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Reshuffle of Jokowi’s Economic Team, Why Not?

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Looking at the composition of the economic team in the Jokowi second term cabinet, it seems that Jokowi needs a very clear economic road map to build the foundation of national economic fundamentals towards Indonesia 2045 that was envisioned in his speech at the inauguration of October 20, 2019. Supervised by Airlangga Hartarto, whose track record is not so good in the process of preventing national deindustrialization in the past five years, Jokowi’s hopes to improve the industrial and service sectors, the manufacturing industry, will be difficult to overcome.

Being asked as minister of industry, Airlangga took many questions about the strategy of increasing the industrial sector in the National GDP, thus encouraging the manufacturing sector to continue to increase, even slipping to 19 percent. Until 2018, the contribution of manufacturing reached 19.86%. However, if look at the trends that occur, it is agreed that manufacturing in the Indonesian economy continues to decline. In fact, it is estimated that under 20% is the first time this year has occurred since 1990. The largest contribution ever made by the manufacturing sector amounted to 31.9% in 2002.

Since then, manufacturing has only been able to contribute an average of 20% to GDP and has continued to decrease compared to the national economic growth. With a large contribution, the manufacturing sector grew below the overall growth average. The current condition began in 2005 where the manufacturing sector corrected a slowdown with growth of 4.5% while the Indonesian economy was still growing at 6.01%. In fact, the previous year manufacturing was able to grow 6.38% when the economy grew 5.03%. Since then, the manufacturing growth trend has always been below average and continues to this day.

Comparatively, in Southeast Asia, Indonesia has a relatively small share of manufacturing compared to other countries. Referring to World Bank data for 2017, Malaysia and Thailand have a higher portion, which are around 22% and 27% of GDP, respectively. Indeed, Indonesia is still superior to the Philippines and Vietnam which recorded 19.6% and 15.3%. So however, it is very understandable why the improvement of the manufacturing industry sector is one of the important keywords in Jokowi’s speech last year to increase overall economic growth. Unfortunately, the selection of figures to sit in the position of the Coordinating Ministry for Economic Affairs is somewhat far from Jokowi’s ideals, considering that Airlangga has not succeeded in breaking the deindustrialization trend that has occurred for years back.

And unfortunately, at the time pandemic comes, his ministry issued pre-employment card that become controversy later on. Seeing how it works, the pre-employment cards launched by the government are more like shopping cards, with the stipulation that some of the funds must be spent on products in the form of videos and materials provided by all designated start-ups, after which they can receive incentives. The problem here, government allocated special budget as part of pre-employment incentives to buy videos which is unnecessary for unemployed at the pandemic. Some even see it as corruptive policy benefiting some of start ups in constitutionally.

Meanwhile, for finance ministry, Sri Mulyani has been surviving with her procyclical and austerity style, efficiency in terms of expenditure and expansion in pursuing tax revenue, and opening wide opportunities for global financing institutions to patch up the national fiscal deficit, even though he doesn’t admit it. This is very understandable, considering the efficiency of spending and the intensification-extensification of tax revenues are the main requirements to get the ease of global debt. It’s just that Sri Mulyani’s style will make the national economy more conservative. Economic growth will remain perched at 5 percent, which incidentally will be difficult to provide a fundamental foundation for Jokowi’s ideals who want to get out of the middle income trap. And amid pandemic, as predicted, Sri Mulyani actually never cut the budgets in massive portion, but widening the budget deficit to open wider space for  national depth

In the field of industry and trade, Jokowi has not been able to avoid the politics of accommodation because it must be occupied by two figures whose political background is thick rather than the background of competencies related to their respective fields. They are Agus Gumiwang Kartasasmita for The Ministry of Industry and Agus Suparmanto for The Ministry of Trade. As a result, it is estimated that these two ministries will not give too much change to the facts of Indonesia’s industry and trade going forward, moreover in the middle of pandemic . The symptoms of de-industrialization are expected to be in the previous trend, as well as the condition of the trade deficit that will continue to be swayed between enlargement or reduction of imports, not widening national exports.

