Worries of the Business World Need to be Anticipated

Investment Minister and head of the Investment Coordinating Board Bahlil Lahadia said on Friday (15/7/2022) the government is optimistic that investment goals have so far been on target.

KOMPAS/AGUS SUSANTO

Semi-permanent stalls at the ITC Mangga Dua shopping center, North Jakarta, still seem deserted due to the Covid-19 pandemic, Friday (26/6/2020).

Indonesia is now faced with the risk of global stagflation as a result of the Russian-Ukrainian war, as well as a spike in staple food prices. These external and internal pressures have sparked public worries, especially among entrepreneurs, which need to be anticipated.

Entering the fifth month of the Russian invasion of Ukraine, public worries about the impact of the war remain high, both in the economic and political fields. These worries were recorded in two Kompas polls in March and June.

Concerns about the impact of war on the economy (76 percent) were higher than that of politics (66.8 percent).

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Seen from the economic class, the lower the socioeconomic status of the community, the higher the level of worry. Worries about the impact of war on domestic economic and political stability are also recorded in all employment statuses, both employers, employees and those who are unemployed.

The Russian-Ukrainian war had a rapid impact in disrupting global supply chains, leading to a surge in food and energy prices. The situation caused an increase in global inflation and gradually raised domestic inflation. In Indonesia, inflation in June reached 4.35 percent, the highest level since 2017 and above the 2022 state budget target.

In addition to food, an increase also occurred in the selling price of liquefied petroleum gas (LPG), electricity and non-subsidized fuel oil (BBM).

In the last three months, people have complained about the price increase of basic commodities, which occurred almost simultaneously, ranging from cooking oil, shallots, chilies and chicken eggs to several other agricultural commodities. In addition to food, an increase also occurred in the selling price of liquefied petroleum gas (LPG), electricity and non-subsidized fuel oil (BBM).

Rising prices not only burden consumers but also the business world. This is evident in one of the ways in which producer price inflation soared. In the January-March period of 2022, producer inflation reached 9.06 percent, while consumer inflation was only 2.64 percent. The delay in price increases from producers to consumers needs to be monitored.

Based on a poll in June, the price increases that heavily burden the public are for cooking oil and chilies. Meanwhile, for entrepreneurs, the most burdensome is the increase in the price of fuel (BBM, gas and coal) and the price of agricultural materials (fertilizer and seeds).

AP

Construction workers work on the site of the new municipal medical center in Mariupol with an Orthodox church in the background, on the territory which is under the Government of the Donetsk People's Republic control, eastern Ukraine, Wednesday, July 13, 2022. This photo was taken during a trip organized by the Russian Ministry of Defense.

The commotion over price increases also affects public perception in the political field. Nationally, the Kompas R&D survey conducted in June showed a decline in public satisfaction with the performance of the Joko “Jokowi” Widodo-Ma'ruf Amin government. The decrease in satisfaction among entrepreneurs (73.7 percent to 59.9 percent) was greater than that of non-entrepreneurs (74 percent to 68.9 percent).

With regard to the belief in overcoming the impact of the Russian-Ukrainian war, major businesspeople are not sure yet about the government's efforts to control prices (66.7 percent) and maintain the availability of raw materials (50 percent). However, all levels of businesses believe that the government is able to overcome the economic turmoil that has arisen as a result of the war.

Optimism

The world is not doing well. Just as the COVID-19 pandemic began to show signs of easing, Russia’s invasion of Ukraine stirred a black cloud over the world’s economic recovery. The black cloud got darker when it was accompanied by an increase in global inflation, tightening monetary policies of developed countries and a COVID-19 lockdown in China.

As a result, various world financial institutions agreed to cut their projections for global economic growth, including Indonesia. The World Bank projected that the Indonesian economy will grow 5.1 percent in 2022, 0.1 percent lower than the previous projection. The government’s targeted economic growth for 2022 was in the range of 4.8-5.4 percent. In the first quarter of 2022, the Indonesian economy grew 5.01 percent.

AP PHOTO/ANDY WONG

A worker carrying boxes of goods walks by women selecting handbags at a commercial building in Beijing, Friday, Oct. 18, 2019. China's economic growth sank to a 26-year low in the latest quarter amid pressure from a trade war with Washington, adding to a deepening slump that is weighing on global growth.

Amid emerging external and internal pressures, the psychological perception of the community and entrepreneurs toward the country’s economic and business conditions until the end of 2022 is still positive. The results of the poll show that the lower the socioeconomic status of the community, the more optimistic the respondents are over the economic and business conditions until the end of the year.

High optimism among the lower and middle class cannot be separated from government intervention so far. Hundreds of trillions of rupiah from the state budget (APBN) are disbursed for social assistance (Bansos) covering the lowest 40-60 percent of the population. The scope of social assistance recipients has been expanded, not only for the poor but also for the vulnerable groups of the poor.

In addition to the community, entrepreneurs from the micro, small, medium to large levels are also optimistic about the economic and business conditions in Indonesia until the end of 2022. The optimism among micro-entrepreneurs is the highest (86.7 percent), followed by large entrepreneurs (83.3 percent).

The optimistic attitude of entrepreneurs is in line with measures to improve investment and ease of doing business in the country. The survey shows that a majority of respondents (48.9 percent) think that obtaining business permits in their regencies/cities is quite easy, cheap and fast, but not yet evenly distributed in all regions.

Improvements in domestic conditions have led to people to strive for entrepreneurship. The most popular business fields in the last six months are culinary, agribusiness, fashion and retail (reseller) in e-commerce. The emergence of new businesses must continue to be improved to further strengthen the resilience of the national economy.

On the other hand, the upper class of society has the easiest access to business capital.

However, business interests have also been hindered by access to capital. The majority of respondents (45.3 percent) still find it difficult to get capital to start or expand their businesses. Access to capital is the most difficult for the lower class of society to obtain. On the other hand, the upper class of society has the easiest access to business capital.

Indonesia is in a difficult situation. External pressures are hard to avoid. However, that does not mean that internal pressures cannot be controlled. The transmission of rising global inflation to the domestic market must be accompanied by efforts to maintain domestic economic and political stability. Like sailing, the wind and breaking waves have moved the black clouds into the ocean. The captain must be skillful in controlling this large-loaded boat. Every now and then, the boat shakes; this is OK, as long as it doesn't sink.

(This article was translated by Hyginus Hardoyo)