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The Indonesian economy: Looking at 2023 and beyond
Government spending in agriculture for instance has been sufficient but not effective. Most of the spending in 2022 went on subsidies for fertilizer and other inputs, less on research and development, irrigation and extension.
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A worker of a petrol station of the state-owned company Pertamina changes the fuel prices displayed after the announcement of a fuel price hike, in Bekasi, on the outskirts of Jakarta, Indonesia, September 3, 2022. (Reuters/Ajeng Dinar Ulfiana)
Questions have been raised by many over what the economic prospects of 2023 look like. This is logical after the Indonesian economy grew strongly in 2022.
But to assess the 2023 outlook for Indonesia, one has to go through the following questions:
Will central banks continue hiking their interest rates this year in their fight against inflation? Will the continued monetary tightening lead to an economic downturn or even recession? Historically, it has taken several months before policy tightening has an impact on the economy, so will a slowdown or recession take place in the second half of the year? And if it does take place, how severe or moderate will the slowdown or recession be? Will the war in Ukraine end? What about China’s economy after its government abandoned its strict zero-COVID policy, lifted public restrictions and started opening its economy? Will this restore China’s economic trajectory toward higher growth, triggering price increases for raw materials and energy again?
Whatever the answers to the above questions, one thing is certain: the government has to stick to economic policy that will strengthen the resilience of the economy, which means continuing prudent macroeconomic policy plus a commitment to structural reform, especially in trade and investment.
Indonesian prudent fiscal policies that have been carried out for several years have kept the government deficit and debt at a manageable level and have contributed to macroeconomic stability.