Then the presence of Teten Masduki in the Ministry of Cooperatives and SMEs is also quite far from the fire, background and track record of Teten is somewhat unrelated to the field being handled. Inevitably, until this moment, it is unclear where the cooperative sector and SMEs will go. In the pandemic pressures, it is different from the monetary crisis in 1998 where MSMEs actually supported the economy – even exports rose by 350% -, but the impact of the Covid-19 pandemic greatly hit SMEs today. In addition, social restrictions to break the chain of transmission of viruses that spread rapidly among humans also limit the business activities of MSMEs.  But the steps taken by the government to increase MSMEs’s endurance are late, not so effective and not really measurable.

It is also  not so different with Wisnutama’s presence in the Ministry of Tourism and Creative Economy which is a bit disappointing. Wisnutama’s policy platform as well as its competence so far, is no different from the previous minister, Arief Yahya, who played more with tourism imaging such as branding, promotion, and sales. While today, what is needed by the tourism sector is the touch of developing international-class destinations and comprehensive-integrated plan to mature the national tourism ecosystem, so that the tourism sector is integrated with the national economic ecosystem, which is able to increase foreign exchange reserve, increase tourism’s contribution to national GDP, and expand employment opportunities. And in pandemic, this ministry is looked like lost in tourism devastative decreases

So in short, specifically for the economic team, it seems Jokowi is slightly deviated from the ideals he delivered in his inauguration speech. With the composition of the personnel of the second term economic team, Jokowi is not expected to present the achievement of a booming national economic figure. That’s why Indonesia is not really ready dealing with pandemic. While what is needed to deal with demographic bonuses, to get out of the threat of middle income traps, to get out of pandemic pressures right away, it is not enough just to achieve the usual. Normally, Indonesia needs an economic growth rate in progressive percentage to get out of the threat of a middle income trap with the support of fairly high investment growth as well. And now, after plumented economic of first quarter this year, it will really be harder. Therefore, before it is too late, Jokowi really needs to move faster with the right economic team to be out of negative pandemic cycles. And certainly, cabinet reshuffle will not be bad option.

Political Economic Observer and Senior Fellow at Economic Action Indonesia Institution/EconAct

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Economy

The Covid After-Effects and the Looming Skills Shortage

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coronavirus people

The shock of the pandemic is changing the ways in which we think about the world and in which we analyze the future trajectories of development. The persistence of the Covid pandemic will likely accentuate this transformation and the prominence of the “green agenda” this year is just one of the facets of these changes. Market research as well as the numerous think-tanks will be accordingly re-calibrating the time horizons and the main themes of analysis. Greater attention to longer risks and fragilities is likely to take on greater prominence, with particular scrutiny being accorded to high-impact risk factors that have a non-negligible probability of materializing in the medium- to long-term. Apart from the risks of global warming other key risk factors involve the rising labour shortages, most notably in areas pertaining to human capital development.

The impact of the Covid pandemic on the labour market will have long-term implications, with “hysteresis effects” observed in both highly skilled and low-income tiers of the labour market. One of the most significant factors affecting the global labour market was the reduction in migration flows, which resulted in the exacerbation of labour shortages across the major migrant recipient countries, such as Russia. There was also a notable blow delivered by the pandemic to the spheres of human capital development such as education and healthcare, which in turn exacerbated the imbalances and shortages in these areas. In particular, according to the estimates of the World Health Organization (WHO) shortages can mount up to 9.9 million physicians, nurses and midwives globally by 2030.

In Europe, although the number of physicians and nurses has increased in general in the region by approximately 10% over the past 10 years, this increase appears to be insufficient to cover the needs of ageing populations. At the same time the WHO points to sizeable inequalities in the availability of physicians and nurses between countries, whereby there are 5 times more doctors in some countries than in others. The situation with regard to nurses is even more acute, as data show that some countries have 9 times fewer nurses than others.

