The Government Must Mitigate These Two Impacts As A Result Of The Iran-Israel Conflict

JAKARTA - Economic analyst of the Indonesian Employers' Association (Apindo) Ajub Hamdani, said that the impact of the Iran-Israeli conflict is at least two things that the government must mitigate on global economic instability due to the current geopolitical conflict conditions.

"At least 2 things must be mitigated. First, disruption of the economic supply chain, which will result in an increase in prices for imported commodities, including raw materials, oil, and logistics costs," he explained in his statement, Friday, April 19.

According to Ajib, this will trigger an increase in HPP (Sales Basic Price) so that it will escalate inflation. Meanwhile, throughout 2023, inflation in Indonesia is still within the control range according to the macroeconomic framework that was prepared, and in aggregated at the end of 2023 it was only in the range of 2.6 percent.

Ajib said that inflation throughout 2024 is projected to be 2.5 percent plus minus 1 percent, meaning that inflation can still be tolerated up to 3.5 percent. Conditions for rising imported commodity prices will provide negative sentiment in inflation.

Furthermore, according to Ajib, the second impact that must be mitigated is that American economic policy due to the existing geopolitical conditions, which tends to hold the Fed's interest rate.

"Previously, the market had expectations that the Fed would cut the benchmark interest rate. This Central Bank of America's monetary policy became the dominant parent of Bank Indonesia (BI) in making national monetary policy," he explained.

Ajib said that when the Fed's interest rate is high, there will be the potential for crowding out or capital outflows, thus increasing pressure on the rupiah exchange rate.

On the other hand, conveying a high rate of interest rates will reduce financial liquidity in economic activities.

According to Ajib, this will create a dilemma in terms of monetary.