Indonesia's Economic Growth Has The Potential To Drop To 4.6 Percent Due To Iran-Israeli Tensions

Illustration of money (ANTARA)

JAKARTA - Economist and former Minister of Finance (Menkeu) in the 2014-2016 period, Bambang Brodjonegoro conveyed that Iran's attack on Israel has the potential to have an impact on Indonesia's economic growth.

According to Bambang, the escalation of the conflict between the two countries could have an impact on changing Indonesia's economic growth target this year from 5.2 percent to 4.6 percent to 4.8 percent.

"Maybe (economic growth) could be pushed down a bit, down to 4.6-4.8 percent due to the perturbed external balance, coupled with potential inflation," Bambang said at the 'The Fun Negotiation of the Impact of the Iran-Israeli Conflict on the Indonesian Economy' held by Eisenhower Fellowships Indonesia Alumni Chapter, Monday, April 15.

Bambang said that the heated Iran and Israel conflict would cause external disturbances and boost inflation. This will certainly disrupt public consumption and ultimately disrupt the prospect of economic growth.

However, Bambang said there is still hope for Indonesia to be able to boost economic growth by 5.2 percent this year.

According to Bambang, one of the factors that can accelerate Indonesia's economic growth comes from domestic consumption during the November 27, 2024 regional elections (Pilkada). However, domestic consumption will not be so high. Because campaigns in today's era are mostly carried out through social media.

"But if you look at the impact of yesterday's election, the current election is a bit different from the previous election, because the current election is people playing on social media (social media), so there are not many consumption impacts that are outside of data consumption or the internet," he said.

In addition, Bambang sees that the impact of the Iran-Israel conflict can exacerbate Indonesia's current account deficit. Because of external conditions, Indonesia's economy has entered the yellow light.

Our trade balance is always in surplus for more than two years, but I see the numbers are getting smaller and smaller. This has actually started with yellow lights," he said.

Bambang said that in the last two years the trade balance surplus had decreased, as seen, the figure was already below 1 million US dollars.

According to Bambang, this condition can be critical because the trade balance of goods will find it difficult to improve because of the conflict in the Middle East which is heating up, causing global commodity prices to rise sharply, and the distribution of commodity supply chains will also be disrupted.

"Especially those through the Red Sea and the Strait of Hormuz," he said.

In addition, Bambang said that Indonesia's running balance will also experience problems because the high interest rate makes global demand weaken. "So, our exports are either manufacturing or commodity, both have no good prospects even though there is a weakening of the rupiah," he said.

According to Bambang, the weakening of the rupiah can usually be useful for reaching exports. However, the problem will arise when Indonesia's exports are still dominated by commodity products. In fact, the era of the commodity boom has ended since last year.

"So that the weakening of the rupiah against the United States (US) dollar does not help much in the context of competitiveness, especially manufacturing products," he said.

Bambang conveyed that tougher challenges arise in the service sector, because one of the deficits that arise is freight or shipping.

"With the weakening of the rupiah against the US dollar, plus the possibility of disrupting the distribution route of the Suez Canal, the Red Sea, the Strait of Hormuz, including the Indian Ocean, I am worried that our current account deficit could widen," he said.