Managing Recovery and Seizing Reform Opportunities

Abstract

The worst of the Covid-19-induced economic crisis appears to be behind Indonesia, with the economic contraction lessening in the second half of 2020. While the economic downturn in Indonesia has been modest compared with downturns in peer countries, Indonesia’s handling of the pandemic has been lacking. Almost a year into the pandemic, the country was still struggling with the first wave of infection as the number of new cases reported each day continued to rise. Facing criticism over the government’s handling of the pandemic, President Joko Widodo reshuffled his cabinet at the end of 2020. This Survey examines Indonesia’s plans to manage a longer-than-expected recovery from the effects of the pandemic. We see that much of the labour market is adjusting to widespread loss of employment by shifting into the agricultural sector. We also see an increase in informal employment, leading to a lower unemployment rate than expected. We argue that the pandemic has exacerbated Indonesia’s long-standing structural problems. In addition to responding to the immediate crisis issues, the government must start addressing medium-term challenges and seizing reform opportunities. We discuss the existing recovery policies, including the vaccination strategy and the omnibus law on job creation. We argue that the omnibus law alone is necessary but will not be enough to improve the investment climate and create jobs for economy recovery and long-term structural transformation.