As the government transitions, the national economic condition can be considered relatively stable, maintaining a growth rate of around 5 percent; however, it faces challenges in terms of financial resilience.
Post-pandemic, the number of informal sector workers has significantly increased, totaling 84.13 million, which equates to 59.17% of the total workforce.
“Our employment situation has not fully recovered, but people must eat. So, they take on whatever work they can find. Unsurprisingly, the informal sector has grown,” stated UGM Economist Dr. Akhmad Akbar Susamto on Thursday (Oct. 17).
According to him, the Prabowo and Gibran government will likely be preoccupied with internal challenges within its administration. The Ministry of Finance has reported a budget deficit of IDR 93.4 trillion as of July 2024.
Although this figure is still in line with the proposed state budget, it is crucial to note that it impacts the government’s fiscal space. Dr. Susamto predicts that by the end of the year, the government’s capacity to boost the national economy will be relatively low.
“The funds available for adjustment are limited because allocations have already been made. The remaining amount will be even smaller due to the political promises made by the outgoing and incoming administrations,” Dr. Susamto explained.
He cited the need for additional funding if the government intends to continue developing the new capital city. Moreover, new government programs, such as free nutritious food, will also require significant financial resources.
From a monetary perspective, Dr. Susamto elaborated on other conditions and facts being faced. Over recent years, one of Bank Indonesia’s strategies to maintain the national economy has been to set high interest rates.
This policy aligns with the Federal Reserve System’s (Fed) approach of increasing interest rates in response to inflation in the U.S. While U.S. interest rates have decreased by 0.5%, Bank Indonesia has kept its rate at 6%. This strategy aims to maintain the value of the rupiah.
“The monetary sector’s ability to support the national economy is also quite low. The monetary aspect cannot move freely as it heavily relies on external inflation policies,” Dr. Susamto clarified.
Regarding fiscal and monetary policies, he indicated that the government will face challenges due to limited economic maneuverability.
Future growth may tend to remain stable, but it cannot progress significantly. Addressing these challenges will not be easy, and Susamto advises that the new government should focus on improving economic resilience.
One policy the government could implement, in addition to economic measures, is to enhance the reward and punishment system. He likened the current economic situation to a society with misaligned incentives.
“There are instances where someone who does well is punished, while the poor performer receives rewards. This reflects various phenomena that hinder societal development,” he said.
Dr. Susamto used the palm oil industry, Indonesia’s largest export commodity, as an example. Various social and environmental issues have arisen within this sector, resulting in limited willingness from stakeholders to collaborate.
“This can be resolved through law enforcement. If the government strengthens law enforcement, it may encourage society to advance collectively,” he concluded.
Author: Tasya
Editor: Gusti Grehenson
Photo: GoTo
Post-editor: Afif