# Indonesia’s unexpected success story



## Indos

Indonesia’s unexpected success story​
Mercedes Ruehl and Joe Leahy in Jakarta

4 HOURS AGO







In 2013, the US investment bank Morgan Stanley dubbed Indonesia as one the “fragile five”, a group of emerging economies that it believed were especially vulnerable to a jump in interest rates in the US.

Almost a decade later, US interest rates are rising sharply, which is adding to the economic problems in the developing world. But Indonesia appears unruffled.

At a time when the global economy is being battered by the Ukraine war and the global energy, food and climate crises, Indonesia has emerged as an unlikely outlier, boasting both a booming economy and period of political stability.

Gross domestic product expanded 5.4 per cent year-on-year in the second quarter, well above forecasts. The country’s inflation rate at 4.7 per cent in August, prior to a recent petrol subsidy cut, is one of the lowest globally. Its currency, the rupiah, is among the best performing in Asia this year and its stock market is hitting record highs.

The resource-rich archipelago, south-east Asia’s largest country with 276mn people, is riding high on soaring commodity prices. Exports rose 30.2 per cent year-on-year to $27.9bn last month, the most on record. The world’s largest producer of nickel, a critical component in electric vehicle batteries, Indonesia is putting in place plans to benefit from the upcoming boom in EVs.

Much of the credit for this boom has gone to Indonesia’s President Joko Widodo, who has managed to maintain popularity with both ordinary Indonesians and investors alike after eight years in power. A poll released this week by research firm Indikator Politik Indonesia showed 62.6 per cent of Indonesians approved of the charismatic former furniture salesman’s performance, down about 10 percentage points since before the fuel subsidies were cut, but still leaving him as one of the world’s most popular democratic leaders.

Support for Widodo, who is known as “Jokowi”, is so strong that at one point his supporters were pushing to change the constitution to allow him to stand for a third term in office.

Widodo will have a chance to show off this prosperity to the world when he hosts the Group of 20 summit in Bali in November. He plans to use the event to court interest from global investors, including for his most ambitious and controversial plan yet — a more than $30bn proposal to shift Indonesia’s capital from Jakarta to the jungle-clad island of Borneo, a project that could yet decide his legacy.






“What we want to build is [a] future smart city based on forest and nature,” the president tells the Financial Times over a lunch of spicy soup and Japanese barbecue at the presidential palace in Jakarta, his face lighting up at the mention of the new capital. “This will showcase Indonesia’s transformation.”

But even as investors flock to see the new Indonesia, some worry about the sustainability of its newfound stability. Next year, campaigning begins for the 2024 election and Widodo does not yet have an anointed candidate to carry on his agenda. Critics also say he could have done more to further embed Indonesia’s young democratic institutions, leaving it vulnerable if a more venal leader comes to power in future.

“So many emerging markets have problems, Indonesia doesn’t have them right now. The economy is firing on all cylinders,” says Kevin O’Rourke, a Jakarta-based analyst on Indonesian politics and economics and principal at consultancy Reformasi Information Services.

“The problem is politics. We are 18 months from election day and that could present a stark contrast in Indonesia’s longer-term outlook. It could be good after 2024 or it could be quite bad.”

Political outsider comes good​The Widodo who will host world leaders at the G20 summit is almost unrecognisable from the humble former mayor of Solo, Central Java, where he started his political career 17 years ago. Although he retains some of his old pastimes, such as listening to heavy metal and riding motorbikes, he has emerged as an astute political tactician at the national level. A political outsider, Widodo has favoured “big tent” coalitions, bringing friends and foes alike into his cabinet.

George Yeo, Singapore’s former foreign minister, calls it “democracy with Javanese characteristics”.

“That is: ‘We will campaign like hell, we will call each other names, but when the ballots are counted and we all know what the relative proportions are, we will form a coalition cabinet . . . and you’ll get your share’.”

This, he argues, has led to Indonesia’s current stability. One example is Prabowo Subianto Djojohadikusumo, a controversial former army general who ran a fierce campaign against Widodo in 2018 but is now the minister for defence.





Prabowo Subianto Djojohadikusumo, a controversial former army general who ran a fierce campaign against Widodo in 2018, is now the minister for defence © Willy Kurniawan/Reuters


Investors say this political stability has helped the economy. With inflation relatively low, Indonesia’s central bank only raised interest rates for the first time in three years in August to 3.75 per cent. Banks are also still lending and exports are booming, not just from commodities. Widodo’s signature “omnibus law” that loosened employment regulations to help job creation has encouraged more foreign investment, as some producers diversify manufacturing away from China.

“You can see what Indonesia is exporting now, right across the board. You name it, textiles, garments, footwear, machinery, furniture, electronics, autos . . . things that create good jobs and incomes. This was the second year of double-digit, year-on-year growth,” said Reformasi’s O’Rourke, referring to Indonesia’s export earnings over the past several months.

Economists caution that Indonesia’s main commodity exports, such as coal and palm oil, still play a “big role” in driving growth. Commodity prices could start to lose steam this year as western economies slow down, says David Sumual, chief economist of Bank Central Asia in Jakarta.

“Next year will be quite a challenge,” he said. “That’s why I have downgraded my GDP forecast to below 5 per cent.”






Inflation, which has been suppressed by fuel subsidies, could also rise quickly to hit 8 per cent by October, according to Priyanka Kishore, chief economist for south-east Asia and India at Oxford Economics.

“The central bank has jumped on the global hiking cycle later, they may have to do a bit more, more quickly, to tackle inflation now,” she says.

Indonesia has introduced restrictions on some commodities, including taxes on coal and nickel, that have jolted markets. Yet they have also helped the development of its domestic processing and refining sectors.

“The headline is clearly that things are going well,” says Eugene Galbraith, director at mobile phone tower company PT Protelindo and a longtime observer of Indonesian business. “All those things, both good and bad policy decisions, on balance equate to a broadly popular and highly regarded president.”

Advantage in natural assets​One of Widodo’s principal achievements has been to expand infrastructure on an unprecedented scale for Indonesia, a vast country of 17,000 islands. His governments have constructed 2,042km of toll roads in eight years, he said, compared with about 780km in the prior 40 years, as well as 16 airports, 18 ports and 38 new dams. Costs have blown out on signature projects such as the Jakarta-Bandung high-speed railway — China’s first overseas high-speed bullet train project — while others have been poorly planned, with some shiny new airports in far-flung locations devoid of travellers. But the makeover is clearly visible, even to outsiders.





The construction of an elevated track for the Jakarta-Bandung high-speed railway in Cikarang, West Java, last month © Dimas Ardian/Bloomberg

“I expected a change. But I didn’t expect such a change. Yes, there were traffic jams but they are not as bad as before,” the former Singaporean minister Yeo says of a recent visit to Indonesia. “Jakarta airport is better than any airport in the US.”

Yet by far the flagship industrial policy of Widodo’s second term has been his attempt to use Indonesia’s giant nickel reserves — which are tied with Australia as the world’s largest — to create a domestic electric vehicle industry.

