Indef Expert Mixes How To Prevent Growth Contraction, Consumption Is The Main Recipe

Executive Director of the Institute for Development of Economics and Finance (Indef) Enny Sri Hartati (Photo: Special)

JAKARTA - Executive Director of the Institute for Development of Economics and Finance (Indef) Enny Sri Hartati has predicted that the contraction in economic growth throughout 2020 is due to the drop in household consumption levels.

This analysis is then confirmed by a report from the Central Statistics Agency (BPS) which states that household consumption has collapsed to a level of minus 2.63 percent, which is a reflection of the low purchasing power of the community.

In addition, Enny also revealed that another factor that caused economic growth to stall last year was the low gross fixed capital formation (PMTB) or what is often called investment.

"Consumption goes down, let alone minus, investment will definitely go down. This is because 80 percent of the products produced by investment are absorbed by the domestic market. So the strategic effort that the government can do is to keep consumption stable, ”he told VOI, Friday, February 5.

Meanwhile, the National Economic Recovery Fund (PEN) initiated by the government proved unable to withstand the contraction rate of growth.

"If the narrative developed by the government by saying that if there is no PEN funding, the growth could be even more minus, I think this is not a relevant answer," he said.

Enny emphasized that there must be a measure that can calculate the effectiveness of the use of the hundreds of trillions of PEN funds.

"It is also important to establish some kind of mitigation scheme from the impact of this pandemic so that the effectiveness of PEN can be right on target," he said.

The Indef economist also criticized the government's strategy which tends to focus on dealing with the domestic financial sector rather than maintaining household consumption levels.

"It is true that financial policies such as credit restructuring in banks and finance companies can maintain consumption, but it takes time for the transmission process in the field to reach the public," he said.

As previously reported, BPS released Indonesia's economic growth throughout 2020 to contract by minus 2.07 percent on an annual basis compared to the 2019 period.

The Suhariyanto-led institution said that the 2020 gross domestic product (GDP) at the current price was IDR 15,434.2 trillion or IDR 56.9 million per capita.

If you look at the growth in terms of expenditure, household consumption and investment contributed 89.4 percent of last year's GDP formation.