Bank Indonesia: What It Has Done and Can Do for the Impending Recession

Astin Lityo

Austin Lityo

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3 February 2023

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4 Minute Read

bank recession

Hi, everyone! Thank you for making it so far!

Since you all know I’m Indonesian, let me get back to my roots and share the information with you all about our Indonesia’s central bank, Bank Indonesia.

Since 1953, Bank Indonesia has wielded relatively enormous power over the stability of the national economy, but whether it has exerted its influence on the overall economy remains a question we need to ask ourselves today.

Well, first of all, we have to admit that a strong US dollar and an upcoming crisis are definitely going to affect us adversely. The logic is that, and this statement is supported by data, “strong US dollar causes imported inflation into Indonesia” (Indonesia Investment, 2022). According to the experts, “Accelerating Indonesian inflation limits Indonesian consumers’ purchasing power, and therefore consumption should weaken as a consequence, thereby dragging down the pace of national economic growth (domestic consumption accounts for about 53-55 percent of the country’s total economic growth)” (Indonesia Investment, 2022). What these mean is that Indonesia’s trade balance can weaken in the face of a worldwide economic crisis.

One prominent example is what happened to the world’s global workshop: China. Currently, the country is recording its lowest position against the US dollar, which may translate into a reduction in the demand of Chinese importers. Since China presents an economic impact on literally any country on the planet, its meltdown is going to reverberate globally, impacting even our country, believe it or not.

Endeavors Made

So, what has Bank Indonesia done? According to Thee Kian Wie, the Indonesian government has emphasized solid macro-centric policies, “including putting a maximum cap of 3 percent on its budget deficit, and Bank Indonesia has pursued monetary policy aimed at preventing inflation” (Wie, 2010). When the inflation rate is checked, the prices of goods and services can be controlled. If so, people will still be able to afford goods and services, aiding the national economy even further despite whether the recession occurs or not.

It has also solidified its external balances, dramatically enhanced its foreign exchange reserve to alleviate upcoming impact, cut down governmental debt to stabilize fiscal situation, and supervise the practice of banks more thoroughly (Wie, 2010). These moves are made to ensure that not only are the internal national affairs in place, but the economic relationship between countries, including liabilities, is something that can be managed if the worst comes to the worst.

Otherwise, international debt can weigh down the country and become an adverse external factor down the lane of the recession later. Lastly, Bank Indonesia has made the banking regulations more strict to ensure that the existing banks are healthier to cushion the blow (Wie, 2010). Because the country has experienced four economic crises, Indonesia has been wiser in tackling the economic threat that can shake its stability.

The Promising Future

In the future, Bank Indonesia would have to ensure that Indonesia keeps spending its money to keep the industry rolling. This action needs to center on private consumption, especially by the lower segments of the society. According to Chatib Basri, the Minister of Finance Republic of Indonesia 2013-2014, if the country could maintain private consumption at 50 percent of Gross Domestic Product,” the country will be able to fight back against the impending recession (The Ministry of State-owned Enterprise, PR-192/S.MBU.B/10/2022).

When individuals consume goods and services, this situation is good to keep the industry moving forward, so no matter what happens, the government needs to ensure the retention of such consumptive behavior. Another action to propel this factor is for the government to spur the growth and development of private consumption. This can be done through various policies that provide financial assistance.

According to the Minister, the forms of such financial aid can come in the form of “Direct Cash Aid [Bantuan Langsung Tunai] and the Family Hope Program [Program Keluarga Harapan]” (https://bumn.go.id/media/press-conference/,2022). It is hoped that these programs will hasten the track of people’s “affordability to spend money.”

In conclusion, Bank Indonesia has gone the extra mile to emphasize solid macro-centric policies. In the future, Bank Indonesia needs more private spending on consumption to ensure that the industry keeps rolling.

Thank you so much everyone for reading this article. See you in the next chapter.