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Why the world has to look to Indonesia’s robust economic growth
It will be crucial to maintain fiscal discipline in the run-up to the 2024 presidential elections and to show a confident Indonesia in selecting a new leader who will continue prudent economic management.
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undefined (AFP/Getty Images/Drew Angerer)
T
he world’s finance ministers and central banks gather in Washington this week for the annual meeting of the World Bank and International Monetary Fund, giving them an opportunity to compare notes and discuss important policy questions that drive – or not – real growth back home. This year, the meeting takes place amid the war between Russia and Ukraine and economic uncertainty from rising inflation and slowdowns in many countries that will affect the poorest nations.
Where does Indonesia stand as the world gathers? Happily, Indonesia is in a strong place of economic and political stability against a backdrop of global geopolitical tension, rising inflation and looming recession. Its economic growth in 2022 is estimated at 5.4 percent, higher than the previous estimate of 5 percent. This growth is much higher than Singapore’s 3.9 percent and Thailand’s 2.9 percent.
Why is Indonesia in such a strong position now? The basic answer is simple: wise economic management through the difficult years of the pandemic and coming out of it now.
Start with the pandemic. Indonesia is the fourth in the world for vaccinations against COVID-19 – an important achievement not only in Indonesia’s efforts in both the public and private sectors to combat the pandemic but a strong signal to investors that Indonesia is ready to move on from it.
Economically, Indonesia is enjoying an export boom, with exports reaching an all-time high of US$27.9 billion, up from $25.5 billion in July. As a major producer of minerals and agricultural products, Indonesia has been enjoying a windfall from the commodity boom. More than that, Indonesian exports of manufactures have also expanded to many other goods such as textiles and electronics.
As the government has used part of the windfall to subsidize energy prices, inflation in Indonesia has been well controlled despite the skyrocketing food and energy prices in the international market. This enabled Bank Indonesia (BI) to hold its policy rate stable until August despite the hawkish stance of most central banks in other countries since March. BI finally began raising its rate gradually in August to 4.25 percent as of October due to the quite aggressive money tightening of the United States Federal Reserve.
Statistics Indonesia (BPS) announced 1.17 percent headline inflation in September on a month-to-month (mtm) basis and 5.95 percent year-to-year (yoy), while core inflation was 3.21 percent yoy. This inflation is much lower than in most major ASEAN countries.
