Kiki Verico: Economic Recovery amid Uncertainty due to Pandemic
Delli Asterina ~ FEB UI Public Relations Officer
DEPOK, Monday (06/7/2020) – Tempo daily published an article written by Kiki Verico, Special Advisor to the Minister of Finance and lecturer at the Faculty of Economics and Business, Universitas Indonesia, entitled Economic Recovery amid Uncertainty due to Pandemic. Below is the complete article.
A global pandemic doesn’t happen in a short time. History shows that it only happens once in a century. The current generation was chosen to witness this pandemic with information technology and the fourth industrial revolution. Information about pandemics is plentiful and spreads rapidly, but no one knows the exact time. Health scientists know the causes and ways of dealing with pandemics but have no idea when they can be overcome or when they will end. As in the case of earthquakes, scientists know the cause but don’t know when they will occur. Economists also know pandemics will trigger crises, but have no idea about the exact time.
At the end of June, the International Monetary Fund (IMF) confirmed that the world economy will plunge into a crisis with a growth of minus 4.9 percent. China is predicted to grow positively by 1 percent, while several countries in Southeast Asia, such as Indonesia, Malaysia, the Philippines, Thailand and Vietnam, as well as Sub-Saharan African countries, are predicted to grow slightly better than the rest of the world. Unlike an economic crisis after a world war, a pandemic affects not only the demand side, but also the supply side. The supply side faces a decrease in productivity because people as the core of production must limit their activities, while demand, from consumption to investment and international trade, decreases.
To break the impasse as the economy is locked in a crisis, economists propose two approaches. Firstly, the Keynesian approach that advocates the role of governments as impass breakers. This is not easy because, according to Milton Friedman, in an economic crisis, the government is also affected owing to a decrease in state revenue. Secondly, the Schumpeterian view, which believes that innovation drives economic recovery. The Schumpeterian approach actually coincided with the Keynesian approach during the global economic recession in the 1930s, but Schumpeterian was not popular because of the absence of information and communication technology. Today, with technology, the Schumpeterian approach makes sense because the internet has proven to be an innovative solution in a pandemic. The Keynesian and Schumpeterian approaches have now become a unified solution to the global economic crisis.
The Keynesian approach is a classic approach that has existed for nearly a hundred years. During a recession, the government plays a dominant role in saving and reviving the economy. From the macro demand side, the government provides social protection. Meanwhile, from the supply side, the government seeks to prevent a sudden halt in the supply side by focusing on tackling the pandemic (health), tax incentives, import duties and excise, as well as assistance for micro, small and medium enterprises. Apart from protecting the demand side and maintaining supply stability, the government drives economic recovery when the large-scale social restrictions end. Economic revival starts with the labor-intensive sector by involving all forces, from business entities, ministries and institutions, to local governments and village officials.
Online transaction growth at a time when mobility is restricted proves that the Schumpeterian approach is indeed happening. From a macro perspective, it is indicated by the 9.81 percent growth posted by the information technology sector in the first quarter of 2020, which was higher than the overall economic growth, at 2.97 percent. Information technology not only plays a role in supporting online “home activities”, but also supports “economic transactions”. Stories about how businesses continue to exist amid the pandemic prove that businesses can survive as long as they adapt, innovate, and take advantage of information technology. Tailors switched to making cloth masks, confection clothing companies produce personal protective equipment, fragrance manufacturers produce hand sanitizers, accessories manufacturing companies make food and sell their products through online platforms. In the entertainment services sub-sector, amid declining stage and television activities, a number of public figures are even more successful as YouTubers because viewers are increasingly using social media.
Pandemics should be treated with caution because no one knows when they will end. History shows that the second wave of the Spanish flu occured in October 1918 after the first wave in June 1918. Coping with a pandemic is like running a marathon. It requires strategy, discipline, endurance and patience. The key to patience is trust. When people believe that they can survive a pandemic, they will be patient, even as they enter a new normal. One thing is certain, those who survive are those who have strategy, have patience and master discipline. (hjtp)
Source: Tempo daily, 06 July 2020
(lem)