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Just getting started

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Jakarta Post Editorial - December 30, 2024

Jakarta – Indonesia has proven its economic resilience this year, with expected gross domestic product (GDP) growth of 5 percent, according to the World Bank, International Monetary Fund and Asian Development Bank.

Inflation, too, has been under control, with food prices steadily declining throughout the year, while the state budget remains in good shape compared to the world's developed countries, many of which are running high deficits on top of already hefty debt burdens.

This stability in Indonesia has prevailed despite a great deal of uncertainty this year, not least because of the presidential, legislative and regional elections. Investors and businesses generally opted to wait and see what would come of the changes this year, which ushered in a new administration led by President Prabowo Subianto.

With all of the government transitions complete, we might expect there to be more certainty next year.

However, we must accept that we are facing still more uncertainty and that, this time, it's external, outside of what we can control as a nation.

United States president-elect Donald Trump, who will be sworn in on Jan. 20, 2025, has vowed that his administration will introduce a host of protectionist policies, including steep tariffs that could pile pressure on the world economy, having direct and indirect effects on Indonesia.

China, with which the US will soon escalate its trade war, is Indonesia's largest trading partner. And it and Hong Kong, which are considered separately for trade purposes, are Indonesia's two largest sources of foreign direct investment.

The government will also need to remain wary of prolonged geopolitical tensions in the Middle East and Ukraine and their effects on the global economy.

Indonesian exports have continued to perform well throughout the year, consistently exceeding imports. But while November marked the country's 55th consecutive month of trade surplus, the magnitude of that surplus shrank throughout the year as commodity prices normalized.

It is not surprising, then, that the World Bank expects the country's current account to quickly swell to a deficit of some 1.4 percent from this year's 0.9 percent, which would mean more volatility for rupiah's value against the US dollar.

This, combined with uncertainty from Trump, means Bank Indonesia (BI) will surely have less room to continue its monetary policy easing next year, potentially constraining the much-desired interest rate cut intended to boost the domestic economy in 2025, despite the country's low inflation.

There is some hope, however. Trump has signaled his eagerness to end the prolonged wars in Ukraine and the Middle East. Any lessening of tensions and conflict would be good news for the world economy.

As we wait for the global strife to ebb, the new government should prepare well so it can reap the benefits once more peaceful times come, particularly because many crucial tasks from this year have been left undone.

The country has seen notably poor government coordination this year, especially in trade policy, with the trade minister and industry minister trading blame for the problems.

The country has also missed multiple years of opportunities to take the necessary action to reverse the shrinking of its middle class, which Statistics Indonesia (BPS) categorizes as people with monthly spending of 3.5 to 17 times the poverty spending level of Rp 582,932.

The Constitutional Court this year also ordered the government to draft a new manpower law, which has brought uncertainty to businesses until a new rule takes effect.

Indonesia has wasted precious time this year as government officials have been excessively absorbed in politics, including the chief executive himself. And the new government is still adjusting to the huge organizational and policy changes it has introduced.

We cannot afford to let more time slip through our fingers, for the sake of the nation and the promise it holds.

Source: https://www.thejakartapost.com/opinion/2024/12/30/just-getting-started.htm

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