In 2020, the government banned outright the export of nickel ore, forcing foreign companies, many of them Chinese, to begin refining it onshore. While most of the end-product is going into the stainless steel industry, the aim is to begin extracting more higher grade material for use in batteries. Indonesia is expected to provide a significant part of the new nickel supply needed by the global EV industry but its reserves of laterite ore require more processing.





Excavators at a nickel mine in Morowali Regency, Central Sulawesi, Indonesia. The country is blessed with the world’s largest deposit of the metal, a key component in electric batteries © Dimas Ardian/Bloomberg

Widodo credits the restrictions with lifting the value of nickel ore-related exports from $1.1bn annually five years ago to nearly $20.9bn last year.

“After [this], we can export maybe more than 40 times or 60 times [more],” he says. “Indonesia has the largest nickel reserves in the world, around 21mn tons, [or] around 30 per cent of world reserves.”

He adds that the next step could be to extend the policy to Indonesia’s large reserves of bauxite and copper. Demand for the materials, used for aluminium production and renewables, is also growing globally. While the EU has challenged the export restrictions for unfairly limiting access of European producers in the World Trade Organization, Widodo is unapologetic.

“It can create jobs for the people and give the added value for Indonesia,” he says.






The plan to refine Indonesian ore into battery-grade material is still just starting, with one refining plant commissioned in May last year and seven more in the pipeline, all on the island of Sulawesi, according to Isabelle Huber, a visiting fellow at the Center for Strategic and International Studies.

Near Jakarta, South Korea’s LG Energy Solution and Hyundai Motor Group are building the country’s first electric vehicle battery cell plant while Hyundai is building an EV plant nearby. Indonesia says China’s CATL, the world’s biggest EV battery maker, has agreed to invest in an EV battery plant and Widodo said he was also wooing Tesla.





Erick Thohir, state-owned enterprises minister, says reforms are urgently needed if Indonesia is to create enough jobs for its young population © Dimas Ardian/Bloomberg

“Indonesia can still be a first mover and they’re lucky, they’ve got the most reserves [of nickel],” says James Bryson, director at PT HB Capital Partners, an investment advisory business.

The nickel industry, however, still faces problems. The most common process for producing battery-grade materials is through the high-pressure acid leaching (HPAL) method, which produces the largest quantities of waste, known as tailings. Indonesia bans dumping of this toxic residue into the ocean while “dry stacking” these tailings is difficult in a high-rainfall tropical environment.

This could be an obstacle to supplying western markets, adds Bryson, as EU and US EV battery manufacturers “won’t be open to processes which produce tailings”.





President Joko Widodo talks with Elon Musk of Tesla during their meeting at the SpaceX launch site in Boca Chica, Texas, in May this year. Ecology groups have urged Musk not to invest in Indonesia’s nickel industry for environmental reasons © Courtesy of Laily Rachev/Indonesia’s Presidential Palace/Reuters

Another potential problem is the use of dirty coal-fired power as energy for nickel processing plants. This will make it hard for batteries sourced from this nickel to be sold in the US and EU. Environmental groups have urged Elon Musk not to invest in Indonesia’s nickel industry for reasons including environmental damage.

The issues around nickel are part of a broader series of criticisms of the country’s environmental record. Local coal producers are able to supply 25 per cent of coal to local plants at a steep discount to market price, hindering the ability of renewable energy projects to be competitive, including solar, in a tropical country. “It is really economic development versus ESG,” said one foreign-based investor with business in the country.

Widodo’s other priorities have included the country’s education system and its bloated state-owned enterprises. In both, he has appointed well-known entrepreneurs or businessmen to lead the changes.





With other Southeast Asian countries such as Vietnam aggressively vying to attract industries diversifying out of China, Widodo’s government needs to make Indonesia’s workforce more competitive and to modernise its state-owned companies, whose assets are the equivalent of half of GDP.

State-owned enterprises minister, Erick Thohir, who once owned Italian football team Inter Milan, says the reforms are urgently needed if Indonesia is to create enough jobs for its young population.

“If you look at the Indonesian population, it’s 270mn. The majority of our demographic is young. If they don’t get jobs, a country as big as Indonesia will create problems for the region,” says Thohir.

Corruption concerns​Widodo’s hosting of the G20 has thrust the question of the president’s legacy into the spotlight.

Investors worry that he has no clear political successor as the 2024 election draws closer. Lacking his own political party, he has so far been unable to clinch a nomination from a political party for his apparent preferred candidate, Central Java governor Ganjar Pranowo. “Ganjar has yet to be nominated by a party and every party already has a candidate. He’s an emperor without an empire,” says PT Protelindo’s Galbraith.

Critics also say that under Widodo, the powers of Indonesia’s once formidable Corruption Eradication Commission (KPK) have been weakened. The commission’s personnel were converted from staff of an independent agency to civil servants in 2019, undermining the body’s autonomy from the government, critics claim. Last year, Indonesia scored 38 out of 100 on a widely used corruption index by global group Transparency International, on a par with Brazil and lower than India, Vietnam and China.






*5.4%*​Year on year expansion of GDP in the second quarter of 2022
*16*​Airports built during the presidency of Joko Widodo, as well as 18 ports and 38 dams
*2,042km*​Distance of new roads built in Indonesia in the same period
Widodo insisted that the KPK remains independent and pointed to fines and jail time for politicians in recent years.

The president also has failed to undo hundreds of regulations mostly introduced under predecessors that discriminate against religious minorities, LGBT individuals and women, such as those compelling use of the veil for girls at school, said Andreas Harsono of Human Rights Watch.

“Jokowi doesn’t care as much about democracy or democratic reforms, such as the space for independent journalism or civil society. There is still a basic understanding of free and fair and competitive elections but the space for criticism has been restricted,” says another Indonesia analyst, speaking anonymously for fear of repercussions.

Utopian visions of a new capital​Yet the issue that could decide the president’s long-term legacy — for better or for worse — is Nusantara, the new capital. The project’s proponents say flood-prone Jakarta is sinking, in some areas by 25cm per year, and that Indonesia needs to spread its development beyond the main island of Java, which accounts for 56 per cent of the population and a similar portion of the economy.

Nusantara will be three and a half times the size of Singapore and four times larger than Jakarta. The first phase of the project, which entails moving the presidential palace, the vice-presidential palace, armed forces, the police and other ministries by 2024, is being funded by the government. The development is slated to be completed by the country’s centennial in 2045, when Indonesia hopes to be the world’s fourth-biggest economy.

Bambang Susantono, a former Asian Development Bank official who was appointed chair of the Nusantara Capital City Authority this year, puts the cost for this first stage at “more than Rp50tn [$3.3bn]”, but insists this will not all be public money.





A computer-generated illustration of Indonesia’s future presidential palace in East Kalimantan on Borneo island. Nusantara will be three and a half times the size of Singapore and four times larger than Jakarta © Nyoman Nuarta/AFP/Getty Images

“We are developing with a state-owned budget because we need to create market confidence,” he says. “[But] the interest from the private sector is there.”

