As the deadline for Indonesian presidential and vice-presidential nominations drew to a close on October 25, 2023, the financial resilience of Indonesia is bracing for the impact of the upcoming election. With three pairs in contention, it is imperative to proactively manage the effects of the election and the policies that will ensue.
Elections can significantly impact various components of Indonesia’s gross domestic product (GDP). During the 2019 election, consumption increased until a quarter before the May election, then declined. Public consumption then experienced fluctuations in the following quarters, directly reflecting the political climate.
Investment also decreased before and after the election, reflecting uncertainty towards the new government. This uncertainty was also felt in the capital market, where the Indonesia Composite Index (IHSG) experienced fluctuations, particularly before and after the election.
Investors tend to adopt a ‘wait and see’ approach, reducing share purchases and closely monitoring conditions and new policy decisions before committing financially. If the 2024 election results in decisions inconsistent with market expectations, the IHSG may experience adverse effects.
Economic shocks before, during, or after the election are also anticipated, particularly in certain regions, where the prices of essential commodities rose during and after the 2019 election. The Indonesian government is expected to implement strategic policies to tackle this.
One major policy that can be implemented is the inclusion of an automatic adjustment (AA) in the 2024 State Budget. AA is crucial in overcoming conditions of uncertainty, which often arise during election periods.
Bank Indonesia (BI) also plays a significant role in addressing the uncertain domestic investment climate through a monetary policy known as the ‘twist operation’ strategy. This strategy aims to stimulate investor interest and keep investors engaged in the market, particularly during times of political uncertainty.
Furthermore, fiscal and monetary policies must work harmoniously to maintain economic stability during the presidential election period. This requires collaboration between the Ministry of Finance and BI to create conducive economic conditions.
As Indonesia braces itself for the upcoming presidential election and the potential economic impact it may bring, strategic policies and collaborative efforts will be crucial in safeguarding the country’s financial resilience.
By Muhammad Bakri and Yohanes Adiwicaksana
+ There are no comments
Add yours