STRATEGIC ASSESSMENT. President Jokowi during the Crescent Star (PBB) Party National Coordination Meeting and Deliberation said that approximately many countries, including Indonesia, are likely to experience a crisis this year, haunted by recessions, food crises, energy crises, and rising commodity prices. He pointed out the International Monetary Fund (IMF) data which mentioned that 70 countries will experience a recession in 2023. Jokowi said he is concerned that the IMF’s forecast will be a reality.
Jokowi said Indonesia’s economic situation is still normal for the time being, but he warned people not to become complacent. Jokowi also revealed that 16 countries have already lined up to become IMF “patients,” with 36 more waiting to receive funds.
Finance Minister Sri Mulyani Indrawati expressed confidence that Indonesia will not fall into recession this year despite the prospect of escalating national political tensions ahead of the general elections and economic sufferings among global powers which become Indonesia’s biggest trading partners.
She said Indonesia is entering a “very interesting” and challenging year because all political candidates and parties are gearing up for the 2024 elections — the monumental event when all members of the legislatures, mayors, regents, governors, and the president will be elected in the same year for the first time in history.
Finance Minister Sri Mulyani Indrawati reported that the implementation of the 2022 State Budget recorded a positive performance, in line with the improving domestic economy and the increasingly controlled COVID-19 pandemic.
She said in the fourth quarter of 2022, the country’s economic activity was relatively good, adding that the growth of state revenue was 30.6 percent compared to last year’s realization of IDR2,011.3 trillion. Meanwhile, the realization of state spending reached IDR3,090.8 trillion, up by 10.9 percent from the realization in 2021.
Indonesia’s 2022 budget has recorded a deficit of 2.38 percent of the gross domestic product against the projected 4.5 percent, Minister Sri Mulyani said. The deficit amounts to IDR464.3 trillion ($29.7 billion), representing a significant decline from the minus IDR775.1 trillion in the 2021 budget.
According to the World Bank’s January 2023 edition of the Global Economic Prospects report released on Wednesday, Indonesia’s economy will grow by 4.8 percent in 2023, rising only slightly to 4.9 percent in 2024.
The global economy has been hit hard in the past few years by the Covid-19 pandemic, high inflation and Russia’s war in Ukraine. However, there’s one emerging economy that’s managed to succeed in spite of that – Indonesia.
Indonesia’s export and import performance has been very strong. And then also it’s had a strong economic rebound after the Covid-19 crisis. The rupiah has been extremely stable as well, one of the best performing Asian currencies. You may not know this, but Indonesia is the largest country in south-east Asia. Whether you look at it by the size of its economy, population or sheer landmass.
Indonesia has had a very stable, more than eight years under a president known as Joko Widodo. Jokowi is his nickname in the country. He’s had a super majority in parliament. He’s been able to push through huge reforms. That stability has helped the economy and the economy has made the people quite happy by global standards.
Based on data from the Investment Coordinating Board (BKPM) for 2012–2022, the trend of Chinese investment realization in Indonesia has been on an upward trajectory, with the exception of 2015, 2017, and 2021.
Chinese investment in Indonesia reached $5.18 billion in 2022, a 63.92 percent increase from the previous year and the highest level in the previous decade. In 2022, China was reported to have 1,584 investment projects in Indonesia, compared to 1,806 in 2021.
Indonesia’s export in 2022 spurred a growth of 29.4 percent worth $268 billion (IDR4,144 trillion) which was contributed by exports of commodities of steel, fossil fuel, and crude palm oil or CPO. The government projects that 2023 will see positive export growth despite slowing down compared to 2022.
Indonesia’s capital market performance in 2022 was the best as compared to the performance of ASEAN and Asian countries in general, Chairperson of Board of Commissioners of the Financial Services Authority (OJK) Mahendra Siregar said at the inauguration of the 2023 Indonesia Stock Exchange Trading. He said the trading activity in 2022 also experienced a significant increase, as the frequency of daily transactions reached 1.31 million times, making it the largest in ASEAN.
Furthermore, market capitalization in Indonesia is also the highest, reaching IDR9,500 trillion or $600 billion – equivalent to 50 percent of the country’s gross domestic product (GDP). The OJK official also noted that 59 companies had issued their initial shares (IPO) on the stock exchange in 2022.
Economic Affairs Coordinating Minister Airlangga Hartarto said that Indonesia is projecting export value to grow by 12.8 percent and import value to reach 14.9 percent growth. According to Airlangga, President Jokowi gave directions to state ministers in a limited meeting to increase foreign exchange reserves amidst the positive export growth.
Entering the new year, the global economic condition seems to be the same as the previous years, replete with challenges and uncertainties. The International Monetary Fund (IMF) projected that 2023 will be a difficult year for the global economy, as main engines of the world’s economic growth — the United States, China, and the euro area — are experiencing stalling growth.
Facing the risk of an economic slowdown, Indonesia has prepared itself with policies, one of which is fiscal support through the 2023 State Budget (APBN) that is considered responsive and accommodative.
Although both global and domestic economic conditions are still replete with uncertainties, there is a ray of optimism that the economy can grow 5.3 percent in 2023.
Statistics Indonesia (BPS) Chair Margo Yuwono said that Indonesia’s monthly inflation rose again to reach 0.66 percent in December 2022. The increase in monthly inflation also boosted annual inflation to 5.51 percent compared to 5.42 percent in November. Margo said the increase in inflation in December was due to high demand for Christmas and New Year celebrations.
