Dealing with Headwinds

Entering the year 2023, Indonesia remains optimistic in spite of the headwind of a probable recession in one-third of the world. Our economy continues to maintain positive growth.

KOMPAS/AGUS SUSANTO

Traffic flow at the Cibitung Interchange, West Cikarang, Bekasi Regency, West Java, Monday (9/1/2023). Indonesia's economic growth during 2022 is estimated to be above 5 percent so that it will become capital for positive growth in 2023.

This optimism is based on the achievements made in 2022. Finance Minister Sri Mulyani Indrawati and Deputy Finance Minister Suahasil Nazara estimated that Indonesia achieved economic growth of above 5 percent in 2022, which would provide capital for positive growth in 2023. The budget deficit was again below 3 percent. The termination of the Public Activity Restrictions (PPKM) had also accelerated economic activities (Kompas, 9/1/2023).

For 2023, several international financial institutions have forecast that the Indonesian economy will grow by 4.7-5 percent, while Bank Indonesia (BI) has estimated general inflation at 2-4 percent.

International Monetary Fund (IMF) Managing Director (IMF) Kristalina Georgieva warned about the headwinds from the high probability of a recession in one-third of the world’s economies in 2023 (Kompas, 6/1/2023).

Also read:

> IMF: Indonesia's Economic Recovery on the Right Track

> Indonesia's Economy in 2022 and Prospects for 2023

Sources of Indonesia’s growth are exports, direct investments and household consumption. We can still hope for growth from exports of manufacturing products, mining commodities, palm oil and coal, although these are expected to decline. Attracting investors to relocate their factories from China still pose a challenge for foreign direct investment. Household consumption remains vital to economic growth.

Data from Statistics Indonesia (BPS) showed that spending among middle class and upper middle class consumers reached almost 80 percent. BI data revealed that indicators on income, employment and business in the consumer confidence index still remained good at above 120 in November 2022. Consumer expectations should be maintained by preserving the existing sources of growth and finding new sources.

KOMPAS/NINA SUSILO

President Joko Widodo (center) announced a ban on bauxite exports at the Merdeka Palace, Jakarta, Wednesday (21/12/2022). The cessation of raw bauxite exports will take effect from June 2023.

Ahead of the 2024 political year, some businesses have decided to be cautious in making new investments, either awaiting the election results or anticipating the likelihood of a recession. Some business sectors are continuing to grow on the basis of new economic undertakings.

The operation of downstream raw materials companies with comparative advantages should be prioritized. We support the aim of President Joko “Jokowi” Widodo to set up nickel and bauxite downstream industries. Their products will promote the growth of the domestic industry.

Also read:

> Bauxite Exports to Stop from June 2023

The energy transformation towards zero carbon emissions is creating new economic opportunities, as is the opening of more downstream industries of agriculture, mass transportation, and design through exports and import substitutions to meet domestic needs. The condition is that export earnings should feed back into the national economy.

The new economic transformation from farming to manufacturing will bring prosperity only if local materials are used maximally and all economic players are involved. Wealth equality will be achieved if human resource quality is enhanced and workers have competence in science and technology. Through these ways, we can expect Indonesia not to fall into a recession and instead emerge as a developed country before long.

This article was translated by Aris Prawira.