As I alluded in my previous columns, the Fed and ECB, as manifested in Chairman Jay Powell and President Christian Laggard, made quick decisions to address inflation by raising interest rates significantly higher than in the past. Neither central bank wanted to repeat what happened in the Seventies when timid policies resulted in stagflation, a combination of inflation and a stagnant economy, or Europe in 2008, when prolonged economic crises spread everywhere. We observe that the prompt action by these two central banks was immediately followed by one and another central banks for the same reason. Now the same question is becoming relevant for emerging economies and middle-income countries, and of course Indonesia as well.
What Should Indonesia Do?
Fortunately, Indonesia still has some fat to burn, at least in the near future. Inflation is under control, banks are well capitalized, foreign exposures are manageable. And there is still room for Bank Indonesia to rely on an interest rate monetary instrument and even for some quantitative easing, again at least for a while longer. It is reported that Bank Indonesia has been prepared to deal with these challenges. I do not know whether our international reserves are still ample, in the face of the rising risks and uncertainties in finance, due to international developments, as an overflow from the Russian-Ukrainian war, that will last longer than expected. My concern is still the same as I mentioned over and over, primarily on Government tax revenues that has been as low as 9 percent until recently. This is unacceptable in my view. I am not asking for us to reach the level that the middle-income countries achieve, but is it too much to wish of accumulating tax revenues to the same level that we achieved in the past, of 16 percent? Let us be open-minded and not judgmental. I believe that tax officials have been working hard; let us have the enthusiasm that those fortunate enough in life for being blessed with high income or business profits must pay their due taxes, and I think we will reach that goal. Let us cross our fingers together and individually pay our taxes properly, not trying any trick to avoid tax payment illegally. This is a realistic expectation – don’t you agree?