The Threat Of A Global Recession Due To The Russia-Ukraine Conflict, The Indonesian Government Must Move Quickly To Anticipate

JAKARTA - In a press release from Washington DC on March 1, 2022, the International Monetary Fund (IMF) and the World Bank warned that the prolonged war between Russia and Ukraine would have a major impact on the global economy. The biggest impact will be felt by countries that have close economic relations with Russia.

The sanctions imposed by America and its allies on Russia will trigger a chain effect, especially on financial markets that will spread to other countries. Commodity prices are pushed up and risk triggering inflation. Under these conditions, the poor are the hardest hit.

Financial markets will also continue to deteriorate. Food and energy prices have skyrocketed in recent days, severely impacting poor households. For them food and fuel constitute a higher proportion of expenditure. If conflict escalates, the economic damage will be even more devastating.

IMF Managing Director Kristalina Georgieve said she was deeply concerned about the repercussions of the war between Russia and Ukraine. On Twitter, he wrote that the conflict only added significant economic risks to the region and the world. The IMF will continue to assess the economic impact and stand ready to support member countries as needed.

“People were killed, injured and forced to flee, and great damage was done to the country's physical infrastructure. We support the Ukrainian people through the development of these dire conditions. War also creates a significant impact on other countries,” said World Bank President, David Mapas.

The IMF said Ukraine had requested an emergency fund request, and that it was currently being discussed at the executive board level. Ukraine asked for US$1.4 billion, or around Rp.20 trillion.

The IMF also asked monetary authorities around the world to closely monitor price increases in their respective countries. The IMF asked that economically vulnerable households be a priority.

Trading Economics noted that global wheat prices in the last week of February 2022 jumped to 9.3 US dollars per bushel. That is the highest price of wheat since the last nine years, caused by the Russian invasion of Ukraine. As much as 30 percent of the total world wheat exports were contributed by Russia and Ukraine.

On February 24, 2022, during Russia's first invasion of Ukraine, the price of crude oil jumped to US$105 per barrel at the end of the day's trading. The increase in oil prices caused the price of other commodities to become volatile.

On the same day, soybean prices have crossed 17.5 US dollars per bushel on February 24, 2022, reaching their highest level since September 2012. Global crude palm oil (CPO) prices are also still perched high, at 6,130 Malaysian ringgits per tonne. Not far from the record high on 21 February 2022 which reached 6,158 Malaysian ringgit per tonne.

The Ukraine conflict has sent oil prices soaring to their highest levels since 2014. This has added to the already worrying global inflationary pressures. Oil prices continued to surge above US$100 per barrel on March 2, 2022.

The price of US crude oil futures jumped 7.69 US dollars per barrel to 103.41 US dollars per barrel and brent (the benchmark for crude oil prices) remained at 104.97 US dollars per barrel. European natural gas prices jumped nearly 29 percent. Traders in the US's biggest oil hub have been holding back on their imports from Russian companies even though the White House has said oil sales are not a target for sanctions. Oil and gas prices rose nearly 60 percent compared to the same position last year.

Quoted from CNBC, Executive Director of Emerging Markets Asia, Economic, and Policy Research at JP Morgan, Sin Beng Ong, believes that geopolitical tensions between Russia and Ukraine will spill over into rising prices for other commodities. So far, the conflict between the two countries has caused world crude oil and wheat prices to rise.

The Indonesian industries that have been affected by the dynamics of recent global conditions are the textile, food and beverage industries. Meanwhile, the textile sector for raw materials such as cotton, polyester and rayon was indirectly affected by the increase in the price of a number of energy commodities, such as oil and natural gas.

Meanwhile, data from the Indonesian Wheat Flour Producers Association (Aptindo) noted that Ukraine is the second largest wheat exporter to Indonesia. In 2021, wheat imports from Ukraine will reach 26.8 percent of Indonesia's total wheat imports of 11.4 million tons.

The increase in wheat prices has actually occurred over the last two years due to the impact of the COVID-19 pandemic, along with increases in other types of commodities. However, the conflict between Russia and Ukraine has made things worse. Fortunately, Indonesia has other wheat supplying countries such as Canada, Argentina and the United States to cover the country's needs.

The Central Statistics Agency noted that as of 2021, Indonesia's largest import from Russia was steel as a raw material for the steel industry. The total is 486 tons with a value of 326 million US dollars.

Deputy Chairperson of the Indonesian Chamber of Commerce and Industry (Kadin) for Industry, Bobby Gafur Umar, said the government must be the driving force to maintain industrial performance and maintain the momentum of economic growth. In particular for a number of sectors that depend on imported raw materials from Russia and Ukraine

According to him, industry players are currently on guard waiting for a more definite situation from the conflict between Russia and Ukraine. A number of plans for business expansion and investment had to be postponed again.