Imperatives for post COVID-19 recovery of Indonesia’s education, labor, and SME sectors

Abstract

The article assesses the impact of COVID-19 pandemic on the Indonesian economy and the influence that repercussions from the pandemic have had on the country’s long-term development goals and objectives. The article used backcasting approach to link expected development objectives and targets with current state of social and economic conditions. Results demonstrated a gap between long-term and current economic performance, attributable largely to the impact of COVID-19 pandemic on the economy and society. A drastic decline in aggregate demand due to contraction in household and corporate expenditure, investment, and exports sparked a surge in open unemployment and underemployment. While swift and wide-ranging government response helped to attenuate the impact of the crisis on the economy and vulnerable sections of society, COVID-19 pandemic impact compounded existing fundamental problems facing the Indonesian economy including de-industrialization, wide urban–rural, East–West, inter-regional digital divide; unemployment and underemployment; weak human resource development; low participation in global value chains; and low education effectiveness. Policy recommendations to nudge the economy and society back to its long-term development trajectory include initiatives to enhance emergency response program effectiveness and tackling structural problems. The initiatives include strengthening and widening the coverage of government programs that support business and society in education, labor and employment, and SME and trade. The thrust of the pathways stresses the need for accelerating the implementation of the national information highway and the ASEAN connectivity initiative. Achieving will support efforts to mainstream the adoption and deployment of digitalization in the economy, government, and transboundary trade.

Keywords:

• COVID-19 pandemic
• GVCs
• SMEs
• economic zones
• Industrial parks
• flipped classroom
• product complexity
• labor relations

JEL Codes:

• A30
• E02
• E24
• E26

PUBLIC INTEREST STATEMENT

The article assesses the impact COVID-19 pandemic has had on Indonesian economy and long-term development trajectory. Using long-term development projection targets as a reference, the article reviewed the current state of economic and social indicators, factoring in the adverse impact of COVID-19 pandemic, to identify whether or not long-term development projections are still achievable. Results highlighted the scale of disruption of COVID-19 pandemic on economic growth, investment and exports, open unemployment, and underemployment. However, government swift and multisectoral spending to vulnerable sections of the population and economy lessened the impact of the pandemic on the economy and society. Nonetheless, COVID-19 pandemic has compounded and exacerbated some of the existing fundamental problems facing Indonesian economy, including the cross-regional, urban–rural digital divide, low education effectiveness and labor productivity, and limited participation in global value chains. The article recommends key pathways to restore the economy to its long-term development trajectory.

Acknowledgements

The author is indebted to the leadership and staff of the Master of Public Administration Program, Department of Management and Public Policy Gadjah Mada University for the great opportunity, space, and support in various forms that made this research possible. The office for International cooperation, UGM, also deserves a vote of thanks for the assistance, in more ways than one, that contributed invaluably to researching and writing this paper.

Notes

1. https://s.nikkei.com/2Y2rSrJ

2. https://coronavirus.jhu.edu/map.html

3. https://canvas.uts.edu.au/courses/1276/pages/backcasting

4. https://www.bappenas.go.id/files/1814/2057/0437/RPJP_2005-2025.pdf

5. https://www.worldbank.org/en/country/indonesia/overview

6. https://tradingeconomics.com/indonesia/gdp-growth-annual

7. https://tradingeconomics.com/indonesia/unemployment-rate

8. Which has largely been attributed to weak link between domestic manufacturing and global Value chains, low investment in physical infrastructure, human capital development, and logistics development (Arvis et al., 2018), improvement and expansion, all of which in various ways undermined the capacity of the economy to compete with cheap manufactured labor-intensive and electronic imports from China since the late 1990s (Lipsey and Sjoholm; Booth, 2011; Tongzon, 2005)

9. Relatively low rank on the human development index of 107 out of 186 countries on with score of 0.718 in 2020, which placed the country in the high human index category for the second year but 0.019 points below world average (0.737 in 2020).

10. Country Classification: World Bank Country and Lending Groups. https://datahelpdesk.worldbank.org/knowledgebase/articles/906,519-world-bank-country-and-lending-groups

11. https://tradingeconomics.com/

12. This is a problem that is not limited to developing countries but is a worldwide one. Based on PISA 2018 survey, on average only 64% of principals in OECD countries acknowledged the existence of teachers with the ability to integrate digital technology devices, a statistic that has a wide range from 27.3% in Japan to 84.1% in Lithuania (Reimers & Schleicher, 2020). If some teachers in industrialized countries, which in general have higher digitalization development and deployment still have relatively “low” ability to integrate digitalization in learning, one can only imagine the situation in many developing countries where information and communications networks infrastructure, supportive human resources, and leadership commitment and support, are still limited.

