In facing the global economic situation that has experienced a significant decline (downturn), the Prabowo-Gibran government is considered to have taken strategic steps to strengthen Indonesia’s position in the international arena and spur domestic economic growth. According to Dias Satria, S.E., M.App.Ec., Ph.D., an economist and Assistant Professor of the Faculty of Economics and Business, this government strategy is relevant to changes in international trade patterns that are now shifting from multilateral to bilateral.
Government Attitude
Dias assessed that the bilateral trade approach is key amidst the fluctuating global economic situation. “Trade is no longer focused on multilateral, but bilateral. For example, Indonesia is highly dependent on trade relations with the United States, which can only be resolved through bilateral agreements. Likewise with Europe, which has many interests in Indonesia,” Dias explained.
According to him, the government’s diplomatic steps to strengthen bilateral relations are strategic policies that will benefit the Indonesian economy.
Future Challenges for the Indonesian Economy
Dias revealed two main focuses that the Prabowo-Gibran government needs to implement: solving fundamental economic problems and developing the creative economy.
“The creative economy can be a game changer for Indonesia. We have creative human resources and high technological mastery, but we need a supportive ecosystem and policies,” he said.
He gave an example of the importance of downstreaming MSME products integrated with university research. “For example, the results of MSME innovation not only increase added value, but also move up a class with research and development collaboration. This is a great opportunity for campuses and young people to play a more active role,” Dias added.
Impact of the 12% VAT Increase Policy
The government’s policy of increasing Value Added Tax (VAT) to 12% has drawn various views, especially regarding people’s purchasing power. Dias assessed that this policy must be calculated carefully in terms of its impact on consumption and economic growth.
“On a macro scale, taxes do reduce people’s disposable income, thus reducing consumption. This will affect economic growth. The government needs to see the sensitivity of the impact of this VAT increase on people’s consumption and overall economic growth,” said Dias.
Risks if Purchasing Power Declines
Dias also highlighted the risk of deflation if people’s purchasing power declines significantly. “Deflation is much more dangerous than inflation. There is a term deflation spiral, where deflation makes economic growth low and has a broad impact on other sectors,” he said.
He added that deflation also lowers investment expectations, since business actors tend to hold back expansion amidst falling prices.
“On the contrary, inflation actually triggers business activities that contribute to economic growth,” said Dias.
Dias emphasized the importance of specific incentives to prevent the negative impacts of the VAT policy.
“There must be data-based research to see whether this tax increase will increase state revenues, or actually sacrifice economic growth. This must be calculated carefully,” he said.
Amidst global and domestic economic challenges, the Prabowo-Gibran government has shown strategic steps, especially in bilateral trade diplomacy and the development of the creative economy. However, policies such as the increase in VAT must be balanced with careful calculations and appropriate incentives to maintain people’s purchasing power and encourage economic growth. With the right strategy, collaboration between the government, business actors, academics, and the community can strengthen Indonesia’s competitiveness. The creative economy, technological innovation, and trade diplomacy are expected to be the main pillars that lead Indonesia towards inclusive and sustainable economic growth. (Dilla/Oky/UB PR/ Trans. Iir)
