Indonesia Launches Measures to Support Economic Growth
President Joko Widodo Takes Steps to Boost Southeast Asia’s Largest Economy
Indonesia’s President Joko Widodo has announced measures to support the growth of the country’s economy. Despite the recent depreciation of the rupiah against the dollar, Widodo has assured businesses that it is still a safe rate. However, economic growth is expected to slow down this year due to falling commodity prices and weakening global trade. Additionally, Indonesians are facing the challenge of rising prices of essential commodities such as rice, caused by drought.
Government Removes VAT on Home Purchases
The government has decided to eliminate the 11% value-added tax (VAT) on home purchases worth less than 2 billion rupiah ($126,000) until June 2024. After that, the VAT will be halved for an unspecified period. This move aims to stimulate the real estate sector and make housing more affordable for the general population.
Extension of Rice Distribution Program
The government will also extend its rice distribution program for an additional month until December. This program benefits over 21 million lower-income households, helping them cope with the rising prices of this staple food. By distributing rice, the government aims to shield vulnerable communities from the impact of increasing prices.
President Widodo Warns of Potential Challenges
During a seminar with investors, President Widodo expressed concerns about the potential impact of escalating conflict in the Middle East and capital outflows linked to US monetary tightening. He warned that these factors could lead to a surge in oil prices and affect Indonesia’s economy. However, he reassured investors that the current depreciation of the rupiah is still within safe levels for the real sector, financial sector, and inflation.
Rupiah’s Depreciation and Possible Interest Rate Hikes
The rupiah has depreciated by up to 4.7% since early September due to risk-off sentiment among investors. This depreciation prompted Indonesia’s central bank to raise interest rates unexpectedly last week. Economists suggest that further interest rate hikes may be necessary if the depreciation continues. Although the rupiah strengthened by 0.66% against the dollar on Tuesday, it remains near its weakest levels since 2020.
Government’s Endurance to Withstand Shocks
President Widodo stated that his national budget has the capacity to withstand economic shocks until 2024. The finance ministry currently holds cash reserves of 616 trillion rupiah ($38.84 billion) as of October 13. This financial stability allows the government to implement measures to address rising food prices, including cash transfers to millions of households.
Challenges of Rising Food Prices
Indonesia is facing challenges with rising food prices, including essential items like rice, sugar, and chili. The country has been affected by an El Nino weather pattern, resulting in drought and reduced harvests. Despite low headline inflation, the scarcity of these food items has led to price increases, impacting the affordability of basic necessities for Indonesians.
In conclusion, President Widodo’s measures aim to support economic growth and address the challenges faced by Indonesia. The removal of VAT on home purchases and the extension of the rice distribution program demonstrate the government’s commitment to improving the living conditions of its citizens. While risks such as the depreciation of the rupiah and rising food prices persist, President Widodo remains confident in the resilience of Indonesia’s economy.