13. Industry revolution 4.0 is a continuation of industry revolution 3.0, which begun with the invention of the computer and automation by increasing and widening the use of automated connectivity of processes, products, and systems, massive real-time data exchange thanks to cloud computing, cognitive computing, IoT, Industrial IoT, and artificial intelligence. Meanwhile, Industry Revolution 2.0 refers to the industrialization era that got underway after the discovery of electric energy that fostered mass production. Industry revolution era 1.0 is traced to first mechanization of economic activities (industrialization) attributable to water and its harnessing into energy after the discovery of a steam engine. So the industry revolution 1.0 is associated with water and steam energy use, industry revolution 2.0 electricity and mass production, industry revolution 3.0 related to the power of computer and automation, while industry revolution 4.0 mainstreaming and deepening gains of industry revolution 3.0 through harnessing data, connectivity, automation of products, processes, and systems made possible by cloud computing, cognitive computing, and artificial intelligence (Schwab, 2016)

14. In a traditional classroom setting, a teacher is active, explorer, and “vetter” of learning materials, presents theories underpinning course materials, and gives home worker after the lesson to enable learners to home in the learned materials. On the contrary, learners are passive listeners of what the teacher has to say, can pose questions but not a requisite part of the lesson, and do homework after the lesson, which is mandatory to obtain marks but not a principal component of the “lesson.”

15. Some of the money the central government allocates to support business financing can be repurposed for this program.

16. The Omnibus jobs creation law (Law No.11/2020) as enacted on 5 October 2020. Some of the provisions of the la that have causes concerns across a wide spectrum of groups ranging from labor unions, indigenous peoples’ rights activists, to environmental protection advocates include efforts to improve investment climate by relaxing the stringency of areas covered by more than 70 national laws on issues that range from employment, securing business operational permits, to environmental protection. Nonetheless, it is provisions that relate environmental protection and industrial relations that have aroused the strongest opposition. Opposition to provisions that relate to environmental protection is attributable to among other stipulations, the provision that merges business permit processing and project environmental impact assessment analysis report, reducing the scope and parties than can lodge claims against environmental damage caused by among others business operations; removing the requirement for provinces to maintain a minimum of 30% forest cover; requiring proof of wrong doing by complainants against concessionaire holders for environmental damage liability that relates to their concessions. Environmentalists and indigenous community advocates are concerned that the regulation of environmental protection in the newly enacted Omnibus jobs creation law (Law No.11/2020) has the potential to accelerate deforestation, forest and land fires and biodiversity loss, forsaking rights of indigenous communities in favor of mining and plantation concession companies, and in general putting business and profits over inalienable indigenous community human and economic rights and environmental sustainability (Regan, 2020; UU.No.11/2020). Meanwhile, strident opposition to provisions on manpower relations specifically centers on the reduction of the size of severance and retirement payments workers who are laid off or reach retirement receive from their former employers. Omnibus jobs creation law (Law No.11/2020) reduces the amount of retirement payment from 32 times of the worker’s monthly wages to 25 times. And of the 25 times, the employer pays 19 times of the employee’s monthly wage with the remaining 6 times the employee’s monthly wage being paid by the government through a new scheme Jaminan kehilangan Pekerjaan (JKP) under the national social security board (BPJS). In addition to paying the remainder of the severance allowance, the job loss security scheme (JKP) will also pay for employee vocational training exercise to enhance competence through reskilling. Nonetheless, in some key areas such as acquisition of land for business operations that the Omnibus jobs creation Law No.11/2020 provides more certainty by giving businesses the opportunity to apply for land acquisition through the central government if local governments do not have regional spatial plans that are one of the principal conditions and basis for issuing such land acquisition and use permits. That said, despite the fact that under the spatial plan provisions, the central government has the power and authority to directing, regulating, and supervising local governments in developing and implementing spatial plans which must be complementary with national spatial plans and strategic plans, the provision that allows businesses the opportunity to process their land acquisition applications at the central government level rather the than the local governments where their businesses are physically located does not constitute an infringement of the central government on the authority and power enshrined in law No. 32/2004 as revised to become law No. 23/2014 on local governments.

17. Law No.13/2003 allows only one trade union to represent workers in an enterprise, implying that although the laws allows employees to multiple trade unions in an organization, in effect only one can participate in negotiations conducted through a bipartite institution or an organizational regulation on industrial relations with organization management (Law No.13/2003, article 119).

18. Sixteen EU members have already benefited from the scheme.

19. Can be achieved through arrangements with IMF or Chiang Mae initiative, the latter being preferable considering the strong opposition any borrowing from IMF for any reason, is likely to arouse from politicians, academia, and opportunists alike.

20. https://www.cscollege.gov.sg/Programmes/Pages/Default.aspx

21. Ranked 16th in terms of GDP in PPP terms.

22. This includes road, rail, marine, air transportation that have high carbon emissions.

23. Earlier this year Indonesia allowed the establishment of branches of foreign universities in Indonesia.

Additional information

Funding

The author received no direct funding for this research.

Notes on contributors

Muyanja Ssenyonga

Muyanja Ssenyonga, Jameaba, is an economist holding a PhD in economics from Gadjah Mada University (GMU), Yogyakarta. Research interests include cross-cutting topics including labor relations, Poverty and Inequality, financial stability and financial inclusion. Publications include but not limited to financial inclusion and financial stability, poverty and income inequality, and labor relations, and banking and digitalization. Professional experience includes serving as a visiting lecturer and researcher, Master Program in Public Administration (MAP-GMU), research fellow in Pavia University, Lombardy, Italy (spring 2016); Research fellowship South-South Cooperation, Santiago, Chile (spring 2013). The research on imperatives for the post COVID-19 pandemic Indonesian economy builds on previous research experience on the intersection of digitalization, financial institutions performance, educational effectiveness, and labor relations. Results underscore the fact that to attain sustainable effectiveness and competitiveness, it is imperative for economies to adopt and align their practices, procedures and institutions with emerging trends and drivers of best-practice performance.