Critics counter that building infrastructure on Borneo’s peatland is tricky, while moving tens of thousands of troops and building new military facilities for them is expensive. About 80 per cent of the project was meant to be funded by private capital, which is yet to materialise. One high-profile backer, Japan’s SoftBank, pulled out this year.
“I am sceptical that it can be done in the next few years,” says Evan Laksmana, a senior research fellow at the National University of Singapore.

Others argue Widodo will get the project to a point where it has to proceed. “Nusantara will be too big to fail,” says Fajar Hirawan, a researcher at the Department of Economics, Center for Strategic and International Studies.
But Widodo, who says he plans to dote on his five grandchildren and work with “nature” when he steps down in 2024, is adamant about the urgency of building the new capital.

The new capital is needed to ensure that development spreads beyond Java “so that progress can be [enjoyed] by all”, he says.






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## Indos

As usual, there is always attempt to make negative point on some thing, do they understand that 62 percent approval even after the fuel hike increase is some thing good ? Does any riots and mass demonstration happen as many foreign analyst prediction that they expect to happen after fuel price increase ? There is no riots and only small people demonstrating peacefully.

I will likely post several negative analysts made by foreign institutions about Indonesia economic performance in early 2022 that AlhamduliLLAH dont happen as Allah still give His mercy to Indonesia.

Unlike flooding, heatwave, and drought elsewhere, Indonesia even gets rain season much sooner and it has been 3 years we get this positive climate anomaly, this is why our rice production has been in surplus since 2020, AlhamduliLLAH.

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Jokowi’s popularity drops over fuel price hikes in Indonesia​





JAKARTA (Bloomberg): Indonesia’s President Joko Widodo’s (pic) popularity took a hit after his decision to increase fuel prices raised public discontentment over surging living costs, according to the latest opinion poll.

His approval rating fell by 10 percentage points to 62.6% from 72.3% in August, based on Indikator Politik’s survey of 1,200 people conducted between Sept 5-10.

That’s his lowest rating since May, according to the pollster, when there were similar concerns over soaring prices of cooking oil and other basic food items.

The lower rating for the president, better known as Jokowi, signals continuing anger over the government’s move to impose higher fuel prices on Sept 3, which triggered protests led by thousands of workers and university students.

Jokowi has defended the fuel hike as the "last option” available for cutting energy subsidy bills, even if Indonesians are already dealing with the worst inflation in seven years.

Public dissatisfaction over the price hike could intensify opposition to calls by some in the political elite to extend his presidency, which is in the second and final term. Some of Jokowi’s supporters have backed the idea of amending the constitution to allow for an extension.









Jokowi’s popularity drops over fuel price hikes in Indonesia


JAKARTA (Bloomberg): Indonesia’s President Joko Widodo’s popularity took a hit after his decision to increase fuel prices raised public discontentment over surging living costs, according to the latest opinion poll.




www.thestar.com.my

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## REhorror

I think this is because of Indonesia's neutrality with Russia, and Indonesia itself is also a coal power.


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## Indos

The raise of economic prosperity is some how inline with the raise of conservatism of the Muslim population. This Canadian tourist said 95 % of Jakarta female wear hijab, and no we dont force our women to wear Hijab, as Quran stated : * "There should not be any compulsion in religion"*

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## Indos

REhorror said:


> I think this is because of Indonesia's neutrality with Russia, and Indonesia itself is also a coal power.



Yup coal industry is really helpful, the scale of the industry to our economy is now 5-6 % of our GDP. Together with Palm oil industry, the industry really helps a lot under this current situation. But unexpected and unpredicted also happen as now coal price is still very high despite the oil price has come down, this is something no human ever predicted to happen as coal and oil price is always having similar path of price fluctuation.

Gas price is also very expensive and currently not following their usual price fluctuation that is tied to oil price. Indonesia is still in surplus for gas production, despite not as large as giant gas producers like USA and Russia. Here in Indonesia we can assure manufacturing investor about their energy needs inshaAllah, this energy security (with lower cost) has become Indonesia competitive advantage to lure foreign investors to come to our country.

With domestic fuel increase about 30 %, I expect Indonesia oil import will likely be decreasing until the end of this year, starting in the month of September, so Indonesia has chance to get trade surplus above 6 billion USD this month which is good to back our currency under this global economic pressure.

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## mulj

Indos said:


> Yup coal industry is really helpful, the scale of the industry to our economy is now 5-6 % of our GDP. Together with Palm oil industry, the industry really helps a lot under this current situation. But unexpected and unpredicted also happen as now coal price is still very high despite the oil price has come down, this is something no human ever predicted to happen as coal and oil price is always having similar path of price fluctuation.
> 
> Gas price is also very expensive and currently not following their usual price fluctuation that is tied to oil price. Indonesia is still in surplus for gas production, despite not as large as giant gas producers like USA and Russia. Here in Indonesia we can assure manufacturing investor about their energy needs, this energy security has become Indonesia competitive advantage to lure foreign investors to come to our country.
> 
> With fuel increase about 30 %, I expect Indonesia oil import will likely be decreasing until the end of this year, starting in the month of September, so Indonesia has chance to get trade surplus above 6 billion USD this month which is good to back our currency under this global economic pressure.


how it goes with multibillion project of converting coal into the gas and chemicals with some usa company?


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## Indos

mulj said:


> how it goes with multibillion project of converting coal into the gas and chemicals with some usa company?



US company but look like under Iranian American ownership as CEO is Iranian ethicity.

Yep, JV project with US company to convert coal into chemicals and liquid gas has been realized with 2 billion USD project with PT Bukit Asam, our state owned coal miner company. 

For chemical the same US company will cooperate and make JV with Bakrie Group that produce the most coal in Indonesia with their subsidiary companies, PT Kaltim Prima Coal and PT Arutmin, operating in Kalimantan.

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## mulj

Indos said:


> US company but look like under Iranian American ownership as CEO is Iranian ethicity.
> 
> Yep, JV project with US company to convert coal into chemicals and liquid gas has been realized with 2 billion USD project with PT Bukit Asam, our state owned coal miner company.
> 
> For chemical the same US company will cooperate and make JV with Bakrie Group that produce the most coal in Indonesia with their subsidiary companies, PT Kaltim Prima Coal and PT Arutmin, operating in Kalimantan.


hope it will bring positive feedback and possible further investments into that kind of project, it might be sustainable alternative for pure coal consumption.

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## Indos

mulj said:


> how it goes with multibillion project of converting coal into the gas and chemicals with some usa company?



Jokowi kicks of coal gasification project in S. Sumatra​





Dzulfiqar Fathur Rahman (The Jakarta Post) 
PREMIUM Jakarta ● Tue, January 25, 2022


President Joko “Jokowi” Widodo launched on Monday the construction of Indonesia's maiden coal gasification plant that is part of the government's coal downstreaming plans.

