CoRE Warns of Economic Risks from Middle East Conflict, Government Urged to Protect Purchasing Power
The Executive Director of the Centre of Reform on Economics (CoRE), Mohammad Faisal, has presented several policy recommendations that the Indonesian government can implement to mitigate the impact of geopolitical conflict on the nation’s economy.
According to Faisal, the first step the government must take is maintaining fiscal discipline by ensuring the budget deficit ratio does not exceed a safe threshold. “The budget deficit ratio must be kept below 3% of GDP. This can be achieved by reviewing budget allocations for priority programmes, such as the State-Owned Enterprises’ Guarantee Scheme and the Red and White Kopdes programme, which collectively absorb approximately Rp418 trillion in budget allocations,” Faisal stated.
He also assessed that the government should not increase the price of subsidised fuel amid global economic pressures that could weaken the rupiah and increase energy costs for the industrial sector. “The government must not raise the price of subsidised fuel to maintain public purchasing power, particularly during the Ramadan and Lebaran periods, which are among the main drivers of economic growth,” he said.
Additionally, adjustments to non-subsidised fuel prices should be made carefully and at the right time to avoid triggering inflation spikes. Faisal also emphasised the importance of securing national energy supply security amid potential disruptions to global distribution routes, including in the Strait of Hormuz region.
According to him, the government should consider diversifying sources of crude oil imports, such as from the United States, Africa, and Russia, whilst calculating logistics cost efficiency. On the fiscal side, he recommended that the government recalculate the use of the Budget Balance Surplus (SAL) as a buffer to face potential economic pressure whilst also supporting social safety net financing.
“The SAL funds previously placed in banks could be considered for withdrawal to maintain government cash flow amid global conflict dynamics,” he said. Faisal also proposed that the government prepare safety nets for communities and businesses. Social assistance should be strengthened for vulnerable groups, whilst business support could be provided in the form of energy subsidies for small and medium enterprises.
The government could also consider restricting official travel if world oil prices surge above US$110 per barrel for an extended period, including through work-from-home policies to reduce fuel consumption. He also assessed that the government needs to remap new export market opportunities to anticipate potential trade disruptions with countries in the Persian Gulf region. Based on Central Statistics Agency data for 2025, Indonesia’s exports to that region reached approximately US$5.64 billion.
Beyond fiscal and trade policies, Faisal assessed that Bank Indonesia also needs to maintain exchange rate stability through benchmark interest rate policy and foreign exchange market intervention. Finally, the government was asked to conduct transparent public communication to prevent panic among the public.
“The government needs to immediately conduct clear and transparent communication to the public so that people do not engage in panic buying, particularly of subsidised fuel,” said Faisal.