Remarks of President of the Republic of Indonesia During the Inauguration of Investor Daily Summit 2022, JCC Senayan, Jakarta October 11, 2022
Assalamu’alaikum warahmatullahi wabarakatuh,
May prosperity be upon us all,
Greetings of virtue.
Honorable Leaders of State Institutions,
Honorable Coordinating Minister for Maritime and Investment Affairs and the Ministers of the Onward Indonesia Cabinet,
Honorable Chairman and CEO of B-Universe and the managements, leaders of companies, State-owned Enterprises, private sector and cooperatives,
Distinguished Ladies and Gentlemen,
Fundamental changes are currently taking place in the global economy – from the world that was relatively easy to predict and calculate to the one that is difficult to predict and calculate, full of high uncertainty and volatility.
Previously, all countries pursued the goal of keeping interest rates and inflation as low as possible. However, everything has changed. Not to mention the geopolitical confrontation and climate change, we can see that natural disasters are becoming more common.
With the current situation, any country can be easily out of the track in both monetary and fiscal managements if they are not careful and vigilant. Furthermore, following the war between Russia and Ukraine, we now know that economic growth in 2023, which was previously estimated at 3 percent, has fallen to 2.2 percent. This is what is often said as the costly war.
However, given the uncertainty I mentioned earlier, we must remain optimistic. We must be cautious and vigilant since Indonesia’s economic growth in the second quarter is among the best in the world at 5.44 percent. Inflation remains under control as well. We are still below 6 percent, 5.9 percent, after the increase in fuel price. We should also be grateful for this as when we compare to other countries today, Argentina has reached 83.5 percent with an increase of a 3.700 basis point in interest rate. Our inflation rate is 5.9 percent with a 75-basis point interest rate, meaning that our financial situation is still under our control.
Why is that so? What I see in on a regular basis is that our central Bank Indonesia and Ministry of Finance work together in harmony and do not overlap. I see decent communication that allows fiscal and monetary policies can be implemented in parallel.
The Government then provides social assistance in the forms of compensation and subsidies to continue increasing people’s purchasing power and public consumption. This is an extraordinary amount, Rp502.6 trillion. A very large number. However, it is because we want people’s consumption and purchasing power to remain stable, so it is the price that we pay – Rp502 trillion.
Second, we are currently working on both macro and micro issues. But it is not enough; it needs to be sharper and more detailed so the solutions can be completed one by one.
For instance, inflation. No country takes measures that we have taken. Usually, inflation is controlled by raising interest rate; central banks usually raises interest rates to curb inflation. However, we are not only concerned about raising interest rates. It is the authority of central bank Bank Indonesia, but practically, we also address the key issue. What is it? The price hike of goods and services. How? I’ve had meetings with regents, mayors, and governors twice to discuss this inflation issue, and we will continue to do it and evaluate it every two weeks. We give the authority to the regional governments to use two percent of General Transfer Fund as well as Unplanned Expenditures to control inflation.
How? For instance, shallots’ price is increasing in Lampung province. Which regions produce shallots? It is Brebes regency. Since the price of shallots in Lampung has increased, the local government can get shallots directly from Brebes or cover the transportation costs from Brebes to Lampung derived from the Regional Budget. We have calculated the price, and it is very cheap. How much does it cost from Brebes to Lampung? I have checked that it costs Rp3,500,000 per truck, whereas the local government has millions of rupiah of budget, and we do not buy shallots everyday. We must handle minor details like this. For instance, eggs’ price is increasing in the Greater Jakarta. Which region produces eggs largely? It is Blitar city. So, the regional government covers the cost of the transportation from Blitar to the Greater Jakarta, ensuring that the price is the real price from the farmers, a farmer’s price.
No country that works in such detail like us. Normally, the central banks would perform macro control. This is why the estimated increase in inflation due to the recent fuel adjustment was at 6.8 [percent], but then dropped to 5.9 [percent] because local governments have started to implement it. I have checked the sampling several times.
