Stronger Policy Mix Needed to Become Global Growth Epicenter

In the midst of economic uncertainties and a multidimensional global crisis, the ASEAN economy remained resilient as countries consistently adopted a mix of fiscal and monetary policies with prudent principles.

DOKUMENTASI BANK INDONESIA

(From left to right) Governor of the Central Bank of the Philippines Felipe M Medalla, Governor of Bank Indonesia Perry Warjiyo, and Indonesian Minister of Finance Sri Mulyani Indrawati were the speakers at the 2023 ASEAN Indonesia Chairmanship Gala Seminar entitled "Increasing Policy Calibration for Macrofinancial Resilience" on Wednesday ( 29/3/2023).

JAKARTA, KOMPAS — ASEAN is moving ahead to become the epicenter of global economic growth. To realize this goal, especially in the macro-finance sector, ASEAN needs to strengthen the calibration of the policy mix, structural reforms and investment.

Bank Indonesia (BI) Governor Perry Warjiyo said on Wednesday (29/3/2023) in the midst of economic uncertainties and a multidimensional global crisis, the ASEAN economy remained resilient as countries in the Southeast Asian region consistently adopted a mix of fiscal and monetary policies with prudent principles.

ASEAN is also carrying out structural reforms in various sectors. In the macro-finance sector, for example, a number of ASEAN member countries have committed to building ASEAN Payment Connectivity (APC).

“Last year, the five ASEAN member countries that had agreed to integrate payment systems were Indonesia, the Philippines, Thailand, Singapore and Malaysia. Next year, we hope all ASEAN member countries can realize the APC," Perry said at Gala Seminar ASEAN 2023, Enhancing Policy Calibration for Macro Financial Resilience, which was held in a hybrid format on Wednesday (29/3/2023).

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The seminar was part of a series of ASEAN Finance Ministers and Central Bank Governors (AFMGM) Meetings. The four-day meeting is being held in Nusa Dua, Bali, until 31 March 2023.

Perry also emphasized the importance of interstate policy coordination in ASEAN amid global economic uncertainties that continued until this year. A policy mix that is not only based on each country, but is regionally based, is urgently needed to strengthen ASEAN's economic resilience and make ASEAN the epicenter of global economic growth.

BI estimates economic growth in the five largest ASEAN countries, namely Indonesia, Malaysia, Singapore, Thailand and the Philippines (ASEAN-5), will reach 4.6-4.7 percent in 2023 and 5.6 percent in 2024. In 2022, the ASEAN-5 economy grew by 5.3 percent.

ASEAN must also build strong regional benchmarks and carry out structural reforms in various sectors.

On the same occasion, Indonesian Finance Minister Sri Mulyani Indrawati said, to make ASEAN the epicenter of global growth, ASEAN needed to record a sustainable economic growth. Cooperation between monetary and financial authorities should be strengthened to build an ASEAN financial system with prudential principles so the economy of the ASEAN member countries would remain resilient.

"ASEAN must also build strong regional benchmarks and carry out structural reforms in various sectors. That way, ASEAN can remain attractive for investment," she said.

KOMPAS/RADITYA HELABUMI

The ASEAN Indonesia 2023 logo in the Hotel Indonesia Roundabout area, Jakarta, Thursday (2/2/2023).

Liquidity and inflation

Sri Mulyani also mentioned the Chiang Mai Initiative Multilateralization (CMIM) agreement, which outlined a regional financial safety net. The agreement must be updated so the scheme is more flexible and can actually be utilized by its member countries.

CMIM is a multilateral currency-exchange agreement involving 10 ASEAN members, China, Japan and South Korea (ASEAN+3), which was launched on March 24, 2010. One of CMIM's objectives is to provide short-term liquidity financing. Initially, CMIM had foreign exchange reserves of US$120 billion in 2010. Then, in 2012, these reserves were increased to $240 billion.

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The governor of the Central Bank of the Philippines, Felipe M Medalla, stressed the importance of cooperation among ASEAN countries in dealing with the high inflation due to rising food and energy prices. Rapid policy adaptation is urgently needed to overcome these problems such as through the macroeconomic policy mix of each country.

BI estimates the ASEAN-5 inflation rate will decline after touching 6.3 percent in 2022. The ASEAN-5 inflation rate in 2023 and 2024 is estimated at 3.3 percent and 3.2 percent, respectively.

GDP decline

In a report entitled "Falling Long-Term Growth Prospects: Trends, Expectations and Policies" released on 27 March 2023, the World Bank warned global economic growth that had been sustainable for nearly three decades was coming to an end. This was caused by a multidimensional crisis, mainly due to the impact of the COVID-19 pandemic and the Russia-Ukraine conflict.

The World Bank notes the growth potential for the world's average GDP in 2022-2030 is estimated at 2.2 percent per year. GDP growth fell from the 2011-2021 and 2000-2010 periods, which were 2.6 percent and 3.5 percent per year, respectively. Particularly for developing countries, GDP growth will fall to 4 percent per year compared to 6 percent annually during the 2000-2010 periods.

A lost decade could be in the making for the global economy.

"A lost decade could be in the making for the global economy. This could have serious implications for the world's ability to tackle some of the current major challenges, such as poverty, diverging incomes and climate change,” said the World Bank’s chief economist Indermit Gill.

In the report, the World Bank stated the potential loss of growth could be avoided if policymakers increased labor absorption, trade and industrial productivity and investment. If these three things are achieved, potential GDP growth could be increased by as much as 0.7 percentage points to an annual average rate of 2.9 percent.

This article was translated by Hendarsyah Tarmizi