2 - Indonesia and the COVID-19 Crisis: A Light at the end of the Tunnel?

Summary

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.