Reduced activities and mobility of people due to fear of virus transmission and the social restrictions imposed by the government have hampered the offline activities of MSMEs (Reardon et al., 2020).1 Baldwin & di Mauro (2020) argued that the pandemic affects both the demand (i.e. consumer purchasing power) and supply (e.g. raw materials and labor mobility) sides of the market. This paper aims to conduct a comprehensive study of the impact of the COVID-19 pandemic on MSMEs in Indonesia. Second, the existing studies largely partially examined the effectiveness of certain government support programs, whereas this study examined several government support programs of ministries/agencies associated with mitigating the pandemic impact on MSMEs.
To mitigate the impact of the pandemic on MSMEs, the Government of Indonesia launched the National Economic Recovery Program (PEN) that aimed. Only at the end of 2020 did the realization of the PEN program's funds increase and reach 82.83% of the allocated budget. The analysis of the impact of the pandemic on MSMEs incorporates the short-term immediate impact (during the pandemic) and the recovery period for businesses.
Regionally, almost half of the surveyed MSMEs in Sumatera suffered either more than 80% or 60-80%. Most of the surveyed MSMEs recorded a decrease in profit margin due to the outbreak of the pandemic. Most MSMEs had to lay off their workers, except for micro-enterprises that are mainly in the form of individual or family businesses.
Pandemic Scenario and MSMEs’ Recovery
Logistical problems were mainly evident for MSMEs operating in the agricultural sector and those in Jawa-Bali and Sumatera. To some extent, these logistical problems also cause an increase in the prices of raw materials/inputs, as PSBB has created bottlenecks in the supply chain, especially in the distribution of upstream input production. The decrease in demand and orders is the result of mass layoffs across the country, wage cuts, and salary deferrals.
Three other non-financial challenges were reported, although less problematic for MSMEs, including difficulties in sourcing raw materials, inability to meet demand due to staffing issues, and difficulties in accessing health protection equipment (face masks, hand sanitizer, gloves, etc. ). ). One possible explanation for this is their ability to accept online marketing, along with good internet access and consumers' ability to switch to online shopping. At least two types of gaps can be observed: (1) The time gap between the time when MSMEs need external assistance and the acceleration of PEN distribution and. 2) The gap between the extent of the impact of the pandemic on the revenues of MSMEs and the level of PEN realization.
The PEN disbursement was initially halted due to database collection and liquidity issues before Ordinance in lieu of Act (Perppu) No.
Government Policies for Impact Mitigation and Economic Recovery
In general, only a small proportion of micro-enterprises knew about the programs, except for the deferral of principal and interest installments. Meanwhile, small businesses were largely aware of all programs except government procurement of MSME products, state-owned enterprise e-commerce engagement for MSME digitization and online training/capacity building – and their highest participation was recorded in tax cuts. incentives and emergency incentives for working capital. As for medium-sized enterprises, they were mostly aware of all the programs and their highest participation was recorded in procurement of MSME products, SOEs' collaboration with e-commerce for MSME digitization, online training/capacity building and tax reduction incentives.
Notes: Values above represent the percentage of respondents who were aware of the PEN program. The survey revealed that several factors could influence MSMEs' decision to access the program: perception of eligibility for the program, not being able to meet the required documents/paperwork, unsure about the registration requirements and - procedures, informally refused or discouraged by the local officials, or unsure of the location of the registration offices' location. However, Table 5 shows a large proportion of MSMEs that are informed about a PEN program are likely to apply, with the exception of the deferment of repayment of principal and interest loans.
When MSMEs decided to apply for the program, success of the application was not automatically awarded. Notes: The above values represent the percentage of respondents who were informed about the PEN program and were likely to apply. This is because the decision maker of this program was the respective banks of MSMEs and each bank may have its own risk assessment for the individual client.
Other factors that may reject an MSME application include incomplete documents/paperwork or poor credit history. The source of information mentioned in each cell of the table is the main source of information for the respective program and category of respondents. Dark gray cells indicate that the main information source is very dominant (>60% of respondents use it as a reference), and light gray cells indicate that the main information source is used as a reference by 40-60%.
Looking by gender, business communities and associations were also the most reliable sources of information overall, although male-owned MSMEs have more diverse sources of information. Interestingly, regionally, business communities and associations were also the most reliable sources of information overall, but MSMEs outside the Jawa-Bali region tend to have more diverse sources of information. The survey also asked MSMEs about suggestions and expectations regarding future/further programs.
However, looking across sectors, the order of importance of expected future programs varies across sectors and some more specific programs emerge.
Conclusion
Furthermore, since the pandemic outbreak in March 2020, it is estimated that around 50% of MSMEs have experienced hardships with their businesses and some of them have ended up in business closures. Not surprisingly, the pandemic has also created around 2.6–3.7 million new unemployment, some of which are expected to try to start new businesses. The second problem that hindered the effectiveness of the PEN programs was the gap between the distribution and the needs of MSMEs.
Furthermore, exemption facilities and deferrals for credit and multifinance were granted for a period of 6 months, but the pandemic that started since March lasted until the end of 2020 (more than ten months). Finally, productive social tools for MSMEs were provided that were valid for four months, much shorter than the pandemic period of more than eight months at the time of writing this report. The study's findings have several policy implications. First, most MSME PEN programs should be renewed in 2021 or as the pandemic continues, as most MSME recipients reported that the programs were very helpful in mitigating the impact of the pandemic.
A number of MSMEs faced difficulties in obtaining raw materials, such as those producing medical devices and antiseptics. A number of MSMEs faced difficulties in sending their products to markets in other regions despite the high demand. A number of MSMEs faced difficulties in obtaining permission to continue operations and bring their employees to the production site.
Third, should the pandemic continue, the government should ensure that MSMEs can continue to carry out activities through the following policies. Subsidies or delays in the payment of utility costs (electricity and clean water) could be provided, as the findings show that the majority of MSMEs tried to reduce spending during the pandemic. Fourth, once the virus infection cases level off and the pandemic starts to be under control, or at least by the time MSMEs have started adjusting to the new normal, there are some supports that the government can provide to MSMEs.
The government can provide MSMEs and their employees with legal protection by expanding legal assistance related to delays in payment of labor rights, layoffs of workers and legal protections for workers susceptible to the pandemic through workplace safety laws. Indonesia's trade balance, which showed a surplus of USD 21.74 billion in 2020, as opposed to previous years which always showed a deficit, shows that the pandemic offers export opportunities due to slowing production activities of competing countries.
In addition, the various international cooperation programs implemented by governments such as the Regional Comprehensive Economic Partnership (RCEP) and the Indonesia-Korea Comprehensive Economic Partnership (IK-CEPA) require the willingness of MSMEs to compete globally. For example, support can be provided in the form of export financing, insurance and guarantees for companies that want to expand into the international market. Lee (ed.), The role of SMEs in national economies in East Asia, Edward Elgar, pp.
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