JAKARTA: Indonesia anticipates grim repercussions as a result of the Covid-19 pandemic as the International Monetary Fund (IMF) projects the worst global recession since the Great Depression.
The government estimates 1.1 million to 3.78 million Indonesians will fall into poverty and 2.9 million to 5.2 million could lose their jobs during the downturn, with economic growth projected to be at the lowest level since the 1998 financial crisis.
According to The Jakarta Post, Finance Minister Sri Mulyani Indrawati said this in a teleconference briefing on Tuesday.
“Covid-19 has resulted in the global economy entering a recession,” she said, adding that this prompted the government to use state funds to increase spending on health, social safety and support for businesses.
The minister added that there would be “support for business activity from the informal sector to micro, small and medium enterprises and the business world... because this is related to layoffs and social repercussions”.
In its new World Economic Outlook titled “The Great Lockdown”, IMF estimates Indonesia’s economic growth to plunge to 0.5 per cent this year from a four-year low of 5.02 per cent last year.
IMF also projects that the country’s unemployment rate will rise to 7.5 per cent this year, from last year’s 5.3 per cent as the pandemic has upended supply chains, forcing companies to lay off employees, and crushed demand for goods as consumers stay at home.
The Manpower Ministry and the Workers Social Security Agency (BPJS Ketenagakerjaan), in a report on the crisis, estimate a total of 2.8 million people have lost their jobs up to Monday. More than half were furloughed and placed on paid or unpaid leave.
“The significant downward revision to the 2020 growth projection reflects large anticipated domestic disruptions to economic activity from Covid-19,” the report says.
IMF expects the virus to hit Indonesia’s economy as the country relies heavily on the export of commodities rather than finished goods.
“Among developing economies, all countries face health crisis, severe external demand shock, dramatic tightening in global financial conditions, and a plunge in commodity prices,” the report says.
“They will have a severe impact on economic activity in commodity exporters.”
IMF expects recovery to take place next year as the country’s economy may expand by 8.2 per cent. The global economy is projected to contract by three per cent this year, but growth is expected to recover next year with a projected rate of 5.8 per cent.
“It is very likely that this year, the global economy will experience its worst recession since the Great Depression (1929-1933), surpassing what was seen during the global financial crisis a decade ago,” IMF chief economist Gita Gopinath said.
“Worse growth outcomes are possible and even likely. This would follow if the pandemic and containment measures last longer, emerging and developing economies are even more severely hit or if widespread scarring effects emerge due to firm closures and extended unemployment.”