Older generations of Indonesians, such as my father-in-law, have quite a bit of experience living through crisis. First in the mid-1960s, as the country experienced hyperinflation and ruinous economic policy that led to the rise of an authoritarian government and a pogrom. And again in the mid-1990s, when a financial crisis toppled that very same authoritarian regime. The COVID-19 crisis is the third major social and economic upheaval in living memory (Indonesia was relatively unscathed by the global financial crisis of 2008, with growth contracting from around 6% to 4.5% in 2009, before jumping back up to 6% the following year).
This crisis is different from the ones that came before - a global pandemic of this scale and nature is unprecedented in our lifetimes. This is not a crisis that started with bad debt or financial shenanigans or fraudulent loans or bad policy. It started in our own bodies, spread invisibly from person to person until fear of contagion drove governments throughout the world to shutter their economies. Such a response has two immediate effects - it shuts down supply, and it wipes out demand. Critically, it does both of these things at the same time. Businesses cannot sell stuff, so they lay off staff, depriving them of income and depressing consumption even more. It’s a rather vicious cycle. If your country has a social safety net - such as unemployment insurance - then the government can help workers get through this suspension of economic activity by giving them cash.
Developing countries often lack such social safety nets, making the logic of a complete shutdown even more tortured. As if a simultaneous negative demand and supply shock weren’t enough, however, emerging markets are also facing the possibility of an impending liquidity crisis and the implosion of their financial systems. Panicked investors have fled emerging markets, pouring money into supposedly safe assets like dollars and US Treasury bonds. This is driving down the value of emerging market currencies, and making dollar-denominated debt more expensive by the day. For some countries, if capital outflows get too big and their reserves are insufficient, you will see the imposition of capital controls and possibly defaults on loan obligations.
All of this is just a long way of saying that if you are in the United States or Australia and you think things are bad, then you don’t have a fucking clue. High-income countries with social safety nets (yes, even weak social safety nets like in the United States) can borrow cheaply, finance large economic stimulus or rescue packages, create loan programs for struggling businesses, flood their capital markets with liquidity and offset the surge in unemployment with cash transfers. Developing countries have few, if any, of these tools at their disposal.
And yet they are expected to completely shutter their economies for an as yet unknown period of time? Millions of people in Indonesia don’t even have bank accounts. How will the government, facing a liquidity crisis and fiscal constraints, issue cash transfers to millions of suddenly unemployed people who live hand to mouth? How will the government ensure that the hundreds of thousands of businesses that are about to be wiped out are able to come back to life when the virus is contained? If the economy is shut down, how to ensure an adequate supply of staple goods? How will a lockdown even control the spread of the disease in densely packed urban squatter settlements?
I don’t know the answer to these questions. No one does. If those businesses are wiped out, and they can’t scratch up some capital from a government loan or assistance program, then guess what? They aren’t coming back, and neither are those jobs. If people don’t have jobs, then consumption will take a long time to recover as well. If millions of poor and informal sector workers lose their jobs all at once, and they have no lifeline or financial assistance, then we could very easily see mass social unrest. What other option do jobless, starving people have then to turn out in the streets?
This possible future is not one that is widely understood, I believe. If it were, then people (often people who don’t actually live here) would be less certain in calling for a strict national lock-down. Social distancing measures, such as the ones already called for by President Jokowi - no mass gatherings, shut down malls, restaurants do take-out only, close shops at 8 PM - reduce the risk of transmission while allowing businesses to stay open and for the economy to at least continue functioning, even on life support. There are no good options here, but this may be the least worst option.
Another perhaps underappreciated aspect of Indonesia’s political economy is the dominance of state-owned companies in key sectors. Many of the largest companies in sectors like electricity, oil and gas and banking are state-owned. This has long been an area of great criticism by economists who believe in the power and efficiency of markets. I have long argued that, in the context of Indonesia’s political economy, it actually makes sense.
And in the context of this crisis, the utility of state-owned companies and their monopoly power in key sectors may become even clearer. This is because the state can force these companies to take heavy short-term losses in order to ensure the adequate, uninterrupted and affordable supply of staple goods to people - electricity, fuel, rice, medicine. It can even force state-owned banks to forgive loans or give grace periods to borrowers or to extend more small business loans to rescue restaurants and hotels that are on the verge of bankruptcy. All of this the government can do without actually pumping money into the economy; it can direct SOEs to do these things and to eat the losses for now. This is not an option in the US, where the government floods the private sector with cash and then just hopes they will do the right thing with it.
I think we should also consider that Indonesia is a resilient society. Within living memory, the country has bounced back from two calamitous economic and political disruptions. Most parts of the archipelago have to deal with the daily possibility of earthquakes, tsunamis and volcanic eruptions. Life in Indonesia is high-risk; it’s not uncommon to drive a motorbike on a sidewalk with no helmet while smoking a cigarette and drinking teh botol with so much sugar even your kids will get diabetes. This is a country that knows tragedy and how to persevere in the face of it, where the earth itself is both violent and beautiful and full of life. And I believe, maybe because I live here and imagining the alternative is too frightening, that Indonesians are prepared to meet and defeat this crisis as well.