American industrial gas company Air Products and Chemicals is partnering with state-owned oil and gas giant PT Pertamina and coal miner PT Bukit Asam to develop the US$2.3 billion project in the Tanjung Enim Industrial Park in South Sumatra.

The project, which turns coal into dimethyl ether (DME), is expected to take 30 months to complete. The DME will mainly be used to substitute liquified petroleum gas (LPG) as cooking fuel.

Jokowi said the project was part of the government’s efforts to phase out LPG imports, which accounted for 80.5 percent of last year’s consumption at around 7.95 million tons.

“Once it starts producing, this project alone can reduce the subsidy from the [state budget] by around Rp 7 trillion (US$488.72 million),” Jokowi said in a press briefing on Monday.

“If we stop all LPG [imports] and replace it with DME, it is a really huge amount of money. We can reduce between Rp 60 trillion and Rp 70 trillion in subsidies from the state budget.”

LPG imports cost around Rp 77.8 trillion in 2021, according to the government. Between January and November 2021, the government spent Rp 53.7 trillion on subsidies for 3-kilogram LPG canisters, Finance Ministry data show. The subsidy spending was up 50.52 percent from a year earlier.









Jokowi kicks of coal gasification project in S. Sumatra


Air Products and Chemicals, partnering with Pertamina and Bukit Asam, started on Monday the construction of a US$2.3 billion project in South Sumatra that will produce around 1.4 million tons of dimethyl ether (DME) per year.




www.thejakartapost.com

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## Indos

mulj said:


> hope it will bring positive feedback and possible further investments into that kind of project, it might be sustainable alternative for pure coal consumption.



Amin ya Rabbal Alamin.

For chemicals

-----------------------

April 27, 2022
2:41 PM GMT+7
Last Updated 5 months ago

Indonesian Bumi Resources, U.S. Air Products to start $2 bln methanol JV in May​
JAKARTA, April 27 (Reuters) - A unit of Indonesia's biggest coal miner PT Bumi Resources (BUMI.JK) and U.S. firm Air Products and Chemicals Inc (APD.N) will jointly invest in a methanol facility, an Indonesian minister and Bumi executive said on Wednesday.

Bumi's Kaltim Prima Coal will build the facility in Bengalon, East Kalimantan, with an annual capacity to produce 1.8 million tonnes of methanol, director Dileep Srivastava told Reuters.

He added the joint venture company will invest "around $2 billion all in".
​Indonesia's investment minister, Bahlil Lahadalia, said the two companies aim to break ground in May, while Srivastava said the facility is expected to come online by 2025 or 2026.

Air Products did not immediately respond to requests for comment.

In 2020, the company announced it had signed a definitive agreement with Bumi's parent Bakrie Group and PT Ithaca Resources for a $2 billon "world-scale coal-to-methanol production facility".

Bumi said in 2020 it was looking into investing $1 billion in a coal gasification project, to comply with the Indonesian government's ambition of processing its natural resources domestically









Indonesian Bumi Resources, U.S. Air Products to start $2 bln methanol JV in May


A unit of Indonesia's biggest coal miner PT Bumi Resources and U.S. firm Air Products and Chemicals Inc will jointly invest in a methanol facility, an Indonesian minister and Bumi executive said on Wednesday.




www.reuters.com

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## nufix

Indos said:


> The raise of economic prosperity is some how inline with the raise of conservatism of the Muslim population. This Canadian tourist said 95 % of Jakarta female wear hijab, and no we dont force our women to wear Hijab, as Quran stated : * "There should not be any compulsion in religion"*



That is somehow questionable at best. How do you correlate conservatism and economic prosperity? The first economic boom era of Indonesia happened when conservatists were repressed, do we want to attribute the economic success at that time to the population being less conservatists?

Indonesian economic success is largely thanks to the prudent fiscal policy enacted by post Asian financial crisis finance ministers. Meanwhile, the rise in conservatism among Muslims in Indonesia happened because the freedom of religious expression is guaranteed, especially after the 1998. Both happens at the same time, but that does not always mean they are correlated.


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## Indos

nufix said:


> That is somehow questionable at best. How do you correlate conservatism and economic prosperity? The first economic boom era of Indonesia happened when conservatists were repressed, do we want to attribute the economic success at that time to the population being less conservatists?
> 
> Indonesian economic success is largely thanks to the prudent fiscal policy enacted by post Asian financial crisis finance ministers. Meanwhile, the rise in conservatism among Muslims in Indonesia happened because the freedom of religious expression is guaranteed, especially after the 1998. Both happens at the same time, but that does not always mean they are correlated.



Do you want to compare it with Soeharto regime that is able to tame inflation from 1000 percent coming from Soekarno regime ?

During Soeharto regime, Indonesia is indeed progressing in term of its Islamic belief. In 1955, Communist Party gets fourth position in our first fair election. That is huge number and possibly the number of Communist followers are increasing after USSR and CCP rule Russia and China and become the great powers during 1955-1966, not mentioning Soekarno has some soft heart on Communist while he puts many Islamist policians in jail.

LOL even Buya Hamka, Charismatic Ulama of Indonesia was jailed as well under Soekarno regime. You know what, from my father story who has connection with Indonesian military, there is order to torture Buya Hamka inside the jail, but the Army personnel who is ordered to do such thing dont follow the order.

---------------------------------------------

The big contribution Soeharto did to Indonesia and Islam is that he helped destroy Communist power in Indonesia.

Indonesia under Soeharto regime is supporting Islam as well as many of mosques he builds in many places across Indonesia. I believe you are also familiar with mosque funded by Government during that time. Javanese Islam in the old time was still not abide with Islam belief, particularly in the villages, and the mosque built there help the Islamization of Muslim Javanese. I have friend who understand about this as he was raised in Java village.

Soeharto build Golkar party and what is inside the party is right wing Armed Force and HMI (Islamic Student Coalition Alumni). You should be able to differentiate between Conservative Islam and Radical Islam. Abu Bakar Baasyir for instant that run away from Indonesia under Soeharto regime is radical Islam. 






Himpunan Mahasiswa Islam - Wikipedia bahasa Indonesia, ensiklopedia bebas







id.wikipedia.org





I would say Indonesia is more Islamic during Soeharto regime than during Soekarno regime and Indonesia under Reformasi period is more Islamic than during Soeharto regime.


