Earlier, people had no choice but to stay home, but after the mobility restrictions were lifted, the level of consumption rose that in turn influenced the inflation rate.
When inflation was high at the start of 2022, monetary authorities said there was nothing to worry about, as they said it was natural during the transition to the post-pandemic era.
However, Russia's invasion of Ukraine in March last year has made food and energy prices soar, increasing the inflation rate to be higher.
The world's central banks then raised the benchmark interest rates to curb inflation. However, inflation has not yet declined and the risk of a global recession loomed towards the end of 2022.
However, as of early 2023, it turned out that the situation is not as severe as feared. For instance, inflation in the United States fell to 6.5 percent.
However, the global banking crisis recently emerged, such as the collapse of the Silicon Valley Bank (SVB) in the US and the crises that Credit Suisse and Deutsche Bank in Europe faced.
Global economic uncertainties continued on account of these crises.
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Economist and Rector of Atma Jaya Catholic University Agustinus Prasetyantoko explained that the risk of recession, rising interest rates, and banking crisis certainly have an effect on Indonesia's financial conditions.
He said that capital markets were volatile, the rupiah weakened, and pressure on Bank Indonesia to raise its benchmark interest rate increased.
However, in terms of trade, Indonesia's exports, which are predominated by commodities, actually increased despite the Russo-Ukrainian war.
The increase in commodity prices has improved state revenue and reduced the budget deficit.
"We are actually offset by the situation. Pressure from the financial channel is offset by the trade channel where exports are a buffer for the arising turbulence, making our economy to remain resilient," he stated.
According to Prasetyantoko, the export sector contributed to Indonesia's economic growth remaining positive last year.
Based on data from Indonesia Statistics (BPS), Indonesia's economy grew by 5.31 percent in 2022. Prasetyantoko expected that the Indonesian economy can also grow above five percent in 2023.
Although Indonesia's export sector is elevated due to the rising global food and commodity prices, he said making it truly an economic buffer is a necessity for the future.
"We still benefit in 2022 because of the commodity prices aspect, where most of our exports are commodity-based. In the future, we need to make our exports more sophisticated, which means the manufacturing sector," he remarked.
In February 2023, Indonesia's trade balance recorded a surplus of US$5.47 billion, but the trend of export performance declined, from US$27.86 billion in August 2022 to US$21.4 billion in February 2023.
This occurred due to the commodity price correction and declining demand from several countries experiencing recession.
"This is an achievement. For 33 months, there has always been a surplus in our trade balance. It is a situation we should be grateful for and a luxury in a world that is currently in recession," Prasetyantoko stated.
However, he noted that Indonesia is highly dependent on commodity prices.
"When commodity prices fall, the surplus will also plummet," he stated.
Based on the Economic Complexity Index (ECI) by the Observatory of Economic Complexity, MIT Media Lab, Indonesia's exports in 2020 were dependent on coal briquettes and palm oil, at 8.78 percent and 10 percent of the total exports, respectively.
ECI is an indicator that shows the more complex or diversified a country's products are, the more likely it is to become a nation that has higher revenue.
Indonesia needs to shift from predominantly commodity-based to manufactured products' exports, he emphasized.
Prasetyantoko praised the downstream industry policy implemented by the government that is expected to strengthen national economic competitiveness in facing uncertain global economic conditions.
Meanwhile, Indonesia is also determined to become a global key player in the commodity-based downstream industry by reducing raw material exports and increasing downstreaming in natural resource-based industries in the country.
The US Geological Survey data shows that Indonesia's nickel reserves rank first in the world.
Indonesia has 21 million tons in nickel reserves, or equivalent to 22 percent of the global reserves.
Indonesia's nickel production also ranked first, at one million tons, surpassing the Philippines, with 370 thousand tons, and Russia, with 250 thousand tons.
Downstreaming nickel has contributed positively to exports, at 2.17 percent of the total non-oil and gas exports in 2022.
"If Indonesia wants to take off from a middle-income country to a developed country and the milestone year is 2045, which is 100 years of Indonesia, I think it must be designed correctly, one of which is that our export products should be more diversified," Prasetyantoko stated.
He said it means that Indonesia must build a strong manufacturing industry foundation that requires long-term efforts and support in the form of financing, guarantees, insurance, and consultation.
The Ministry of Finance has the Indonesia Eximbank (LPEI) institution that provides national export financing services to support government policies in boosting national export programs through financing, guarantee, and insurance schemes.
"Logically, LPEI's functions are needed because without it, I think the domestic industry will not grow well," Prasetyantoko stated.
The contribution of LPEI's financing to the manufacturing sector reached Rp39 trillion (around US$2.5 million), or 47 percent of the total financing.
The financing is carried out in the value chain concept, namely financing small and medium enterprises (SMEs) that are corporate segment suppliers.
Nevertheless, the LPEI cannot work alone. To boost the domestic economy through increasing export competitiveness, cross-sectoral and cross-ministerial cooperation is required, especially to help SMEs, which are the backbone of the Indonesian economy, go global.
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Translator: Citro A, Kenzu
Editor: Sri Haryati
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