By: Dhita Karuniawati )*
Amidst the global dynamics full of uncertainty, the Indonesian government has shown vigilance and preparedness in facing the potential for economic weakness. External factors such as geopolitical conflicts, changes in global interest rates, and fluctuations in commodity prices are serious challenges that can affect national economic stability. To that end, the government has prepared a number of strategic steps to maintain the resilience of the Indonesian economy and ensure sustainable growth in the future.
Minister of Finance (Menkeu), Sri Mulyani Indrawati conveyed a number of strategies of the Government of the Republic of Indonesia (RI) to face economic weakness amidst global uncertainty.
Sri Mulyani said, based on data from the International Monetary Fund (IMF), the projection of Indonesia’s economic growth has been corrected to 4.7 percent, or down 0.4 percentage points from the previous 5.1 percent.
She admitted that one of the reasons for the correction from the IMF was the United States’ reciprocal tariff policy which could cause a slowdown in various activities. Starting from trade activities, of course, because of the fairly high tariff increase. There is even no uncertainty about the relationship between the retaliation carried out by China and the response from the United States.
Although Indonesia’s correction is estimated to be only 0.4 percentage points, Sri Mulyani ensured that Indonesia will continue to improve in terms of our own policy response. First, as conveyed by the Coordinating Minister for the Economy Airlangga Hartarto with the Chairman of the DEN Luhut Binsar Pandjaitan, Indonesia will continue to negotiate the tariff policy set by US President Donald Trump. With the negotiation process still ongoing, the government hopes that Indonesia will not be directly impacted by the implementation of the policy.
Then second, President Prabowo Subianto has requested that a draft of deregulation steps be carried out whose purpose is not merely to respond to what the United States has done. But rather to increase Indonesia’s potential ability to grow higher through various steps to improve the investment climate. These steps are continuously formulated and of course will continue to be monitored and implemented so that the confidence of the domestic economy and economic actors can be maintained or even strengthened.
Sri Mulyani ensured that these are the things that the Indonesian government will currently strive for to maintain the momentum of economic growth. With the reciprocal tariff policy, not only Indonesia’s economy is affected, but all countries without exception.
Meanwhile, Citi Indonesia Chief Economist Helmi Arman believes that the trade tariffs announced by the United States (US) Government on the Indonesian economy will not have a significant impact, although the global trade system will change significantly.
Helmi explained the projection of three layers of tariffs that the US will apply to its trading partner countries. The first layer, the lowest tariff of around 10 percent, is expected to be imposed on countries that have close economic and political relations with the US, such as Japan and South Korea. The second layer, the highest tariff above 50 percent, will likely be aimed at China as a strategic competitor.
Helmi said that although the impact of the tariff war will be felt, Citi’s analysis shows that the impact on Indonesia is relatively more moderate compared to other countries, thanks to the lower ratio of exports and foreign investment to GDP.
The third layer, the middle tariff between 10 percent and the highest tariff, will be imposed on countries with strong relations with both the US and China. Indonesia, along with several other ASEAN countries such as Vietnam, is expected to be included in this middle tariff layer.
The impact of this US tariff policy will be direct and indirect. The direct impact is the potential for a decline in exports to the US due to weakening demand and the loss of competitiveness of Indonesian export products compared to countries subject to lower tariffs.
Meanwhile, the indirect impact includes a decline in exports to countries other than the US due to the weakening global economy and a decline in investment due to disruptions to the global supply chain.
Helmi said that the moderate impact on Indonesia from the US tariffs was because the ratio of exports to Gross Domestic Product (GDP) and the ratio of Foreign Direct Investment (FDI) to GDP were greater. Vietnam, for example, is expected to experience a more significant impact.
Government efforts certainly cannot be effective without the active participation of the community and the business world. Awareness of the importance of efficiency, innovation, and adaptation to change are key to maintaining competitiveness in the global era. The private sector is expected to continue investing, improving product quality, and opening up more job opportunities. Meanwhile, the community is expected to support government programs through consumption of local products and utilization of the facilities that have been provided.
Economic slowdown is a real threat that cannot be ignored, especially amidst increasingly complex global uncertainty. Nevertheless, a number of indicators show that the Indonesian economy remains on a positive track. The Indonesian government, through various strategic policies, is committed to maintaining stability and encouraging inclusive and sustainable growth. With synergy between the government, private sector, and society, Indonesia is believed to be able to overcome challenges and create a more resilient and prosperous economic future.
*) The author is a contributor to the Indonesian Strategic Information Study Institute
