Legislator: Never Underestimate Economic Crisis due to Covid-19
Member of Commission XI of the Indonesian House Mukhamad Misbakhun urged the government through the Financial System Stability Committee (KSSK) to find common ground and calculate carefully the impact of the coronavirus outbreak on the national economy and financial system, following a statement made by the Finance Minister Sri Mulyani Indrawati who warned that the economic impacts of the coronavirus outbreak would be far more complicated than that of the 1998 monetary crisis and 2008 financial crisis.
“We need to find common ground on the scale of potential crisis. Based on the current data, the impacts of what happens today will be far more detrimental than the crises in the 1998 and even the Great Depression of 1928. If in all those years only several countries were affected, what is happening today affects all countries across the globe, because we look from the supply and demand point of view. I would suggest the Finance Minister to assess the situation carefully. Never underestimate this crisis,” Misbakhun said during a virtual working meeting between Commission XI and the Finance Minister, Monday (6/4/2020).
The Golkar Party legislator was also concerned that if the current policies are not properly synchronized, the golden momentum will be gone because there is a time lag between policy and implementation. From the policy standpoint, he said that according to some economists, what we are seeing today are only the initial economic repercussions.
“Many observers estimate what currently happens is only the initial stage. The peak is not yet predictable. Some say June, July, and so on. In 1998, while it was only the monetary sector that was affected, the whole national economy which had been built by President Soeharto for 32 years immediately dropped by minus 13 percent. At the time, we made a total bailout plan of 600 trillion rupiahs, or 40 percent of our GDP. What matters now is how the government can implement the policy quickly to handle this situation,” he added.
The concept of quantitative easing (QE) has also been questioned by Misbakhun, considering the inevitable shrinking of national GDP, of which the percentage remains to be calculated. “I would say that the QE option that the government should exercise is printing new money. It is a must,” stressed Misbakhun in his remarks.
The East Java legislator argued that a QE by printing new money will allow better economic sustainability than borrowing from international donor agencies. In times when virtually all countries around the world have the same demand for liquidity, the queue will get longer and the yield will be even higher.
“We have no other choices, in my opinion, but to emit more money. It is a chance that the Indonesian Central Bank (BI) has to take given the authority mandated to the institution. During this kind of situation, emission of money can lead to two possibilities; capital outflow or capital flight, and inflation. This increase is better than not doing anything at all. However, we must have the same perception about the QE first”, he explained.
Previously, in another occasion, Finance Minister Sri Mulyani talked about some of the economic policies carried out by other countries to minimize the effects of the Covid-19 outbreak. “Australia and Singapore issued stimulus packages equal to 10.9% of their total GDP. USA issued a $2 trillion emergency fund and cut the interest rate to almost 0%, combined with Quantitative Easing (QE) and loan assistance.
Nevertheless, according to Misbakhun, the QE in the USA has reached $9 trillion. Therefore, the government must be on the same page in deciding the QE. “We should keep our hands off of our foreign exchange reserves and create more money. The point is we must arrive at the same decision first about the amount of money needed and what will be the priorities. Among the vital decisions to be made are prioritizing micro, small and medium enterprises (SMEs) as bailout recipients and provision of electricity subsidies. We also shouldn’t shy away from providing assistance to businesses for they are the driving force of our economy,” Misbakhun suggested. (alw/sf)