Government Policy Maintains Economic Growth Despite Consumption of Savings

Arrijal Rachman, CNBC Indonesia

Wednesday, 12/27/2023 16:20 IWST

Photo: Investment Illustration (CNBC Indonesia/Muhammad Sabki)

Jakarta, CNBC Indonesia – The phenomenon of various levels of society consuming savings or savings to maintain their consumption needs, does not make the government worried about suppressing the rate of economic growth until next year.

The Expert Team of the Coordinating Ministry for Economic Affairs, Iskandar Simorangkir, said that this was because the government had issued various policy packages that directly maintained people’s purchasing power, such as food aid programs, El Nino direct cash assistance (BLT), and value added tax (VAT) exemption incentives for the sector. property.

“When there was price pressure which reduced people’s purchasing power, the government immediately provided BLT in the context of El Nino, then also rice assistance,” said Iskandar on CNBC Indonesia’s Squawk Box program, Wednesday (27/12/2023)

On the other hand, Iskandar added, the rate of economic growth next year will also be maintained due to the effect of high consumption on the part of non-profit institutions that serve households (LNPRT) as we enter the 2024 general election or presidential election.

“From government spending as well as from election participants, both from political parties and legislative candidates, so that in the third quarter of this year alone LNPRT growth actually increased significantly, even if we look at LNPRT it has grown 8.61% in the third quarter,” said Iskandar.

He added that the tight liquidity that occurred during 2023 due to the impact of tightening monetary policy domestically and globally will also ease in the second semester of next year. This is because the US central bank itself, namely the Fed, has signaled easing interest rates in the second half of next year.

“So with the fiscal stimulus, we estimate that there will be an easing of liquidity in the second semester, so even though there is increasing uncertainty, we are optimistic that our growth will reach at least 5.0% and could even reach 5.2% in 2024,” said Iskandar.

According to him, food prices, which have continued to fluctuate throughout 2023, will also return to stability next year, as the prolonged effects of the El Nino phenomenon or excessive heat and drought have begun to end. According to him, next year’s food production will recover, thereby reducing the impact of current food price pressures on people’s purchasing power.

Moreover, he continued, the government continues to consistently strengthen the inflation control team at both the central and regional levels (TPIP/TPID) with 4K policy focuses, namely smooth distribution, supply availability, price affordability and effective communication.

“If we look at our CPI inflation last year, it was in the range of 5.7%, yes, but in November it was 2.86% year on year, meaning that in the midst of food shortages, especially rice due to El-Nino, we were able to maintain inflation. “We have dropped very significantly,” said Iskandar.

Therefore, Iskandar ensures that with various policies that are able to maintain the level of public consumption above 5%, we will be able to continue to maintain the resilience of Indonesia’s economic growth according to the government’s target, namely 5.2% in 2024. This is because more than 50% of Indonesia’s GDP is contributed by consumption.

“If we can keep our domestic consumption stable at around 5%, then we will be able to achieve economic growth of 5%, but of course we will still encourage investment,” said Iskandar.

Previously, Minister of Finance Sri Mulyani had also announced a series of policy packages which were expected to boost the Indonesian economy in the fourth quarter of 2023. Without this policy package consisting of fiscal incentives and social assistance, the Indonesian economy could weaken again by 4.81%.

“From our projections, with so much uncertainty, it could be a weak 4.81%. With this package which can run in the third quarter, we hope to be able to add 0.2% additional growth so that in the fourth quarter, economic growth can be maintained at 5.01%, so “In the full year 2023, we hope that our economy will remain maintained at 5.04%,” he said at the Q3-2023 GDP press conference, quoted on Tuesday (7/11/2023).

Watch the video below: