Summary

The COVID-19 pandemic has significantly impacted the Indonesian economy across several dimensions. The first dimension is negative economic growth reaching -2.1% in 2020, while inflation remained relatively low at 1.9%. The second dimension is shown by the significant contraction of most MSMEs in terms of production, employment, and emergency funds for business operations. Meanwhile, the next dimension is the increase in unemployment and the decline in worker income as a result of layoffs and reduced income from self-employment activities.

The Indonesian government responded to the COVID-19 pandemic impact by establishing a strategic program in the form of the National Economic Recovery (PEN) as the implementation of Government Regulation in Lieu of Law Number 1 of 2020. In 2020, the total fiscal stimulus for PEN reached IDR 696 trillion, increasing to IDR 699.44 trillion in 2021. Many parties responded positively and appreciated the PEN plan and its realization. However, several critical challenges still need to be addressed, such as the availability of an accurate and accountable database, particularly for the realization of PEN for social protection and MSMEs. Synchronization and accuracy of poverty data in both urban and rural areas also need improvement. This has implications for the effectiveness and efficiency of PEN fund realization given the relatively limited fiscal stimulus capacity.

Policy recommendations can be implemented by the government with emphasis on PEN planning and realization supported by accurate and accountable databases. The year 2021 marks the initial momentum for national economic recovery through fiscal stimulus within the PEN framework. To that end, PEN fund allocation has been set higher than the previous year. Additionally, the monitoring and evaluation process for PEN fund realization can be conducted more rigorously as a form of public accountability. This means that the increased PEN fund allocation can be balanced by good governance practices. To support PEN, the government can sharpen tax revenue sources and increase borrowing for productive sectors.