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## nufix

Indos said:


> Do you want to compare it with Soeharto regime that is able to tame inflation from 1000 percent coming from Soekarno regime ?
> 
> During Soeharto regime, Indonesia is indeed progressing in term of its Islamic belief. In 1955, Communist Party gets fourth position in our first fair election. That is huge number and possibly the number of Communist followers are increasing after USSR and CCP rule Russia and China and become the great powers during 1955-1966, not mentioning Soekarno has some soft heart on Communist while he puts many Islamist policians in jail.
> 
> LOL even Buya Hamka, Charismatic Ulama of Indonesia was jailed as well under Soekarno regime. You know what, from my father story who has connection with Indonesian military, there is order to torture Buya Hamka inside the jail, but the Army personnel who is ordered to do such thing dont follow the order.
> 
> ---------------------------------------------
> 
> The big contribution Soeharto did to Indonesia and Islam is that he helped destroy Communist power in Indonesia.
> 
> Indonesia under Soeharto regime is supporting Islam as well as many of mosques he builds in many places across Indonesia. I believe you are also familiar with mosque funded by Government during that time. Javanese Islam in the old time was still not abide with Islam belief, particularly in the villages, and the mosque built there help the Islamization of Muslim Javanese. I have friend who understand about this as he was raised in Java village.
> 
> Soeharto build Golkar party and what is inside the party is right wing Armed Force and HMI (Islamic Student Coalition Alumni). You should be able to differentiate between Conservative Islam and Radical Islam. Abu Bakar Baasyir for instant that run away from Indonesia under Soeharto regime is radical Islam.
> 
> 
> 
> 
> 
> 
> Himpunan Mahasiswa Islam - Wikipedia bahasa Indonesia, ensiklopedia bebas
> 
> 
> 
> 
> 
> 
> 
> id.wikipedia.org
> 
> 
> 
> 
> 
> I would say Indonesia is more Islamic during Soeharto regime than during Soekarno regime and Indonesia under Reformasi period is more Islamic than during Soeharto regime.



How do you measure more islamic? What is your definition of islamic? Because I get the feeling that you freely patched different stuff that might be or might not be related and call it a day. 

And again I see the same pattern in your way of trying to attribute economic growth to conservatism in Indonesia. Before 1965, there were three main powers, the nationalists, the communists, and the islamists. The nationalists and the islamists mainly get along very well since the nationalist movement were born out of muslim organsations like the Syarekat Islam. But the communists could not get along with the other two since communists do not believe in Nationalism and they also seek to destroy religions. These created tensions within Indonesia. Soekarno tried to play a balancing game through his Nasakom ideals but of course such appeasement strategy failed. The destruction of communism in 1965-66 finally brought political stability into Indonesia which then allowed for the economy to grow. At the same time, the islamists no longer had other powers that opposed them in the grassroots level which allowed them to gain grounds as well. Islamism grew during Soeharto era and at the same time, the economy grew as well. They happened at the same time, but that does not mean the economic grow because the population became more conservatist.


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## Indos

Indonesia is the best-performing Asia-Pacific market so far this year​PUBLISHED MON, OCT 3 202211:15 PM EDT




Abigail Ng@ABIGAILNGWY

KEY POINTS

The Jakarta Composite index saw sharp falls in May and July before playing catch-up, and has stayed above the 7,000 level since early August.
Foreign investment into stocks has driven the index higher, and Indonesia is benefiting from higher commodity prices, according to Maynard Arif, head of Indonesia equities at DBS Group Research. The Southeast Asian country is a commodity exporter.
However, falling commodity prices are a source of uncertainty for the country, said Manishi Raychaudhuri, BNP Paribas’ head of Asia-Pacific equity research.





Morning rush hour in Jakarta. Indonesia’s Jakarta Composite index faced a couple of bumps in the road in 2022, but as of Friday’s close, it was the best performing major Asia-Pacific index for the year.
Bay Ismoyo | AFP| Getty Images

Indonesia’s Jakarta Composite index may have faced a couple of bumps in the road in 2022, but as of Monday’s close, it was the best-performing major Asia-Pacific index for the year.

The index is up 6.51% since the start of the year.






In contrast, the Hang Seng index in Hong Kong, South Korea’s Kospi, and Taiwan’s Taiex have plunged more than 25% this year.

Mainland China’s Shanghai Composite and Shenzhen Component have also been hammered, slumping by nearly 17% and 27% respectively.

The Nikkei 225 in Japan, India’s Nifty 50 and the SET index in Thailand fared better — notching single digit losses.






Singapore’s Straits Times index was the second-best performer in the region, falling just 0.53%.
Indonesia’s advantage​The Jakarta Composite index fell sharply in May and July before playing catch-up, and has stayed above the 7,000 level since early August.

Foreign investment into stocks has driven the index higher, and Indonesia is benefiting from higher commodity prices, according to Maynard Arif, head of Indonesia equities at DBS Group Research. The Southeast Asian country is a commodity exporter.

Economic recovery there has been on the uptrend after Covid restrictions were lifted, though developed economies experienced this boost earlier on, he added.
“2022 earnings growth on [the] Indonesia market remain robust, even after a big recovery in 2021 from a low base,” Maynard told CNBC in an email.


> The valuation may look expensive [compared with] other countries but it can be justified given Indonesia’s outlook and growth.
> Maynard Arif
> HEAD OF INDONESIA EQUITIES, DBS GROUP RESEARCH


He added that DBS remains optimistic on Indonesia, though it faces headwinds from interest rate hikes from the U.S. Federal Reserve and a strong dollar — which have led to outflows for government bonds this year.

“The valuation may look expensive [compared with] other countries but it can be justified given Indonesia’s outlook and growth,” he said.

However, falling commodity prices are a source of uncertainty for Indonesia, said Manishi Raychaudhuri, BNP Paribas’ head of Asia-Pacific equity research.

“Given the decline in energy prices … we advise caution and a nimble-footed approach to the energy sector in particular, and to Indonesia in general,” he wrote in a report dated Sept. 28.

Elsewhere in Southeast Asia, Singapore has a “large representation” of companies — such as banks — that benefit from rising yields, said Raychaudhuri, adding that the country and India, Indonesia and Malaysia are “pockets of safety.”
Suresh Tantia, a senior investment strategist at Credit Suisse, said tourist inflows are supporting the economy and the market after it reopened.
South Asia vs. North Asia​Tantia also said Credit Suisse prefers South Asia to North Asia markets for now, given the export-reliant nature of markets such as South Korea, Taiwan and China.

“South Korea and Taiwan, definitely we could see some more pressure, export growth slowdown, currencies remain weak and we are seeing weakening demand for chip sector also, which is very important for these two markets,” he told CNBC.









Indonesia is the best-performing Asia-Pacific market so far this year


Indonesia's Jakarta Composite index may have faced a couple of bumps in the road in 2022, but it's the best-performing major Asia-Pacific index so far.




www.cnbc.com


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## Indos

Why Indonesia matters​Indonesia is back on the map. In the next decade it will only become more important​





Nov 17th 2022

This week’s g20 meeting took place in Indonesia, the most important country that people routinely overlook. The last time its economy and politics were in the global spotlight was during the mayhem of the 1990s when a crony-capitalist system collapsed amid the Asian financial crisis, causing the fall of the 32-year-long dictatorship of Suharto.

A quarter of a century on, Indonesia matters once again. It is the world’s largest Muslim-majority state, its third-biggest democracy and its fourth-most-populous country. With 276m people spread across thousands of islands that stretch from the Indian Ocean to the Pacific, it is caught up in the strategic contest between America and China. And like India and other emerging markets, it is adapting to a new world order in which globalisation and Western supremacy are in retreat.