In the US substantial labour shortages in the healthcare sector are also expected, with anti-crisis measures falling short of substantially reversing the ailments in the national healthcare system. In particular, data published by the AAMC (Association of American Medical Colleges), suggests that the United States could see an estimated shortage of between 37,800 and 124,000 physicians by 2034, including shortfalls in both primary and specialty care.

The blows sustained by global education from the pandemic were no less formidable. These affected first and foremost the youngest generation of the globe – according to UNESCO, “more than 1.5 billion students and youth across the planet are or have been affected by school and university closures due to the COVID-19 pandemic”. On top of the adverse effects on the younger generation (see Box 1), there is also the widening “teachers gap”, namely a worldwide shortage of well-trained teachers. According to the UNESCO Institute for Statistics (UIS), “69 million teachers must be recruited to achieve universal primary and secondary education by 2030”.

From our partner RIAC

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Economy

Accelerating COVID-19 Vaccine Uptake to Boost Malawi’s Economic Recovery

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Lunzu market in southern Malawi. WFP/Greg Barrow

Since the onset of the COVID-19 pandemic, many countries including Malawi have struggled to mitigate its impact amid limited fiscal support and fragile health systems. The pandemic has plunged the continent into its first recession in over 25 years, and vulnerable groups such as the poor, informal sector workers, women, and youth, suffer disproportionately from reduced opportunities and unequal access to social safety nets.

Fast-tracking COVID-19 vaccine acquisition—alongside widespread testing, improved treatment, and strong health systems—are critical to protecting lives and stimulating economic recovery. In support of the African Union’s (AU) target to vaccinate 60 percent of the continent’s population by 2022, the World Bank and the AU announced a partnership to assist the Africa Vaccine Acquisition Task Team (AVATT) initiative with resources, allowing countries to purchase and deploy vaccines for up to 400 million Africans. This extraordinary effort complements COVAX and comes at a time of rising cases in the region.

I am convinced that unless every country in the world has fair, broad, and fast access to effective and safe COVID-19 vaccines, we will not stem the spread of the pandemic and set the global economy on track for a steady and inclusive recovery. The World Bank has taken unprecedented steps to ramp up financing for Malawi, and every country in Africa, to empower them with the resources to implement successful vaccination campaigns and compensate for income losses, food price increases, and service delivery disruptions.

In line with Malawi’s COVID-19 National Response and Preparedness Plan which aims to vaccinate 60 percent of the population, the World Bank approved $30 million in additional financing for the acquisition and deployment of safe and effective COVID-19 vaccines. This financing comes as a boost to Malawi’s COVID-19 Emergency Response and Health Systems Preparedness project, bringing World Bank contributions in this sector up to $37 million.

Malawi’s decision to purchase 1.8 million doses of Johnson and Johnson vaccines through the AU/African Vaccine Acquisition Trust (AVAT) with World Bank financing is a welcome development and will enable Malawi to secure additional vaccines to meet its vaccination target.

However, Malawi’s vaccination campaign has encountered challenges driven by concerns regarding safety, efficacy, religious and cultural beliefs. These concerns, combined with abundant misinformation, are fueling widespread vaccine hesitancy despite the pandemic’s impact on the health and welfare of billions of people.  The low uptake of COVID-19 vaccines is of great concern, and it remains an uphill battle to reach the target of 60 percent by the end of 2023 from the current 2.2 percent.

Government leadership remains fundamental as the country continues to address vaccine hesitancy by consistently communicating the benefits of the vaccine, releasing COVID data, and engaging communities to help them understand how this impacts them.

As we deploy targeted resources to address COVID-19, we are also working to ensure that these investments support a robust, sustainable and resilient recovery. Our support emphasizes transparency, social protection, poverty alleviation, and policy-based financing to make sure that COVID assistance gets to the people who have been hit the hardest.

