This situation changes the global supply chain map, which is followed by a shift in the pattern of trade and regional growth. The real impact of the US-China trade war is the migration of export-oriented industries from China, for example to Vietnam and Thailand.
Closely observing the development of the economic situation and prospects in 2019, short, medium or long-term policy scenarios need to be prepared. First, interest rate instruments are still needed if financial markets remain volatile in 2019. To anticipate hikes in the Fed\'s interest rate, Bank Indonesia\'s benchmark interest rate is estimated to rise further in 2019. Short-term instruments are also needed, so that the impact of global dynamics on the domestic economy via the financial line can be mitigated.
Second, tax incentives can become a buffer so as to prevent the economic cycle from being too low. The purpose of this instrument is to boost the sluggish export performance amid the trade war.
Third, the fiscal instrument can be focused on efforts to encourage stimulus to attract foreign capital, particularly foreign direct investment. Policy package XVI, which includes a tax holiday for foreign investment, has been issued. The foreign investment is expected to cover the shortage of capital in the country, so that foreign exchange reserves and the balance of payments are not eroded, thereby preventing the exchange rate from being shaken up.
Fourth, a structural policy package that can increase domestic production to increase export revenue. Besides the tax holiday, policy package XVI also regulates the obligation to place export proceeds on domestic accounts as well as the elimination of 54 business sectors from the negative investment list. Despite criticism, this still facilitates foreign direct investment.
Fifth, consolidation of the policy package needs to be continued to help improve domestic economic productivity, marked by an increase in exports of manufactured products. The domestic economy in 2019 will still fluctuate from the external side, while the internal weaknesses are marked by a deepening deficit in the current account balance. For this reason, the main goal of 2019 is to end the deficit by increasing exports of manufactured products to nontraditional markets. The deficit is expected to shrink to 2.5 percent of the gross domestic product.
Fortunately, the fiscal space remains safe, with a 1.8 percent deficit in 2019. So, if the economic slowdown is more severe in the second half of 2019, fiscal stimulus can be achieved by widening the fiscal deficit proportionally without increasing the risk profile.
Indeed, the situation is difficult, but so far we are quite ready to face the (global) uncertainty of 2019. (A. PRASETYANTONO, Lecturer at Atma Jaya Catholic University Jakarta)