Why Indonesia matters


Indonesia is back on the map. In the next decade it will only become more important




www.economist.com


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## Indos

*FDI (Foreign Direct Invesment) in Billion USD*







If we look at Indonesia's investment climate based on data on the realization of _foreign direct investment _in the third quarter of 2022 at the Ministry of Investment/Investment Coordinating Board (BKPM) still recorded a growth of 63.6% or increased to RP168.9 trillion or equivalent to US$ 11.8 billion compared to the same period last year (year-on-year/yoy).

This investment contributed to the total investment in Indonesia reaching 54.9% with the absorption of labor reaching 142,444 people.


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## Indos




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## Indos

Asia-Pacific, Economy & Trade, Environment, Featured, Global Governance, Headlines, TerraViva United Nations

OPINION
Asia: the Power of Connections and their Consequences​By Simon Commander and Saul Estrin





Figure 1: Overall Concentration Ratios: Top 5 Firms


LONDON, Nov 24 2022 (IPS) - In our recent book, “_The Connections World: The Future of Asia_”, published by Cambridge University Press in October 2022, we argue that mutually beneficial links between dynastic business houses and political elites have been important drivers behind Asia’s extraordinary renaissance. Yet, these close ties now threaten future economic growth.

That is because the ubiquitous Asian corporate structures of Business Groups systematically work with politicians in Asia to create excessive market power and overall concentration. They have proven remarkably adept at entrenching themselves.

Although, by concentrating resources in relatively few hands, this was quite an effective engine of growth in the past half century, the limitation of competition and brake on innovation threatens future progress.

The pervasive and highly resilient networks of connections running between businesses and politicians have provided a common backbone to Asian development and have cut across political systems. We characterize these networks as the Connections World.

That world comprises a web of interactions between businesses and politicians/political parties that are highly transactional and commonly contain significant degrees of reciprocity.

Thus, politicians look to firms to make campaign or personal contributions; pay bribes; provide jobs for family or associates whilst also providing reciprocal favours, such as creating jobs in regions or at moments that are politically advantageous.

At the same time, businesses look to politicians for protection from foreign or domestic competition; to supply subsidies, loans and/or public sector contracts. All parties benefit from these interactions, creating a stable political economy equilibrium.

These arrangements have served Asia well over the past half century, with Asia’s share of the world economy rising from 9% in the 1970s to nearly 40% now. However, the connections world will provide a less supportive foundation for growth in the future for a variety of reasons. Neither politicians nor business groups have sufficient interest in stimulating competition, whether through the entry of domestic or foreign multinational as competitors.

Moreover, because Asian business groups are often highly diversified, with the control of the oligarch or dynasty enhanced by cross-holdings and ownership pyramids, their economic consequences must be measured not only by the traditional measures of market power, but also by overall levels of concentration as, for example, indicated by the share of total revenues for the largest five firms relative to GDP.

To put this in context, while the market concentration ratio (CR5) of the largest US firms, mainly in tech sectors, is often high, the five-firm overall concentration ratio is only around 3%. The comparable figures across Asia in 2018 are much higher, as can be seen in Figure 1. The CR5 in South Korea exceeds 30% and even in very large economies – India and China – it exceeds 10%.

The findings are even starker when we consider the largest ten firms (CR10). In the US, this is only around 4% but in South Korea exceeds 40% and in India and China exceeds 15%.

Looking forward, the consequences of the connections world will be far less propitious, not least because growth will have to rely increasingly on innovation. The existing networks are, for the most part, ill-suited to promote innovation which thrives on an open ecosystem of science universities and business parks, capital funders, lawyers and entrepreneurs and a healthy willingness to risk and lose.

Moreover, the connections world crowds out new entrants, soaks up capital and skilled workers and managers and suppresses the competitive environment so essential for the trial-and-error process at the heart of much successful innovation. Even when the business groups themselves are innovative, there is relatively little innovation going on in the wider economy.

What should be the policies and other measures that could address the shortcomings of the connections world? Central to the policy menu for loosening the grip of entrenched business will have to be measures designed to induce the transformation of business groups into more transparent and better governed businesses, while also radically weakening the links between politicians and business.

This will not happen naturally because the mutual benefits from market entrenchment and political connections outweigh any gains to the current players from reform. The required policies will need to include changes to corporate governance that undercut pyramidal ownership structures, mergers and cross-holdings, that impose inheritance taxes and shift to new types of – and targets for – competition policy.

Some of those policies were successfully introduced in the USA under Roosevelt. More recently, Israel has adopted criteria in competition policy for overall, as well as specific market, concentration levels, while South Korea has placed high inheritance taxes at the heart of their raft of policies to weaken the vice-like grip of their gigantic business groups.

At the same time, measures need to be adopted aimed at limiting the discretionary scope and incentives for politicians to leverage their connections for personal or family benefit. Although hard to achieve, incremental improvements, such as through audited registers of interests, can start to affect behaviour.

In short, although many commentators have already declared the 21st century to be Asia’s, that is far from predetermined. Unless the sorts of policies that we propose are introduced to roll back the tentacles of the connections world, many Asian economies will in fact find themselves unfavourably placed to exploit their potential in the coming decades.

_*Simon Commander* is Managing Partner of Altura Partners. He is also Visiting Professor of Economics at IE Business School in Madrid.
*Saul ESTRIN* is Professor of Managerial Economics at LSE and previously Professor of Economics and Associate Dean at London Business School._

IPS UN Bureau









Asia: the Power of Connections and their Consequences


In our recent book, “The Connections World: The Future of Asia”, published by Cambridge University Press in October 2022, we argue that mutually beneficial links between dynastic business houses and political elites have been important drivers behind Asia’s extraordinary renaissance. Yet, these...




www.ipsnews.net


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## Indos

Latest IMF projection (October 2022)






Indonesia vs Türkiye Economy 1960 - 2030​


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## Indos

PPSK Bill Passed, Sri Mulyani Reforms Indonesia's Financial Sector​Khairunnisa, Okezone _·_ *Thursday 15 December 2022 13:52 WIB





Finance Minister Sri Mulyani (Photo: Okezone)

JAKARTA - Minister of Finance (Menkeu) Sri Mulyani Indrawati stated that the step to reform the financial sector is the main requirement to build a dynamic, sturdy, independent, sustainable and just Indonesian economy.

"Indonesia's financial sector reform is the main prerequisite," she said at the 13th Plenary Meeting of the House of Representatives of the Republic of Indonesia for the Second Session of the 2022-2023 Session Year in Jakarta, Thursday (12/15/2022).


ALSO READ: Sri Mulyani Affirms P2SK Law Does Not Interfere with the Independence of BI, OJK and LPS

Sri Mulyani said there are 17 laws related to the financial sector that have been in force for a long time and some have even exceeded 30 years so they need to be adjusted to the dynamics of changing times.

