The slowdown in the Chinese economy was always going to be a problem for Indonesia, and a domino effect is feared. However, Indonesian Finance Minister Sri Mulyani Indrawati thinks otherwise and has stated that government spending and robust domestic consumption is going to be a potent antidote to an economic slowdown that might be looming.
With aggregate trade volume rising to $66 billion last year, which is a rise of 25%, China remains the biggest trading partner for Indonesia. However, the slowdown in the Chinese economy has seen measures that could lead to shrinking domestic demand in China, and hence, the whole thing could affect the Indonesian economy quite adversely.
According to the Finance Minister, the key role of the government would be to ensure that the purchasing power of the population is boosted and in the process, higher consumption is going to help avoid an economic slowdown. Indrawati stated, “The success in maintaining people’s purchasing power and consumption, which accounts for more than 55 percent of Indonesia’s gross domestic product, will determine if the country can withstand weak external situation.” She further stated that slowdown in China and a drop in exports to Asia’s largest economy wouldn’t hurt Indonesia if domestic consumption can be propped up. It is a bold claim considering the current political climate in the country.
President Joko Wikodo of Indonesia is going to bid for a second term in April later this year, and amidst all that, the Indonesian economy is struggling to keep up growth. Commodity prices have weakened, and on the other hand, the trade deficit has ballooned to record levels due to the slowdown in China. Even though local currency rupiah has bounced back from 20 years lows, there remains a genuine worry that current account deficits might give potential investors pause. Regarding the current account deficit, Indrawati stated that the Indonesian government is going to use all tools under its disposal to keep it under control. She did not rule out using both fiscal and monetary methods to tackle the problem.
Last but not least, the Finance Minister also added her ministry is also looking at ways to ensure that there is get cheap financing so that her plans can be set in motion. In this regard, she also added, that the efforts of Bank Indonesia in monitoring the marked will make sure that there is no liquidity crisis in the event of budget financing.
