. But it is the best of times for an aspirant middle-income power like Indonesia to assume leadership of the G20. Fixing the health problems in the developing world through getting vaccines out, opening up the global economy and strengthening its rules, reinforcing the productive momentum of digitisation and protecting against emerging economy financial risks are top priorities for developing economies and globally.

The EAF Editorial Board is located in the Crawford School of Public Policy, College of Asia and the Pacific, The Australian National University.

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