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Indonesia’s Economy Remains Conducive Amid Global Turmoil

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By: Made Prawira )*

The global economy is showing its uncertainty. This global turmoil does not seem to have much effect on Indonesia’s economic conditions because Indonesia’s economic growth is relatively good when compared to other countries.

Moeldoko as the Presidential Chief of Staff stated that the Indonesian economy was relatively good in the midst of the global economic situation which was not doing well due to rising prices of energy and food commodities in foreign markets.

Indonesia’s economic growth data for the first quarter of 2022 reached 5.01 percent year on year (yoy). Then, Indonesia’s inflation is still under control. This is different from the consumer price index in several other countries, which soared due to fluctuations in global commodity prices. Meanwhile, according to data from the Central Statistics Agency (BPS), Indonesia’s inflation until June 2022 was 4.35 percent (yoy).

Moeldoko said that the Indonesian government had made great efforts to control commodity prices in the domestic market, so as not to affect inflation and people’s purchasing power. Among them is the price of oil, which some time ago was still unstable but is now heading for stability.

Moeldoko explained, according to a survey from Bloomberg, Indonesia has a small risk of 3 percent to enter an economic recession. Even Bloomberg has estimated, by ranking how many countries up to 15 countries have economic risks going to the worst (worst).

Indonesia’s economic growth is projected to be one of the most resilient in the midst of increasing global risks. In the June 2022 global economic prospect (GEP) report, the World Bank predicts Indonesia’s economic growth will be at 5.1 percent for 2022, or only down 0.1 percentage point (pp) from the previous project.

Febrio Kacaribu as Head of the Fiscal Policy Agency of the Ministry of Finance in his official statement said that the projection was still within the range of the Government’s outlook of 4.8 percent to 5.5 percent. In the report, the World Bank stated that the Indonesian economy would receive a boost from rising commodity prices.

The Indonesian economy continues to show resilience in the midst of global turmoil. Apart from being one of the few countries that has been able to return output to pre-pandemic levels since 2021, domestic economic performance this year also continues to strengthen, among others, supported by the ongoing pandemic situation.

Febrio said, the government is trying to maintain economic growth by making the pandemic situation conducive so that it can provide comfort for the community in carrying out their economic activities. One way is to encourage vaccination, which has now reached 74.2 percent of the population for the first dose and 62.1 percent for the complete dose.

In addition, global economic risks have shifted from a pandemic crisis to a potential energy, food and financial crisis. The Indonesian government will continue to maintain that domestic economic performance continues to strengthen even in the midst of various global challenges.

In contrast to Indonesia’s condition, the World Bank predicts global economic growth will slow down significantly from 5.7 percent in 2021 to only 2.9 percent in 2022 due to the escalation of various risks. Several other international institutions, such as the IMF, also lowered their projections for global economic growth by 0.8 pp in April.

Global risks, such as geopolitical conflicts caused by the war in Ukraine, have made global inflationary pressures more persistent, mainly driven by soaring energy and food commodity prices and supply disruptions.

Various countries are trying to control inflation through faster and sharper monetary policy tightening, especially in developed countries such as the United States which has the potential to create tightening global liquidity and push up borrowing costs. This has also made the prospect of future global economic recovery overshadowed by great challenges.

The decline in the World Bank’s economic growth projections had a broad impact in various countries. The projection for economic growth in 2022 for the Eurozone is revised downwards by 1.7 pp. From 4.2 percent to 2.5 percent. This is because Europe is currently the epicenter of geopolitical conflict.

Some time ago, the Ukrainian government announced restrictions on the export of several important food commodities, such as wheat, sugar and palm oil in order to meet food needs during the war. Indonesia itself is one of the countries with the largest imports of wheat from Ukraine, ranking second based on the results of UN Comtrade 2021 research.

However, there is no need to worry too much considering that the affected countries can still find other food exporting sources that can replace Ukraine.

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