For example, the Financial Inclusion and Entrepreneurship Scaling Project (FInES) in Malawi is supporting micro, small, and medium enterprises by providing them with $47 million in affordable credit through commercial banks and microfinance institutions. Eight months into implementation, approximately $8.4 million (MK6.9 billion) has been made available through three commercial banks on better terms and interest rates. Additionally, nearly 200,000 urban households have received cash transfers and urban poor now have more affordable access to water to promote COVID-19 prevention.

Furthermore, domestic mobilization of resources for the COVID-19 response are vital to ensuring the security of supply of health sector commodities needed to administer vaccinations and sustain ongoing measures. Likewise, regional approaches fostering cross-border collaboration are just as imperative as in-country efforts to prevent the spread of the virus. United Nations (UN) partners in Malawi have been instrumental in convening regional stakeholders and supporting vaccine deployment.

Taking broad, fast action to help countries like Malawi during this unprecedented crisis will save lives and prevent more people falling into poverty. We thank Malawi for their decisive action and will continue to support the country and its people to build a resilient and inclusive recovery.

This op-ed first appeared in The Nation, via World Bank

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An Airplane Dilemma: Convenience Versus Environment

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Mr. President:  There are many consequences of COVID-19 that have changed the existing landscape due to the cumulative effects of personal behavior.  For example, the decline in the use of automobiles has been to the benefit of the environment.  A landmark study published by Nature in May 2020 confirmed a 17 percent drop in daily CO2 emissions but with the expectation that the number will bounce back as human activity returns to normal.

Yet there is hope.  We are all creatures of habit and having tried teleconferences, we are less likely to take the trouble to hop on a plane for a personal meeting, wasting time and effort.  Such is also the belief of aircraft operators.  Add to this the convenience of shopping from home and having the stuff delivered to your door and one can guess what is happening.

In short, the need for passenger planes has diminished while cargo operators face increased demand.  Fewer passenger planes also means a reduction in belly cargo capacity worsening the situation.  All of which has led to a new business with new jobs — converting passenger aircraft for cargo use.  It is not as simple as it might seem, and not just a matter of removing seats, for all unnecessary items must be removed for cargo use. They take up cargo weight and if not removed waste fuel.

After the seats and interior fittings have been removed, the cabin floor has to be strengthened.  The side windows are plugged and smoothed out.  A cargo door is cut out and the existing emergency doors are deactivated and sealed.  Also a new crew entry door has to be cut-out and installed. 

A new in-cabin cargo barrier with a sliding access door is put in, allowing best use of cargo and cockpit space and a merged carrier and crew space.  A new crew lavatory together with replacement water and waste systems replace the old, which supplied the original passenger area and are no longer needed.

The cockpit gets upgrades which include a simplified air distribution system and revised hydraulics.  At the end of it all, we have a cargo jet.  If the airlines are converting their planes, then they must believe not all the travelers will be returning after the covid crisis recedes.

Airline losses have been extraordinary.  Figures sourced from the World Bank and the International Civil Aviation Organization reveal air carriers lost $370 billion in revenues.  This includes $120 billion in the Asia-Pacific region, $100 billion in Europe and $88 billion in North America.

For many of the airlines, it is now a new business model transforming its fleet for cargo demand and launching new cargo routes.  The latter also requires obtaining regulatory approvals.

A promising development for the future is sustainable aviation fuel (SAP).  Developed by the Air France KLM Martinair consortium it reduces CO2 emissions, and cleaner air transport contributes to lessening global warming.

It is a good start since airplanes are major transportation culprits increasing air pollution and radiative forcing.  The latter being the heat reflected back to earth when it is greater than the heat radiated from the earth.  All of which should incline the environmentally conscious to avoid airplane travel — buses and trains pollute less and might be a preferred alternative for domestic travel.

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