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Slow stimulus spending threatens Indonesia’s recovery, as small businesses, the backbone of the economy, have been waiting for much-needed funds to survive the extended lockdown period.
According to data from the Ministry of Finance, only about 30% of the total national and provincial government assistance of more than 186 trillion rupiah (13 billion U.S. dollars) has not been paid to small, medium and micro enterprises. The stricter movement restrictions imposed in early July are putting pressure on the economy of many parts of the archipelago, leading Finance Minister Sri Mulyani Indrawati to urge local governments to speed up spending, which will be lower than 2020 in the middle of the year.
“If local spending can be accelerated in the second half of the year, we hope this will support the economic recovery in the region,” Indrawati said on Thursday.
Whether these small businesses can survive the pandemic will affect the stringency of the government’s measures to contain one of the world’s worst coronavirus outbreaks.
There are more than 64 million small, medium and micro enterprises in Indonesia, which employ approximately 97% of the country’s labor force and account for more than 60% of GDP. Southeast Asia’s largest economy has contracted for four consecutive quarters, and then grew by 7.07% year-on-year between April and June, but given the latest restrictions, people are worried about whether this momentum can continue.
According to data from the Indonesian Association of Small, Medium and Micro Enterprises, more than 30 million small, medium and micro enterprises have closed down during the pandemic, with those in the fields of agriculture, fisheries and trade being the most affected. Restrictions that keep people at home and limit the operations of most institutions will continue until August 9, making government stimulus measures one of the few sources of support to keep small businesses running.
Survival game
President Joko recently promised that 12.8 million micro-enterprises will receive a total of 15.6 trillion rupees in cash assistance this year, requiring small, medium and micro-enterprises to “survive with all their strength” during the “semi-blockade” period.
However, declaring aid and putting it in the pocket of the beneficiary are two different things. Nurul Widyaningrum, a senior researcher at the AKATIGA Social Analysis Center in Bandung, said that most aid comes in the form of interest rates or electricity subsidies, but many small, medium and micro enterprises do not have credit lines or physical stores.
Most of the small, medium and micro enterprises in Indonesia are micro and informal, operating outside the home or trolley, selling food and commodities in different villages. She said they usually do not have the business registration documents required to obtain cash assistance.
53-year-old Mukroni has run a “warteg” in Jakarta-a stall selling home-cooked food-for nearly two decades, he has closed one of his three stalls and reduced his labor force. Half to make a living. He said that thousands of other cities in the capital and nearby cities have been closed.
“I had to close a stall near a university because there were almost no customers,” said Mukroni, who leads a group of warteg cooperatives in Greater Jakarta. Mukroni said that he and many other warteg owners have not yet received cash assistance from the government and must rely on personal debt to maintain their business with a 50%-90% drop in revenue.
“We are trying to endure, but every day we don’t know how long we can live,” Mukroni said.
Building module
According to data from the Ministry of Finance, the government only spent one third of the 161.2 trillion rupiah allocated to small, medium and micro enterprises in this year’s national recovery plan, while the local government allocated 25.5 trillion rupiah for social and economic assistance in various provinces. Less than 20%.
The problems in this industry may have a huge impact on Indonesia. Due to worsening poverty and unemployment, Indonesia lost its upper-middle income status granted by the World Bank this year. According to data from the Asian Development Bank, 44% of SMEs in Indonesia are wholesalers or retailers, higher than 25% in the neighbouring Philippines.
Poornima Jayawardana, an expert in the financial sector of ADB, said this means that Indonesian small, medium and micro enterprises “can play a key role in the distribution of goods and services, including providing convenience stores for customers.” “The closure of these small, medium and micro enterprises may have a devastating impact on the local economy.”
For Edy Misero, secretary-general of the Indonesian Association of Small, Medium and Micro Enterprises, the impact of the epidemic this year is even stronger because many small entrepreneurs are unable to maintain cash flow, have exhausted their savings and assumed a large amount of debt.
Misero said: “We clearly understand that movement restrictions are an absolute policy that must be adopted to control the pandemic, but we also need the government to help us take the consequences more seriously.”
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