Maximizing Stable Economic Growth

Our middle class may still be able to absorb inflation, but if uncontrolled price hikes continue, their resistance will break down. The risk of pressures on growth in 2023 will face the 2024 political year.

KOMPAS/PRIYOMBODO

Buyers choose clothes at a shopping center in the Ciledug area, Tangerang City, Banten, Tuesday (10/5/2022). The Central Statistics Agency (BPS) noted that household consumption was one of the driving forces for Indonesia's economic growth, which grew 4.43 percent.

Indonesia experienced stable and relatively high macroeconomic growth in the first quarter of 2022, despite being overcast by the risks of high inflation and unemployment.

Statistics Indonesia (BPS) recorded that the economy grew 5.01 percent in the first quarter of 2022 and 5.02 percent in the fourth quarter of 2021. This positive growth trend, despite the 0.96 percent contraction, is expected to continue in the second quarter of 2022, buoyed by economic activities during Idul Fitri and exports of crude palm oil, crude petroleum, nickel, tin, copper and coal.

Improving household consumption indicates that the government has succeeded in its effort to control the Covid-19 pandemic through nationwide vaccination, although mudik (exodus) for Idul Fitri 2022 remains a test case for reduced Covid-19 transmission.

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Nevertheless, we need to remain alert to microeconomic conditions. In order to recover from the Covid-19 pandemic and become a developed country by 2045, we need a high rate of quality growth of around 7 percent each year.

This growth rate can be achieved only if we properly manage the micro sector also. Household consumption has not yet recovered to the pre-pandemic level. The segments showing growth are in the tertiary sector, such as hotels, restaurants and transportation, suggesting consumption in the upper-middle income group.

Commodities are also driving exports. In the history of global trade, commodity prices are undergoing a fluctuating cycle. We should be able to benefit from today’s high commodity prices to develop the downstream industries with the best potential, which are agribusiness and mining.

RUNIK SRI ASTUTI

A farmer sprays disinfectant on his pet cattle in the Village of Gagang Kepuhsari, Balongbendo District, Sidoarjo Regency, Tuesday (10/5/2022). This effort is to prevent the spread of the virus so as not to contract the hoof-and-mouth disease that is currently endemic.

Neither should we ignore the ongoing spread of hoof-and-mouth disease (HMD) among cattle in East Java, Aceh and possibly other regions as well. Cows, buffaloes, goats and pigs are assets for rural people. Unless dealt with properly, HMD will impoverish cattle farmers and breeders. Its multiplying effect on reducing export competitiveness should also be taken into account, especially as regards food and agricultural products.

Inflation needs to be prevented from exceeding the government target of 3-4 percent to avoid cutting into consumer purchasing power. Inflation growth is being caused by global food and energy price hikes that have been exacerbated by Russia’s invasion of Ukraine. Although the price of rice is relatively stable, we should control the prices of other food items the people need by increasing domestic production and improving the trade system. Competitive import substitution industries should also be developed.

The risk of pressures on growth in 2023 will face the 2024 political year.

Besides promoting investments in labor-intensive and new economic sectors, boosting the micro, small and medium enterprise (MSME) sector has proved to increase manpower absorption. If inflation prompts Bank Indonesia to raise its benchmark interest rate, the government should offer a solution so that low-interest loans remain available to MSMEs.

Our middle class may still be able to absorb inflation, but if uncontrolled price hikes continue, their resistance will break down. They will stop buying. The risk of pressures on growth in 2023 will face the 2024 political year.

This article was translated by Aris Prawira.