Bank Indonesia slowed down its tightening pace in December, raising its key rate by a quarter-point after three consecutive months of half-point moves, as it expected inflationary pressures to wane. The monetary authority saw consumer-price increases decelerating to 5.4 percent by year-end.
Bank Indonesia (BI) Governor Perry Warjiyo projected that the economy can grow in the range of 4.5 percent to 5.3 percent in 2023, supported by downstreaming, infrastructure development, foreign investment, and tourism activities.
Foreign Affairs Minister Retno Marsudi said that through its G20 presidency, Indonesia had secured 14 cooperation projects with a value of more than $71 billion or equal to IDR1,100 trillion. One of the important projects launched is in the field of new and renewable energy through the Just Energy Transition Partnership worth US$20 billion or equal to IDR312 trillion.
Indonesian Employers Association (Apindo) Chair Hariyadi Sukamdani said that there were more than one million workers affected by layoffs throughout 2022, based on data on the collection of worker social security agency (BPJS Ketenagakerjaan) Old Age Insurance claims by workers on the grounds of layoffs from January to November 2022 period which reached 919,071 workers.
“So, if we include December in the counting, it will definitely be more than a million,” Hariyadi said. He added many factors that triggered layoffs over the past year, not only the COVID-19 pandemic, but also the decline in export performance of a number of companies.
Indonesia was one of the few countries that benefited from the commodity price boom in 2022, translating to record trade surpluses. This resulted in the current account also reverting to positive territory, which in turn provided robust support to the Indonesian rupiah (IDR).
The relative stability of the IDR helped limit price pressures early in 2022, which in turn allowed the central bank to postpone rate hikes to the latter half of 2022. With commodity prices moderating and expected to slide further, we could see Indonesia’s trade surplus diminish or even move into deficit territory in 2023.
The loss of this previous support suggests that the IDR will likely remain pressured for much of next year, especially if financial outflows continue. A weaker IDR in 2023 could also translate to additional rate hikes by the central bank early next year.
Indonesia has raised $3 billion in a U.S. dollar bond issuance, its first for the year in a transaction that drew in a total of $14.4 billion worth of orders, the government said on Thursday. The Southeast Asian government issued the bonds in five-, 10- and 30-year tranches which raised $1 billion, $1.25 billion and $750 million respectively, the term sheet showed. There were final orders worth $3.6 billion for the five-year bond, $4.7 billion for the 10 year and $6.15 billion for the longest dated tranche, details from one of the banks working on the deal showed.
Indonesia attracted about $3.9 billion in investments from state-owned investors such as sovereign wealth funds (SWFs) and public pension funds in 2022, according to an estimate by research consultancy Global SWF. Investors included Singapore’s Temasek, Abu Dhabi Investment Authority, Malaysia’s Khazanah and China’s CIC among others. Indonesia’s own strategic SWF, Indonesia Investment Authority, or INA, also drive investments, particularly in infrastructure and green energy transition. That trend is expected to continue in 2023.
Indonesia must develop a new feedstock alternative to palm oil as the government intensifies an ambitious biofuel program meant to move away from diesel, observers say. From February this year, diesel sold at the pump must be a blend of 65% fossil diesel and 35% plant-based biodiesel, or B35. The currently available blend of diesel is B30, which means it contains 30% biofuel, derived from palm oil.
This intensification, set to increase to B50 by 2025, and eventually B100 — biofuel with zero fossil diesel — will invariably mean more oil palm plantations will have to be established. And with new plantations comes the associated risk of an increase in deforestation, experts warn.
Small farmers in Indonesia could be excluded from the European palm oil supply chain under a new EU deforestation regulation because they’re far from being able to comply, a new survey by researchers from Indonesian environmental NGO Madani shows.
The main challenges they face are in meeting traceability, legality and sustainability requirements, given the largely informal nature of transactions at the farm level and the lack of awareness about the need for documents like land titles and plantation certificates.
The country’s main oil palm smallholder union has called on the EU to provide support for small farmers to be able to comply, such as setting a premium price for certified legal and deforestation-free palm oil.
Investment Minister Bahlil Lahadalia said that stability is needed in order to achieve the investment target of IDR1,400 trillion set by President Jokowi for 2023. If Indonesia can maintain stability throughout 2023, the country’s growth will be good, too, he added.
Indonesia’s headline inflation rate turned higher to 5.5% y/y in Dec from 5.4% in Nov, averaging 4.2% for 2022, which is almost triple the 2021’s average of 1.6%, and more than double the 2% average during the 2020 pandemic year. The food, beverage, and tobacco price hikes alongside higher transportation prices led inflation to continue accelerating at 0.7% m/m. We expect overall inflation will stay elevated for months ahead as the second-round impact from the higher fuel prices has not been fully transmitted
Economist at UOB Group Enrico Tanuwidjaja states, “We keep our 2023 average inflation forecast to trend down slightly lower to 4%. We also keep our forecast for BI to continue hiking to reach its peak point of 6% in 1Q23, after raising a cumulative 200 bps during 2022 to 5.50%.”
World Bank Chief Economist for Indonesia and Timor-Leste Habib Rab said Indonesia’s economy is expected to grow by 4.8 percent in 2023, down from 5.2 percent in 2022. He said Indonesia’s economic growth is still strong, though private consumption will likely slow.
Indonesia is targeting IDR170 trillion ($10.92 billion) in capital market fundraising for this year, including from initial public offerings and debt instruments, its financial regulator said on Monday, well below the amount raised in 2022. Financial Services Authority (OJK) official Inarno Djajadi said there were 84 offerings in the pipeline with IDR81.41 trillion ($5.23 billion) in total estimated value.
