The extent to which Indonesia is going to be affected by a U.S.-led global economic downturn remains uncertain and difficult to forecast, a discussion among top economists showed in Jakarta on Tuesday.
At a discussion hosted by the Centre for Strategic and International Studies, University of Indonesia Institute for Economic and Social Research executive director Chatib Basri argued that unlike neighboring economies such as Singapore and Malaysia, Indonesia was relatively insulated from a downturn in the U.S. economy.
Citing data from past U.S. recessions, Chatib concluded a 1 percentage point decrease in U.S. economic growth would mean a 0.20 to 0.25 percentage point decrease here.
"My baseline scenario for growth is 6.5 percent. Thus, if the U.S. economy slows down by one percentage point, the downward revision will be about 6.25 percent," he said before other speakers, including Bank Indonesia senior deputy governor Miranda S. Goeltom and Trade Minister Mari E. Pangestu.
If the slowdown had already started at the beginning of the year, he said, the impact would not be immediate as it would first hit East Asian countries such as China and India and then Indonesia by the third or fourth quarter.
"The U.S. is definitely showing a slowdown. But technically it is not in a recession yet as growth has not yet reached negative numbers two quarters in a row," he said, adding that 6.5 percent economic growth was still within reach for Indonesia.
Nevertheless, he said, economic forecasting had become more perilous as the global market had been showing rapid and often unexpected changes, forcing economists to constantly revise their estimates and conclusions.
Miranda, on the other hand, argued 6.5 percent growth was "almost impossible", as all models by BI economists pointed at a bottom level of 6.2 percent.
"Although we are already decoupling from the U.S. market, I think the impact of a weakening U.S. economy will be faster than expected," she said.
Citing the result of a meeting of central bank governors in January in Mumbai, she said U.S. economic growth was going to be weaker than the 1.5 percent forecast, and instead closer to 1.3 percent.
Not only threatened by an economic slowdown, most countries in Asia would suffer from a spike of inflation, particularly those with volatile food prices such as Indonesia and India.
"As January alone already marked a 1.77 percent increase in inflation, it would be unlikely to meet the government's target of plus/minus 5 percent inflation by the end of this year," she said.
On the capital flows channel, she said, the current market jitters from the subprime mortgage losses had greatly influenced the risk appetite of investors.
"The question now is how Indonesia can convert the short-term capital into a long-term investment so the country's balance of payments can be more sustainable," she said.
Speaking last, Trade Minister Mari E. Pangestu said her ministry was already considering revising the 14.5 percent total exports growth target.
"Our forecasting was made before a recession began to loom in the U.S. and before the recent spike in inflation led by staple food price increases. I mean, everybody was shocked by how sharp it was," she said.
As food price-led inflation was now a global phenomenon, she said, all policy makers were responding by constraining exports and granting subsidies or even tax rebates to consumers.