Indef: Russia-Ukraine Conflict Slows Indonesia's Economic Recovery

JAKARTA - Institute for Development of Economics and Finance (INDEF) researcher, Eisha M Rachbini, said the conflict between Russia and Ukraine could slow down the economic recovery of Indonesia and other developing countries.

"The Russia-Ukraine conflict which has a negative impact on global economic growth will affect and slow down economic recovery, especially emerging markets such as Indonesia", said Eisha in an official statement quoted by Antara, Tuesday, March 1.

If it continues, the Russo-Ukrainian conflict could result in several countries banning the entry of Russian commodities such as petroleum, nickel, aluminum, palladium, and wheat. This could increase world commodity prices to higher levels than before.

The increase in oil prices can also raise the price of fuel oil (BBM) and other important and important food commodities in the country.

"The government needs to be careful with rising prices for crude oil and wheat. It also needs to maintain inflation stability by keeping domestic fuel prices and basic commodities stable and not volatile", she said.

Government spending on energy subsidies could also increase if the conflict between Russia and Ukraine continues so that the State Budget (APBN) is depressed.

In January 2022 the realization of government energy subsidies has reached IDR 10.42 trillion, an increase of 347.2 percent year on year from the realization in January 2021 which amounted to IDR 2.3 trillion.

"The consequences of countercyclical policies, for example by price intervention or subsidies, will put pressure on the State Budget deficit. So the State Budget needs to be managed efficiently, prioritizing economic growth, and considering postponing the relocation of the capital city", she said.

On financial markets, with sanctions imposed by the United States on financial market players and Russian technology companies as well as a potentially higher rise in inflation, the Russo-Ukrainian conflict could lead the US Federal Reserve to increase interest rates to levels higher than originally anticipated.

"This can depreciate the rupiah exchange rate, capital outflows occur, and have a negative impact on the balance of payments (BoP). In the financial market, conflicts can also have an impact on lending and corporate performance", she said.