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COVID-19: The politics of economics and adjustment

The economic and health challenges facing Indonesia from COVID-19

Anu Rammohan and Achmad Tohari

Anu Rammohan and Achmad Tohari dissect the unique challenges Indonesia is facing in the fight against COVID-19, highlighting pre-existing vulnerabilities in the health sector of the country as well as likely outcomes for its economy resulting from the pandemic’s impact.

Economies and health sectors around the world are facing unprecedented challenges due to the economic, health and social costs of the global COVID-19 pandemic. Indonesia is no exception. COVID-19 started in late 2019 as a cluster of pneumonia cases with an unknown cause. The cause of the pneumonia was identified as a new virus – severe acute respiratory syndrome coronavirus 2, or Sars-CoV-2. The illness caused by the virus is COVID-19, and unlike other forms of pneumonia cannot be treated using antibiotics. As of 21 April 2020, 6,760 cases tested positive for COVID-19 in Indonesia, of whom 590 have died. The current case fatality rate of around 8.9% is among the highest in the world.

The pandemic has now spread across all the 34 provinces, and is imposing a severe strain on the economy and health sectors. The extent of its economic impacts depend on the success of governments in maintaining the spread of the disease. Estimates from the Jakarta- based SMERU research institute, for example, have projected an increase in poverty rate depending on the economic growth scenario. For example, under the projection of 1% economic growth, poverty would increase to 12.37% from 9.22% in March 2019. This means that there would be about an additional 8.45 million people who would fall into the ‘poor’ category.

Moreover, the Ministry of Finance also notes several scenarios under which COVID-19 will have significant negative consequences on economic activity. First ,  COVID-19 will impact many economic activities , particularly manufacturing, trade, transportation, tourism-related activities and accommodation. This is likely to increase unemployment and in many cases bankruptcy following this economic slowdown.

Second , the island of Java has been the epicentre of the COVID-19 and harder measures are likely to be taken by the Government to prevent a possible spread into other areas. Until 22 April 2020, the central government through the Minister of Health, had approved some regional governments to implement large-scale social restrictions (PSBB). Those regional governments are DKI Jakarta Province which started from 10 April 2020; Bogor City, Bogor Regency, Bekasi City, Bekasi Regency and Depok City which started from 15 April 2020; and Tangerang City, Tangerang Regency, and Tangerang Selatan City which started on 18 April 2020. This will be followed by Surabaya and its greater area soon. The social restrictions on those economic centres will amplify the economic costs of COVID-19 .

Lastly , COVID-19 will impact international trade by decreasing both supply and demand. Production has slowed down, transportation and logistics have become a challenge, distribution channels are obstructed as borders have been shut. In the context of international trade, the Ministry of Finance predicts that Indonesia’s export will decrease by about 14% in 2020. Furthermore, the it forecasts that in the worst-case scenario unemployment could increase by about 5.2 million people.

In terms of the demographic composition of confirmed cases, like in the rest of the world, in Indonesia older people account for a higher proportion of the positive cases. Figure 1 reports the confirmed cases in Jakarta, the capital city with the highest confirmed cases in the country. Among 3,112 confirmed cases in the city (as per data on 21 April 2020), about 40% are people aged over 50 years old. The male composition outnumbers the female. Another sticking figure is the confirmed cases of children. There are about 14 confirmed cases who are below five years old and more than 90 below 19 years old.

Source: Gugus Tugas COVID-19 Provinsi DKI Jakarta - https://corona.jakarta.go.id/id

Indonesia faces several challenges in addressing the COVID-19 pandemic. Indonesia currently has on average just four doctors and 12 hospital beds per 10,000 people, and three intensive care beds per 100,000 people. While the majority of people who contract COVID-19 suffer only mild, cold-like symptoms, substantial increases in the numbers of COVID-19 cases that require hospitalisation will undeniably lead to gaps in hospital staffing, shortages of personal protective equipment (PPE) and a large burden on ICU and ventilation. With a lack of adequate PPE, frontline health workers pay a heavy toll with around 25 health workers among the COVID-19 deaths.

With the start of the Ramadan fasting month, there is likely to be large-scale people movement, with millions of people moving from major cities to their villages. China placed severe restrictions on internal travel, which helped contain the spread of the virus nationally. However, in Indonesia no national ban on ‘mudik’, the annual homecoming during Ramadan, has been established. Moreover, there are currently no social distancing measures in place in large cities such as Jakarta (apart from those applying to a small minority of government employees), which are at the epicentre of the outbreak. Concerns have also been raised at the lack of compliance with social distancing measures, where they have been enacted.

Studies from Wuhan, Italy and the US have shown that a large proportion of severely affected patients have been reported to have underlying comorbidities, typically cardiovascular disease, diabetes and dementia. Indonesia does not share the demographic profile of countries such as Italy; it has a relatively young population with a median age of 29.7, compared to 45.4 years in Italy. However, Indonesia has among the highest smoking rates in the world, with 63.3 million smokers, with the prevalence of smoking among adults estimated at 32.8% in 2016. This increases the risk of smoking-related illnesses. Furthermore, cardiovascular disease and tuberculosis are the first and second cause of adult deaths in Indonesia. These factors potentially increase the risk of a greater proportion of the Indonesian population contracting COVID-19.

Anu Rammohan is Professor of Economics at UWA. She is also a Senior Fellow at the Australia Indonesia Centre and a Fellow of the UWA Public Policy Institute.

Achmad Tohari is a postdoctoral research fellow at Australia-Indonesia Centre, The Partnership for Australia-Indonesia Research (PAIR) – The University of Western Australia.