Indonesian economy remains resilient amid global economic threat, is it true?

JI-Jakarta. There are rumors from the developed countries that a breeze of recession is coming. The inflation virus has infected the world, and shockingly, forced central banks all over the world to push the interest rate up. As a result, the world economy shrunk during the last months of 2022.

In the past year, global headline inflation has surged from 4.7 to 8.8 percent year-on-year (yoy), reaching the highest level since the late 2008 financial crisis. Energy prices were the main driver with skyrocketing oil and gas prices.

Other drivers, such as supply-chain disruptions, clogged ports and food-supply shortages, which mainly are the collateral damages from the Russian-Ukraine war, have also contributed particularly in Europe and other emerging countries. There are signs that inflation appears to be abating in December, but it is unwise to expect a quick normalization in 2023, at least not in the early quarters.

Finance Minister Sri Mulyani Indrawati reiterated the government’s commitment to maintaining positive trends of Indonesia’s economic recovery in the midst of global challenges and uncertainties.

“We will ensure that our high economic growth will continue in 2023. We will maintain all factors supporting our national economy, including consumption,” Indrawati stated at the national economy webinar.

To maintain the public consumption level, the minister said the government would allocate Rp104 trillion (US$6.65 billion) for food resilience programmes to ensure food prices not to inflate.

State-Owned Enterprises (SOEs) Minister Erick Thohir said that he expects Indonesia’s economy to grow by five percent this year. Indonesia’s economic growth rate exceeds the global average, and it ranks second among G20 countries, trailing only India (6.1 percent).

According to the International Monetary Fund (IMF), Indonesia’s economic growth will be higher this year than that of China (4.40 percent) and the United States (one percent). Other G20 countries, such as Italy, Germany, and Russia, are expected to experience negative economic growth. Erick said he believes Indonesia must maintain its momentum if it is to grow into a major nation.

Indonesia’s foreign direct investment (FDI) surged 44.2 per cent on a yearly basis in 2022, with the base metal and mining sectors getting the biggest inflows, investment ministry data showed.

Indonesia received 654.4 trillion rupiah (S$57.8 billion) worth of FDI last year, or equivalent to US$45.6 billion in the ministry’s official calculation, which assumes an exchange rate of 14,350 rupiah to the US dollar.

The data excludes investment in the banking and oil and gas sectors. The resource-rich country has been trying to capitalise on its abundant nickel reserves to develop battery and electric vehicle industries at home.

The Finance Ministry reported that the government debt has reached IDR7,733.99 trillion until the end of December 2022, up from IDR6,908.87 trillion at the end of 2021.

Finance Ministry Director Suminto, on the other hand, said that the government’s debt is still at a safe level, citing fiscal discipline, the results of international agency assessments, portfolio development, and debt risk, as well as several steps the government can take to manage the debt.

He said that the increase in government debt over the last year was primarily due to increased financing needs as a result of the state budget deficit.

Bank Indonesia Governor Perry Warjiyo gave a positive assessment of China’s easing of lockdown policies at the Bank Indonesia Annual Investment Forum in Bali.

The policy will benefit both the global and Indonesian economies, he said. Other ASEAN countries, such as Singapore, the Philippines, Malaysia, and Thailand, will be economically impacted as well. Globally, China’s Zero-COVID policy relaxation results in a smoother flow of goods traffic.

The third quarter of 2022 saw Indonesia’s economy grow at one of the fastest rates among G20 members, according to President Jokowi on Sunday, with 5.72 percent and an inflation rate at 5.51 percent.

“Try to compare it with major G20 countries. As far as I remember, if we are not number one, then we are number two among the big countries,” said Jokowi. Therefore, he asked the community to help each other.

Finance Minister Sri Mulyani Indrawati said the United States’ economic growth, which affects the global economy, gives hope that the world economy will not enter a recession, despite the International Monetary Fund’s (IMF) prediction that the world will enter a recession in 2023. She also emphasized that the possibility of a recession remains, owing to the uncertainty of economic growth in each country.

Several investment projects have reportedly been put on hold following setbacks in the implementing regulations of the controversial Job Creation Law, which has led to uncertainty among investors wanting to do business in Indonesia.

Economic Affairs Coordinating Minister Airlangga Hartarto said the government was barred from making revisions and issuing regulations to implement the Job Creation Law following a 2021 Constitutional Court ruling that rendered the law conditionally unconstitutional.

The ruling stated that unless amendments were made within the next two years, the law would be deemed unconstitutional, but in December the government responded to the ruling by issuing an emergency regulation to replace the controversial law in the form of a government regulation in lieu of law.