Fadhil Haidar Sulaeman, Jakarta – Multiple high-ranking government officials have raised serious concerns about the economic hardships to be faced in 2023, noting the necessity to mitigate such risks.
In a keynote address at the National Investment Meeting held on Wednesday, President Joko "Jokowi" Widodo explained that Indonesia and many other countries were facing economic woes that will be prolonged into 2023, and he expects a global recession to start "early next year".
Following the Russian military invasion of Ukraine, hopes of an economic recovery occurring in 2022 were dashed as trade and financial sanctions hampered the flow of goods and services among nations across the globe, which triggered multiple problems including sluggish economic growth, rising inflation, as well as higher interest rates.
Indonesia maintained an impressive 5.72 percent year-on-year (yoy) gross domestic product (GDP) growth in the third quarter of this year, while bringing down inflation to 5.71 percent in October from 5.95 percent in the previous month.
However, signs of a slowdown have become more visible in the recent days as the country's manufacturing purchasing managers' index, an indicator of industry health by S&P Global, has fallen in October with export orders being the main factor.
The country's currency has also taken a beating, with the rupiah depreciating by 10.5 percent year-to-date (ytd) to Rp 15,743 per United States dollar, according to state-owned Bank Mandiri as of Tuesday.
"We all need to have the same feeling, a mutual sense, an agreement that the current situation is not easy. Hardships will happen to all countries," President Jokowi said.
To face these hardships, he called for fiscal and monetary policymakers to be "careful" in making economic decisions due to the high-risk situation, where the world is "not normal".
One of the main tasks that the policymakers need to carry out, he said, is to attract as much global investment into the country as possible, as he forecast that nations would scramble for capital inflows. He said that a lack of capital inflow growth would lead to slower money circulation.
To fulfill the target of Rp 1,400 trillion (US$89 billion) in investment realization in 2023, Jokowi has instructed his officials to ensure the best treatment of investors, so as not to jeopardize the trust that the country has earned in recent times.
Other issues that he said needed fixing were the country's one-single submission (OSS) investment platform, where licensing has actually begun to take much longer. "Be careful, investment is the key," the President continued.
Coordinating Maritime Affairs and Investment Minister Luhut Pandjaitan said at the same event that although the impact of the global recession on Indonesia would be milder compared with European countries, the government would mitigate risks.
"If we do not mitigate the risks, then we will also fall," Luhut said.
Rising global interest rates might result in lower commodity prices, he said, and consequently, state revenue from commodity exports would fall.
Luhut said that although the state revenue from copper and coal exports had fallen, the government sought to maintain incomes from processed nickel and crude palm oil (CPO) shipments.
The coordinating minister also said that consumer spending would take a beating due to the massive recovery already achieved this year and rising interest rates, although the general election campaign season would stave off the worst.
Due to the commitment to holding the deficit within 3 percent of GDP, Luhut said the state budget would be more limited in providing aggregate spending to the economy.
His ministry believes that domestic investment will be under pressure due to rising interest rates, while foreign direct investment that is already in the pipeline should be prioritized for realization.
"Investment realization should be focused on permitting licenses, so that the investments currently in the pipeline can be facilitated," Luhut added, "don't dare let your regions delay the licenses."
Investment Minister Bahlil Lahadalia said at the same event that, based on his meeting with various regional investment chiefs, the investment target for next year could only be achieved if three stability preconditions are met.
These conditions are political stability in 2023, when the general election campaigns will start, peace between Russia and Ukraine and a cooling of tensions between China and Taiwan.
"If stability does not look too good, then I am sorry, this target will have to be re-evaluated," Bahlil told meeting participants.
At a separate event on Wednesday, Bank Indonesia (BI) Governor Perry Warjiyo emphasized the need to adjust interest rates early to control inflation, which is near its highest rate in seven years. However, the availability of energy subsidies next year would let the central bank moderate rises in interest rates.
"Interest rate policy will be frontloaded, pre-emptive and forward looking while being done in a measured way to reduce inflation expectations, which currently remain high," he said at an annual gathering of bankers, government officials and BI, as quoted from Reuters.
To tame inflation, BI has lifted interest rates by a total of 175 basis points this year, while raising banks' required reserve levels and selling some bonds. Consumer prices in October were 5.71 percent higher than a year earlier.