In addition, she said the latest conditions and challenges as well as adding to the urgency of reforming the Indonesian financial sector such as the shallowness of the domestic financial sector, especially the low public savings in the form of pension funds and insurance.

In addition, Indonesia's financial sector assets are still dominated by short-term funding sources, namely the banking sector.

READ ALSO:Legit! Sri Mulyani Sets Tax Exemption for These Items, What Are They?

Then, the interest rate on domestic loans is still relatively high compared to countries in the region, resulting in a high-cost economy.

Reforms must also be carried out due to aspects of governance and law enforcement in the Indonesian financial sector that still need to be improved.

Next, the financial inclusion index in Indonesia still needs to be improved, there is technological disruption, especially digital technology such as financial technology (FinTech) and the growth of human resources (HR) supporting the financial sector which is relatively slow.

According to Sri Mulyani, these various things show the inability of the national financial sector to meet large economic needs independently.

"Especially when connected with our common dream to achieve the vision of a Golden Indonesia in 2045," said Sri Mulyani.

Therefore, the government carried out financial reforms, one of which was through the Draft Law on the Development and Strengthening of the Financial Sector (RUU P2SK).

"We believe that our efforts will bring the P2SK Bill to achieve its goal of reforming Indonesia's financial sector for a more prosperous future for the nation," she said.









RUU PPSK Disahkan, Sri Mulyani Reformasi Sektor Keuangan Indonesia : Okezone Economy


Sri Mulyani Indrawati menyatakan langkah mereformasi sektor keuangan merupakan syarat utama untuk membangun perekonomian Indonesia - hot issue - okezone economy




economy.okezone.com




*


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## Indos

A teller shows dollar banknotes at a money changer in Jakarta. (Antara photo)
Indonesia’s Foreign Debt Down 7.6%​BY :WHISNU BAGUS PRASETYA
DECEMBER 15, 2022

*Jakarta.* Indonesia’s external debt stood at $390.2 billion as of October, down slightly by 7.6 percent from the same month last year, Bank Indonesia reported on Thursday.
The October foreign debt is also $5 billion lower than the amount in September.

The amount of the government’s external debt has been in a steady decline since March, totaling $179.7 billion in October from $182.3 billion a month earlier.

The reason for the declining trend is because the government bonds have been largely shifted to domestic markets amid highly volatile global financial markets, Bank Indonesia spokesman Erwin Haryono said in a statement.

In addition, the government’s recent repayments have been bigger than the amount of new liabilities.

Erwin said the government’s foreign debt is intended to finance productive sectors and national economic recovery programs.

*Read More:*


*Indonesia Extends Trade Surplus Run to 31 Months*
*Government Debt Nears Rp 7,500 Trillion*
*‘You See a Different Indonesia Today’: Luhut Boasts Gov’t Achievements at B20*
Health and social programs took the biggest share of funding from the government’s foreign debt, accounting for 24.5 percent, he said.

The education sector was the second-biggest recipient with 16.6 percent, followed by defense, government administration, and social insurance (15.3 percent), the construction sector (14.2 percent), and the financial service and insurance sectors (11.6 percent).

Erwin claimed the government’s overall foreign debt remains manageable because long-term liabilities make up for 99.9 percent.

Corporation and private household debt was down by 3 percent to $202.2 billion year-on-year, also dominated by long-term liabilities of 75.2 percent.

The overall foreign debt is equivalent to 29.6 percent of the country’s GDP.









Indonesia’s Foreign Debt Down 7.6%


The amount of the government’s external debt has been in a steady decline since March, totaling $179.7 billion in October.




jakartaglobe.id


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## Indos




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## Indos

Bloomberg
Bond Investors See Indonesia’s Hot Streak Extending Into Next Year​Ronojoy Mazumdar and Marcus Wong
Fri, 16 December 2022 at 5:00 am GMT+7·3-min read







Bond Investors See Indonesia’s Hot Streak Extending Into Next Year​(Bloomberg) -- Indonesian bonds have outperformed most of their emerging Asian peers in 2022 and a number of investors are betting that will be the case for next year too.
Most Read from Bloomberg

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The nation’s debt may benefit from foreign inflows attracted by one of the highest real yields in the region and the prospect that interest-rate hikes are nearing their peak, according to William Blair Investment Management. JPMorgan Asset Management is overweight on Indonesia, while DBS Bank Ltd. sees the country’s bonds outpacing their regional counterparts.

“Indonesian bonds are relatively attractive compared to emerging Asian peers, with higher real yields than the likes of India and Thailand,” said Johnny Chen, a money manager at William Blair Investment in Singapore. “As inflationary pressures dissipate in the U.S. and the Fed slows the pace of hikes, the rupiah will likely benefit from portfolio flows.”

Indonesia’s debt —- considered one of the bellwethers for global emerging markets — is gaining attraction as the central bank is seen nearing its terminal rate, while policy makers in the US are expected to keep tightening for some time. Relatively high yields and a law seeking to expand the central bank’s mandate to buy government bonds in times of crisis may also bolster the Asian nation’s securities.

Indonesia’s bonds have done better than most of their regional peers in 2022 in what has been a difficult year for global debt markets. The securities delivered a loss of 5.9% for dollar-based investors, behind only Malaysia and China in emerging Asia. Bonds in Taiwan, the Philippines and South Korea all slid more than 10%.

Rupiah bonds are likely to keep attracting inflows as they offer some of the highest real yields in the region, according to DBS Bank, which expects foreign inflows of $3 billion to $7 billion next year.

Indonesian debt may also benefit amid light positioning after overseas investors trimmed their holdings by about $7.5 billion this year, a record outflow in data compiled by Bloomberg starting in 2010. Global funds have already started returning, snapping up $1.5 billion of the securities in November and about the same in December so far.
‘Strongly Benefit’

“The technical picture of the Indonesian bond market is also cleaner as foreign exposure has collapsed over the course of the last couple of years and positioning is far from heavy,” said Kenneth Akintewe, head of Asian sovereign debt at abrdn in Singapore.

“A potential recovery in EM flows would likely strongly benefit Indonesian rates and FX,” he said. “A lot can still go wrong, FX volatility remains elevated and yields are some ways away from the cheaper levels seen in October so investors still have to tread carefully.”

Indonesia’s 10-year bond yields fell by 60 basis points in November, the biggest decline in four years, as inflation slowed and traders bet Bank Indonesia will slow its pace of rate hikes. They have still climbed more than 50 basis points in 2022.

“Just reducing underweights can move these markets quite significantly,” said Lin Jing Leong, a rates strategist at Columbia Threadneedle Investments in Singapore. “With Indonesia being more high yielding than all other Asian markets, it tends to be the first one that investors re-enter, and reform fundamentals are quite positive.”









