In the midst of the cacophony of demonstrations and the inauguration of new members of the House of Representatives (DPR), the domestic economy needs to be closely watched as fears about a global recession grow.
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In the midst of the cacophony of demonstrations and the inauguration of new members of the House of Representatives (DPR), the domestic economy needs to be closely watched as fears about a global recession grow.
The Jakarta Composite Index (JCI) weakened further on Wednesday (2/10/2019). Some say the student demonstrations have deterred investors, but other aspects have also had an effect, such as a warning by rating agency Moody\'s Investors Service.
In a stress test conducted by Moody\'s, banks in India and Indonesia were found to be the most vulnerable to deterioration in corporate debt repayment capacity due to a decline in revenue, followed by banks in Singapore, Malaysia and China.
The stress test was based on an assumption of a 25 percent decline in earnings before interest, tax, depreciation and amortization (EBITDA). Moody\'s warning should not be dismissed given that the agency is one of the references of global investors. It would be better to find ways to prevent such deterioration from happening.
The incoming government faces quite serious challenges. A recession could be on the horizon for a number of nations. The trade war between the United States and China has contributed to the slowdown in global trade, which has been the engine of economic growth since the establishment of the World Trade Organization in 1995. In the geopolitical order, tension between Iran, the US and Saudi Arabia has affected oil supplies, resulting in an increase in oil prices. This could affect Indonesia as a net oil importer.
Domestically, the drought, which is expected to continue until mid-November, has the potential to disrupt food supplies and increase prices. Indonesia Statistics (BPS) reported deflation in September 2019 due to a fall in the prices of foodstuff such red chili, shallots and chicken. However, Kompas found that there had been an increase in rice prices in a number of regions.
These aforementioned problems should be well managed by Joko “Jokowi” Widodo and Ma\'ruf Amin, the elected president and vice president for the 2019-2024 period. With the shadow of slowing world economic growth looming that could affect Indonesia, Jokowi-Amin\'s work program, which focuses on human development, could encourage growth and address problems.
Direct investment by the government and the private sector is becoming increasingly important, accompanied by the mastery of technology, including digital technology. The provision of training and upskilling for the country’s abundant workforce and increasing the number of new entrepreneurs would increase productivity and encourage growth.
Strong institutions and legal certainty are needed to attract investors. The government has provided various tax incentives and removed investment barriers. Investors are now waiting for that promise to come true.