WARDING OFF A GLOBAL RECESSION Is Indonesia’s economy at risk?

(IO/Pramita Hendra)

Import substitution and MSME digitalisation 

The strength of its domestic economy allows Indonesia to avoid the risk of a global recession. Therefore, the focal point of the strategy to save Indonesia’s economy from recession is on the government’s economic policies to sustain domestic market demand. 

First, from the consumer side, efforts to keep inflation at a moderate level are key for the economy, especially the lower middle class, who are very sensitive to price hike. Meanwhile, from the producer side, efforts need to be made so that production can continue amid the global economic downturn. In this regard, the government can provide fiscal and non-fiscal incentives. 

Second, the need for import substitution policy, especially for raw materials. This is necessary because it can reduce pressure on the exchange rate, and more importantly, it can further spur the performance of the domestic economy. 

Third, efforts to accelerate production through loan disbursement. This strategy is indeed not easy because it is carried out in the midst of rising global interest rates. However, we can see that the increase in domestic consumption increases will spur economic activities. At this point, it is important for the financial sector to continue providing the real sector with access to funding, especially to home-based economic activities which are relatively immune to the global economic downturn. 

Eko Listiyanto, SE., MSE
Eko Listiyanto, SE., MSE is an economist. He holds a bachelor’s degree in Economics and Development Studies from Brawijaya University and a Master’s degree in Economics from the University of Indonesia. He is the deputy director of the (Institute for Development of Economics and Finance), an independent research institution based in Jakarta. He was member of the manpower, human capital and research & technology working group at the National Economic and Industry Committee (KEIN) from 2015-2019, and an analyst with the Bank Indonesia Supervisory Board (BSBI) from 2013-2017.

Fourth, the need to accelerate MSME digitization. It is a fact that Micro, Small and Medium Enterprises (MSMEs) that have adopted the digital economy before the pandemic are more resilient than those who haven’t. The reason being digitalization opens up market access for MSMEs, enabling them to sell to new regions and consumer segments. 

When MSMEs do not only rely on offline presence but also join online marketplace, they will be able to survive and thrive. Moreover, from the demand side, people are also increasingly adaptive and familiar with online shopping. Therefore, digitalization can bridge rising consumption trend that is increasingly done online with efforts to accelerate the performance of SMEs through e-commerce platforms. 

This effort will be more optimal when the government provides support, not only on in terms of training and mentoring, but also digital payment facilities that appeal to millennial consumers. According to Bank Indonesia data, 18.7 million merchants, of whom 90 percent are MSMEs, have used the Quick Response Indonesian Standard (QRIS) digital payment system. This is an interesting indicator that Indonesia’s MSMEs can quickly adapt to the digital world. Digitalization allows MSME sector, which employs 90 percent of the business players in Indonesia, to increase its productivity. Thus, MSME digitalization is not only am auxiliary but core pillar of business sustainability going forward, including their vital role in helping the country keep the economic recession at bay. (Eko Listiyanto, SE., MSE)