Amidst the fear of global economy recession threat in 2023, Indonesia will survive despite having to address two major issues: energy prices and fertilizer prices.
“Finance Minister Sri Mulyani Indrawati, Bank Indonesia and the Asian Development Bank (ADB) said Indonesia would still grow at 4.5% to 5% in 2023. If we used the definition of recession, that is 2 quarters of negative growth, it will not happen,” former Deputy Minister for Trade Bayu Krisnamurthi said on January 11, 2023.
“Indonesia’s economic growth of 4.5% to 5% in 2023 is higher than the average economic growth in Asia except for India. China’s economy will decline between 4.5% and 5%,” he said during the “2023 Indonesia (Economic) Projection: A Reversed Perspective” in Jakarta.
Increasing prices may lead to inflation
The World Bank already slashed its global growth forecasts from projections it made in mid-2022 due to worsening economic conditions. It downgraded almost all of its forecasts for advanced economies in the world, cutting its growth outlook for the global economy to 1.7% for 2023, as it reported in the Global Economic Prospects. Earlier, the World Bank projected the global economy would expand by 3% in 2023.
Krisnamurthi highlighted the issue of energy price, especially fuel price. Most Indonesians rely on the subsidized Pertalite gasoline, which price is at IDR 10,000 per liter compared to the non-subsidized Pertamax which is at IDR 12,800 per liter, which previously reached IDR 13,900 per liter.
“If the fuel prices continue to increase, small industries and small- and medium-enterprises, which mostly used subsidized diesel fuel will suffer from the impact,” he said.
Krisnamurthi also pointed out the fertilizer price. Ahead of the growing season, farmers will complain not only about increasing fertilizers prices but also the scarcity of fertilizers. The supply chain will be disrupted and as a consequence the production cost of agricultural products will be impacted.
“In such situation, the government becomes more sensitive against inflation. The government will try to curb the increasing prices, for example rice prices. There will be widespread impact due to inflation,” he said.
Will Indonesia survive?
There are 50 to 60 countries in the world – mostly in Africa, Central Asia and Latin America – that will fall into recession. Krisnamurthi said that Indonesia would likely survive because 56% of the economy has been supported by domestic consumption. Indonesians have saved their money for 2 to 3 years during the COVID-19 pandemic. It is time for Indonesians to spend their money, either by going to stores or buying online.
Consumption, he said, was still the pillar or the strength of Indonesian economy. Not all countries in the world have such domestic economic power.
The implication of the recession in the several countries is the high inflation rate. As a reaction to the economic recession, many countries increase their interest rates including the US central bank, the Fed. Based on the 2022 experience, they increased the interest rate at an unprecedented high rate. As a consequence, Bank Indonesia also had to raise its interest rate.
“We face the increasing prices of energy and fertilizer as well as higher interest rate that become disincentive for productive economic activities and will make economic slowdown,” Krisnamurthi said.
At the same time, the pandemic has provoked narrow nationalism reaction in economy. Countries start to limit their exports in order to meet the domestic demands, including Indonesia. This nationalism will cause the unavailability of several staple foods – including rice, sugar and wheat – in the market.
