Global Pandemic’s Scarring Effects and Indonesia’s Economy

The unexpected Covid-19 pandemic has hit the whole globe, including Indonesia, since the end of 2019. It took around three months until the first patient in Indonesia was reported in March 2020. The world had shocked, and the nearest global pandemic experience was around one hundred years ago of Spanish Flu when Indonesia was still colonialized and did not have many lessons learned to take. The global pandemic hit the Indonesian economy and generated scarring effects from the aggregate demand (AD) side. It created a liquidity trap that made money ample in the financial system, but the real sector significantly declined. A low inflation rate accompanies negative economic growth. The global pandemic made governments limit people's movement, decreasing the aggregate supply (AS). The latter has increased the inflation rate, and a high inflation rate now accompanies negative economic growth. The world was facing both low aggregate demand and supply simultaneously. It was called the perfect storm for the economy. The whole world, including Indonesia, must contain the pandemic to make the economy works back to normal. Indonesia experienced two negative economic growth in 1963 and 1998, but none of them was aggregate demand side of the combination of aggregate demand and supply. The economic crisis of 2020 affected AD and AS is the first time in Indonesia. This chapter explains how the global pandemic affected the Indonesian economy and how Indonesia responded to it with the period of analysis from March 2020 to December 2022. This chapter applies qualitative analysis.