Maintaining Optimism amid Uncertainty

The development of tourism and the downstream industry in natural resources are expected to be sources of the economic growth in 2023. However, challenges related to these sectors need to be overcome.

MEDSOS KOMPAS/ANTONIUS SULISTYO P

View of residential areas against the backdrop of tall buildings in Jakarta from a height, Saturday (14/1/2023)

JAKARTA, KOMPAS — In the midst of a global economic slowdown and uncertainties, Bank Indonesia remains optimistic that the economic growth recorded in 2022 can be maintained this year. For this reason, all stakeholders need to continue to be consistent, innovative and able to coordinate to maintain the economic performance.

"This year we must not let our guard down, we must remain optimistic,” Bank Indonesia (BI) Governor Perry Warjiyo said at the launch of the 2022 Indonesia Economic Report in Jakarta on Monday (30/1/2023).

Perry said that in 2022, BI predicted that the Indonesian economy would grow in the range of 4.5 percent-5.3 percent with an upward bias tendency in the range of 5.1 percent-5.2 percent. This performance was to be supported not only by exports, but also by increased private consumption. Indonesia's estimated economic growth for next year would be higher than the global economic growth of 3 percent.

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Inflation in 2022 was also controlled within the target range. At the end of last year, the inflation rate rose by 5.51 percent, lower than the initial estimate of 6.5 percent after the increase in fuel prices in September 2022. This figure was also lower than the inflation rates in many countries which averaged 8 percent.

The stability of the rupiah exchange rate was maintained with a record depreciation of 8.9 percent against the US dollar, lower the depreciation of various world currencies that reached 25 percent. According to Perry, exchange rate stability was one of the pillars to maintain not only the economy, but also political stability.

From a macroprudential perspective, bank lending grew 11.1 percent on an annual basis. The payment system I also grew with the widespread use of Quick Response Indonesia Standard (QRIS) by 30 million merchants throughout Indonesia.

Source of growth

To support short, medium and long term economic growth, BI encourages the development of new sources of economic growth. This was discussed in a session featuring BI Deputy Governor Dody Budi Waluyo, Tourism and Creative Economy deputy coordinating minister at the Office of the Coordinating Maritime Affairs and Investment Minister, Odo Manuhutu, and the University of Indonesia rector Ari Kuncoro.

Dody said that one of the efforts to expand Indonesia's sources of economic growth in the future would be the development of the downstream industry in the country’s natural resources. By developing its downstream industry, Indonesia's natural resource wealth would gain added value.

KOMPAS/ELSA EMIRIA LEBA

The nickel-based smelter or processing and refining factory area of PT Virtue Dragon Nickel Industry in Konawe, Southeast Sulawesi, Monday (25/2/2019)

According to him, with the large global demand for derivative products from natural resources, Indonesia's exports could increase. It would contribute positively to Indonesia's economic growth. Exports that continue to increase will also result in an increase in foreign exchange reserves, which in turn could encourage the strengthening and maintaining of exchange rate stability.

"I am so bold in saying that the development of the downstream industry in natural resources is a game changer for our economy in the medium and long term," said Dody.

Apart from the downstream industry in natural resources, another source of economic growth that needs to be encouraged is tourism. Odo explained that tourism could be a direct and medium-term economic stimulus. The arrival of tourists generates incomes from the spending, both from domestic and foreign tourists.

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However, currently the tourist sector has not fully recovered after the Covid-19 pandemic. Odo said that the Indonesian people whose purchasing power remains relatively strong can be encouraged to promote domestic tourism. A number of international sports tournaments to be held in the country this year are also expected to attract foreign tourists.

Meanwhile, Ari said that the Indonesian economy was projected to continue to grow and to remain stable as a result of the coordination and good combination of fiscal, monetary and financial policies. He was of the view that policymakers in these three sectors continued to pay close attention to trends in the behavior of the global financial authorities in taking policy directions. "For example, observing the policy direction of the United States central bank, the US Federal Reserve, so that our policy response is appropriate and adaptive," said Ari.

According to the president director of Bank Central Asia Tbk (BCA) Jahja Setiaatmadja, the development of the downstream industry in natural resources would be good for the Indonesian economy. However, the development of the downstream industry would also be very costly as the construction of processing facilities such as smelters would require funds up to tens of trillions of rupiah.

Finding a market or potential buyers of the processed natural resources should come first so that investors would be more interested in coming to build a smelter here.

Not only that, the operation of a smelter would also require large energy sources such as coal. On the other hand, domestic banks are also required to provide funding with an environmental, social and governance (ESG) perspective. Jahja said finding a market or potential buyers of the processed natural resources should come first so that investors would be more interested in coming to build a smelter here.

Meanwhile, senior economist at the Institute for Development of Economics and Finance (Indef), Aviliani, said so far, the government and authorities had been too focused on the supply side, but had not paid enough attention to the demand side. In the downstreaming of natural resources and the development of electric car supply chains, for example, market researchers were also needed.

This article was translated by Hendarsyah Tarmizi.