Bond Investors See Indonesia’s Hot Streak Extending Into Next Year


(Bloomberg) -- Indonesian bonds have outperformed most of their emerging Asian peers in 2022 and a number of investors are betting that will be the case for next year too.Most Read from BloombergTrump Hawks Superhero NFT Trading Cards as Crypto Universe ImplodesIs Putin Finally Getting Smart...




au.finance.yahoo.com


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## Indos

*AlhamduliLLAH*



Tax Revenue Exceeds 2022 Target: Finance Minister​BY: HERU ANDRIYANTO
DECEMBER 25, 2022

*Jakarta. *Finance Minister Sri Mulyani Indrawati claimed on Saturday that the materialized tax revenue exceeded this year's target.

"Good news ahead of New Year: the tax revenue target is met 100 percent at the national, provincial, and district levels,” Sri Mulyani wrote on her Facebook account.

According to her, the overall tax revenue has reached Rp 1,634.4 trillion ($104.8 billion) as of December 14, equivalent to 106 percent of the government target which was set at Rp 1,485 trillion.

“My sincerest appreciation and gratitude to all tax officials for their hard work throughout 2022,” Sri Mulyani said.

For next year, the government aims to collect Rp 1,718 trillion in taxes.

"This target has been carefully calculated by taking into account a projected decline in commodity prices and slower economic growth at the estimated 4.7 percent. It’s going to be a challenge for the tax directorate,” she added.

Despite the substantial revenue, the state budget suffers a deficit of Rp 237.7 trillion or 1.22 percent of the gross domestic product.

Total revenue stood at Rp 2,479.9 trillion against overall spending of Rp 2,717.6 trillion, according to Finance Ministry figures dated December 14.









Tax Revenue Exceeds 2022 Target: Finance Minister


The overall tax revenue has reached Rp 1,634.4 trillion ($104.8 billion) as of December 14, equivalent to 106 percent of the target.




jakartaglobe.id


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## Indos

How Indonesia is navigating the economic storm​




Jakarta Central Business District 

SRI MULYANI INDRAWATI
December 28, 202222:43

During the opening of the summit of G20 finance ministers and central bank governors in October, I warned that the world is facing increasing and compounding risks from high inflation, weak growth, energy and food insecurity, climate change, geopolitical fragmentation, and rising debt distress. Low-income countries will bear the highest burden, but middle-income and even advanced economies also face the prospect of substantial pain.

The global economy has been heading into a perfect storm. The COVID-19 pandemic has left scars on all our economies, precipitating a drop in aggregate demand and then aggregate supply. The symptoms are similar to those of a “liquidity trap,” with third-party funding in the financial sector remaining high while the real economy stagnates. To solve this problem, the great 20th-century economist John Maynard Keynes proposed countercyclical fiscal policy. If the economy works well, the annual budget deficit should be reined in; but if the economy is slowing, deficits should be permitted to grow.

Indonesia, under a 2003 law, disciplined its fiscal policy by limiting annual budget deficits to less than 3 percent of gross domestic product and total public debt to 60 percent (using the same parameters as the EU’s Stability and Growth Pact). But when COVID-19 caused the economy to contract, the annual budget deficit was expected to rise above 3 percent of GDP to create room for stimulus. To enable that flexibility, the government waived the budget deficit limit.

Within weeks of the World Health Organization’s March 11, 2020, declaration of a pandemic, the Indonesian government revised the budget law to allow for an expanded deficit. Indonesia’s annual deficit then grew to 6.5 percent of GDP in 2020, before falling to 4.6 percent in 2021 as the economy recovered. In “Keeping Indonesia Safe from the COVID-19 Pandemic,” a book published by the Indonesian Ministry of Finance in 2022, we detail how Indonesia managed to be one of the few countries in the world that sustained its economic performance even through a global aggregate demand shock.

By expanding the deficit, the Indonesian government kept growth from shrinking by more than 2.1 percent in 2020, and created the conditions for 3.7 percent growth in 2021, with consumer price inflation remaining low, at 1.7 percent in 2020 and 1.9 percent in 2021. Moreover, in 2021, economic output increased by about 1.6 percent, exceeding its level in 2019. This year, the annual budget deficit is expected to be about 4.5 percent, reflecting the government’s response to the latest wave of global supply-side shocks. But starting in 2023, the deficit should return to below 3 percent, barring another crisis.

After the initial economic storm that COVID-19 whipped up, the global economy is now in the midst of a second tempest. Mobility restrictions and other public health measures from the height of the pandemic disrupted services, snarled supply chains and curtailed production in key sectors such as semiconductors (which are used in many other manufactured products, including new cars). The total value added in global manufacturing decreased by 4 percent from 2019 to 2020, as did the number of mother vessels shipping freight between major ports.






Unlike the first storm, this second one brought both weaker growth and high inflation, owing to the rising cost of global production and transport, which were pushed even higher in 2022 by the spike in hydrocarbon and food prices. The Indonesian crude price rose above $100 per barrel and settled around a consensus forecast of $105 per barrel, on average. As food prices have risen, tens of millions more people have fallen into food insecurity. Unfortunately, regardless of what happens in the geopolitical domain, food prices are likely to remain high as a result of ongoing climate shocks.

These food and energy supply pressures have left a heavy burden on the global economy, which is still struggling to heal from the wounds that the pandemic inflicted on global value chains. Nonetheless, Indonesia’s economy remains relatively resilient, for several reasons.

For starters, Indonesia’s own connections to global value chains are weighted more heavily toward food and beverage products than automotives and electronics. Second, the country generates a healthy share of its electricity from renewable energy sources. And third, Indonesia has a greater comparative advantage in raw materials than intermediate goods, which means it is less exposed to semiconductor shortages. It also means that it benefited from windfall income and a current account surplus when the prices of primary products (including palm oil, coal, rubber and nickel) rose in 2021.

Looking ahead, however, Indonesia still aims to boost domestic manufacturing by producing more intermediate goods, particularly for major global value chains such as automotives and electronics.

In 2022, the pandemic shock to aggregate demand met new shocks to the supply of food and energy stemming from the war in Ukraine, resulting in forecasts of global stagflation and recession in 2023. Yet Indonesia’s economy continues to move in a positive direction, with significant improvements both in aggregate demand, as measured by the consumer confidence index, and aggregate supply, as measured by the purchasing managers’ index.

A higher consumer confidence index allowed Indonesia to maintain robust growth in the second quarter of 2022, when year-on-year household consumption growth exceeded total economic growth for the first time since the start of the pandemic. With the consumer confidence index still rising from July at 123.2 to August at 124.7, and the purchasing managers’ index increasing in the third quarter of 2022 from 51.3 in July to 53.7 in September, Indonesia’s economic performance continued to improve as the year progressed.

Against the backdrop of an increasingly gloomy global economy, Indonesia and a few other countries have become exceptional. The same advantages that have helped shield it from the storms of the past few years should continue to do so again in 2023.


_Sri Mulyani Indrawati is Finance Minister of the Republic of Indonesia._
_








How Indonesia is navigating the economic storm


During the opening of the summit of G20 finance ministers and central bank governors in October, I warned that the world is facing increasing and compounding risks from high inflation, weak growth, energy and food insecurity, climate change, geopolitical fragmentation, and rising debt distress...




www.arabnews.com




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