Government, BI, and OJK Synergy Key to Economic Stability, Says Economist

An economist has assessed that the weakening of the rupiah exchange rate, financial market volatility, and the global economic slowdown are influenced more by global dynamics than domestic fundamental issues. Chief Economist of Bank Permata, Josua Pardede, believes the public need not respond to current economic developments with excessive worry. According to him, several key indicators show that the foundation of the national economy remains well maintained. “What needs to be understood is that the current condition is an adjustment phase to global dynamics, not a crisis signal. Therefore, what is more important is maintaining rational optimism based on existing data and economic fundamentals,” Josua stated during the Komunita Economic Talk.

Besides assessing that the economic fundamentals remain strong, Josua stressed the importance of inter-agency coordination in maintaining national economic stability. According to him, the government, Bank Indonesia (BI), and the Financial Services Authority (OJK) have different but complementary functions. “The Finance Ministry’s function is more on the fiscal aspect. Bank Indonesia handles monetary matters, OJK handles the financial markets. And these three must synergise with each other,” he said. He explained that the Ministry of Finance is tasked with maintaining fiscal health and the state budget (APBN), Bank Indonesia is responsible for exchange rate stability and interest rate policy, while OJK together with the Indonesia Stock Exchange plays a role in maintaining stability in the financial services sector and capital markets.

According to Josua, various policies issued by the government and regulators show that each institution continues to play its role in keeping the economy stable amidst global pressures. He affirmed that public consumption activity is still growing, inflation is within a controlled range, the banking sector remains healthy, and the APBN is still able to function as an economic stabilisation instrument. Amidst various global pressures, these indicators serve as important pillars for national economic stability. Josua explained that the resilience of the Indonesian economy is reflected in a number of macro indicators that still show positive trends. National economic growth remains at a relatively high level, while inflation remains maintained, supporting the stability of public purchasing power.

Household consumption, which is the largest contributor to Gross Domestic Product (GDP), also continues to show solid growth. Furthermore, the increase in government spending at the beginning of the year also provided support for domestic economic activity. From the financial market side, foreign capital flows into the government bond market (SBN) still recorded positive performance. This condition reflects that investors still maintain confidence in Indonesia’s economic prospects amidst rising global uncertainty. “Investor confidence is maintained because Indonesia’s economic fundamentals are still viewed as strong. This is important capital to maintain economic stability going forward,” he said.

Responding to public concerns regarding the rupiah’s weakening, Josua assessed that the condition needs to be placed in a broader global context. The strengthening of the US dollar due to high interest rates in developed countries and increasing geopolitical uncertainty have put pressure on many world currencies. “The combination of all this is what causes the dollar to rise and oil to rise. The current rupiah weakening is a global shock,” Josua stated. Therefore, the current rupiah weakening cannot be interpreted as an indication that the Indonesian economy is experiencing structural problems. “Pressure on the rupiah is influenced more by external factors. What differs from the past is that the current condition of national banking is much stronger, liquidity is maintained, and policy coordination between the government, Bank Indonesia, and financial sector authorities is running well,” he said.

Josua also dismissed the notion that Indonesia is heading towards a crisis like the one that occurred in 1998. According to him, the structure of the Indonesian economy today has far better resilience compared to when the Asian crisis hit almost three decades ago. During the 1998 crisis, Indonesia faced the collapse of the banking sector, a very high spike in inflation, a sharp weakening of the exchange rate, and deep economic contraction. Conversely, the current condition shows different characteristics, where economic growth is still positive, inflation is controlled, foreign exchange reserves are at a strong level, and fiscal management remains disciplined. He added that the current rupiah depreciation also cannot be equated with the conditions during the crisis. In 1998, the rupiah exchange rate weakened very sharply from around Rp4,000 per US dollar to more than Rp16,000 per US dollar in a short time. “Compared to 1998, the situation is very different. Currently, our policy instruments and economic foundations are much stronger to face global turmoil,” he explained.

Amidst the relatively positive macro data, Josua acknowledged that some members of the public still feel pressure on their financial conditions. However, according to him, the current phenomenon is more accurately understood as a change in consumption patterns rather than an overall decline in purchasing power. Price pressures on a number of commodities have made the public more selective in spending their income, while in aggregate, domestic consumption remains the main engine of national economic growth. To protect vulnerable groups, the government continues to strengthen various social protection programmes so that the impact of economic pressures can be mitigated.