Third, concerning the use of domestic products. We have never paid attention to it. Is the State Budget used to purchase imported goods or our own goods? Do local governments purchase imported goods or domestic goods? Do our state-owned enterprises purchase imported goods or domestic goods? Our private sector has not been involved yet. After we checked it, we found out that many of them purchased imported goods. We have hardly earned the money from the State Budget and Regional Budgets through taxes, royalties, exports, and non-tax state revenue (PNBP), but then it was just spent for imported products. Is it right? No, it is not right at all.
This is what we are now aiming at and we make commitments on how many trillions of the budgets that the ministries and regional governments will be spent for purchasing domestic products. We make commitment to collect Rp950 trillion to buy domestic products.
Indeed, budget realization for state-owned enterprises is only 72 percent, and for the State Budget and regional budgets, they are still low at 44 percent of Rp950 trillion. However, when it reaches 100 percent, it will be obvious why our small-medium enterprises need to increase their production capacity, but our products can increase their production capacity. It is because there is a demand from the Government amounting to Rp950 trillion. If we do not check it in details, we will not be aware, even though it takes Rp950 trillion.
Third, the significance of collaboration among small and medium enterprises, medium-sized businesses, and large businesses. This is critical. I keep repeating this. We must collaborate, unite, and build “Indonesia Incorporated”. Everyone must take action and we can enter global markets, if possible. If we cooperate closely, we can unite as we have handled the pandemic from the regional level to the neighborhood level, we will be able to quickly solve the problems we were facing.
Fourth, I have frequently mentioned about industrial downstreaming that we have started. I always reiterate that investment is open, but if the investment is made in the regions, investors must work with local entrepreneurs, be it investors from Jakarta or other countries, they should invite and cooperate with local entrepreneurs.
I keep using nickel as an example of the growth resulting from downstreaming. When we still export raw materials, the value is only around Rp15 trillion per year. After we entered industrialization, the downstreaming, it reached 20,9 billion US Dollar. It has already reached Rp360 trillion, rising from Rp15 trillion to Rp360 trillion. Only from one commodity. We still have nickel, bauxite, copper, tin, and asphalt. Especially, asphalt. We will not be aware of it if we did not make an inspection. I visited Buton island two weeks ago. There are 662 million tons in the deposit. When I make an inspection, I will remember all the numbers, it is 662 million tons of asphalt.
Back then, asphalt was produced in Buton island, but I’m not sure why it stopped, it was said that imported asphalt was cheaper. So, 95 percent of our asphalt is imported, but we have a deposit in Buton of 662 million tons. This is true. I was inspecting on the site, and I said that in two years, we should stop importing asphalt and we will the supply from Buton Island.
If you want to invest, ladies and gentlemen, now is the time to build an asphalt industry in Buton island. The domestic market is adequate, and some of it can be exported. According to up-to-date information I have received, our requirement is 5 million tons. If it is 5 million tons per year, we have 120 years to manage the asphalt production in Buton island.
Downstreaming is the key to whether we go forward, take a leap, or not. So, I have said it many times, after nickel ore export is stopped, in two years’ time, we will stop exporting asphalt, tin, bauxite, and copper because taxes, export duties, royalties, dividends will all go into the country, not to be the advantage of foreigners.
Freeport, for instance, after we acquired 51 percent of Freeport shares, I made an inspection and requested information on how much the state revenue is earned from Freeport, knowing that previously we only received the dividend. It was only 9 percent, because we only got 9 percent of the shares. After we took over 51 percent, we have earned taxes, dividends, royalties, export duties, non-tax state revenue. I requested on how much we have earned. It was 70 percent of Freeport’s income. It means that the country really takes benefit.
We need to do this consistently. What we often hear about the uncertainty that I mentioned earlier, and also, this morning I received information from a meeting in Washington DC that 28 countries, 28 coutries, are already queuing at the IMF headquarters as patients. This is why we must keep being optimist, but more importantly, be careful and vigilant.
That concludes my remarks.
I thank you.
Wassalamu’alaikum warahmatullahi wabarakatuh.
And, by saying bismillahirrahmanirrahim, today, I officially open the 2022 Investor Daily Summit.
Wassalamu’alaikum warahmatullahi wabarakatuh.