Remarks of President of the Republic of Indonesia during the Opening of the 2022 Conference of 100 Indonesian Economists, at Bank Mega Building, DKI Jakarta Province, September 7, 2022
Assalamu’alaikum warahmatullahi wabarakatuh,
May peace be upon us all.
Greeting of virtue.
Distinguished Ministers of the Indonesia Onward Cabinet;
Distinguished Executive Director of INDEF Bapak Tauhid Ahmad;
Distinguished CEO of CT Corp Bapak Chairul Tanjung,
Distinguished Senior Economist of INDEF Bapak Didik J. Rachbini;
Distinguished Economists and guests.
The world is changing rapidly; the changes are drastic. First, it started with the pandemic, as we are aware of. We are lucky because Indonesia did not impose lockdown at the beginning of the pandemic. I could not imagine what will happen if we impose lockdown. How it would affect the economy, the political and social situation. At the beginning of the pandemic, around 70 countries imposed lockdown. As many as 80 percent votes in the Cabinet proposed for a lockdown. Based on survey, 80 percent of the public also wanted a lockdown.
At that time, I was thinking and contemplating to do it. I had the answer; there is no need for a lockdown, and it was a right decision. I could not imagine if we imposed lockdown. Maybe our economy would be further contracted to more than minus 17 percent.
We also learn to face much turbulence from the pandemic. We learn many things; how to consolidate the country so all can cooperate, from the Central Government, regional governments from provincial level to neighboring unit levels. Mass organization worked together with the Indonesian National Defense Forces, the Police, and also the communities.
Such consolidation must be carried on to face post-pandemic issues brought by war, crises of energy, food, and finance. The most important thing for us is to consolidate all from the top to bottom. I believe global political landscape will change, shift. The landscape of economy will also change and shift. What will it become? We do not know yet.
Therefore, I encourage the economists to not using the existing standards; do not take it normally because this is an abnormal situation, very abnormal. You need an ‘Abu Nawas’ (a character in a story who is famous for his cleverness) vision, agile like a deer. It is necessary.
In working, we must not only do at the macro level. And we probably still cannot make it even if we add the micro level. Therefore, it must cover macro and micro; work in detail and be focused. We will discover it later. However we should not work little by little because this is an abnormal situation.
I met with many leaders at the G7 [Summit]. Previously, I met with G20 leaders. Afterwards, I visited China, Japan, and South Korea. I also went to visit President Zelenskyy and President Putin. I talked with President Zelenskyy for one and a half hours, and with President Putin for two hours. I was received and sat with Putin side by side; our distance was shorter than 5 meters. If I were received and sat in a 5-meter distance, I would go home. Some will still do it but I refused to do it.
From those events, as well as from the conversation, discussion with the two Presidents, I concluded that the [difficult] situation will take time to resolve. Do not hope the war to end tomorrow or next month. It is not easy. Encouraging or promoting a dialog is not an easy task. Thus, I eventually gave up touching on that issue. I talked about food crisis and we finally can meet.
At that time, I told President Putin that President Zelenskyy stated that wheat stock for export amounted to 22 million tons, and the country has just harvested 55 million tons of wheat. In total, 77 million tons will be distributed from Ukraine, but the products could not be distributed since Russia did not issue the security guarantee. I told President Putin about that. He then told me that he will guarantee and there should be no problem. I asked him, “is it okay to inform the media about this statement?” “Please do,” he said. Two or three weeks later, one ship headed to Istanbul from Odessa.
Once again, the war is ongoing and the impacts are unpredictable. What are the impacts? The food; the price of food has increased throughout the globe. The energy; the price of gas increases by five times, the price of oil increases twofold. What are the other impacts? Will it also bring impact to the financial sector? Yes, it will. To what extent will it affect the growth and inflation? Which countries will be affected? We must be careful about this. Once again, macro level is not enough, so does the micro. The most important thing is to work it out one by one in details.
For that reason, I invite you all to change our mindset since the global economy has changed, global geopolitics has also changed. Thus, we are considered lucky to have developing the foundation during the past seven years, namely infrastructure. To date, we have constructed 2,040 km of toll roads, 16 new airports, 18 new seaports, 29 dams, while the construction of nine more dams will be finished by the end of this year, meaning that there will be 38 dams in total. We have also built irrigation system to 1.1 million hectares of land. Thanks to that, our food security system and rice self-sufficiency which we have achieved since 2019 were acknowledged by the International Rice Research Institute (IRRI).
[Our achievement] are not only those big projects. I always remind all that we are not only working on big projects; toll roads, dams, seaports, airports. Currently, Rp468 trillion of the Village Funds have been disbursed to infrastructure. If you are asking me what can Rp468 (trillion) do? As long as I remember, we have built 227 (thousands) km of roads. “Does 227 thousands km of roads are very long?” I don’t think so because there are 74,800 villages in Indonesia. When it is divided by 227 (thousands), one village only has 3 km (of road). It is not enough; it’s not even close. Thus, we have built productive roads at villages. We also have built 1.3 million meters bridges that connect hamlets from that budget. We also have built 4,500 of retention basins. Things that we’ve never seen now are realized. That is what the Village Funds do.
Second, the downstreaming. Downstreaming has been implemented. CPO and its derivative products, nickel and its derivative products, bauxite and its derivative products have been down streamed. When we stopped [exporting] nickel four, three years ago and built our own industry, it started to yield positive results. Next year, we will stop [exporting] lead, bauxite. The year after, we will stop [exporting] copper because we will see the results. I have repeated it over and over again.
For instance, export value of nickel seven or six years ago only amounting US$1.1 billion. However, the amount reached US$20.9 billion in 2021. The leap is 19 times. Now we will stop the copper. We used to face difficulties in ordering Freeport to build smelters. They kept postponing it, “Sir, renew the contract first then we will build the smelter.” No, No, you build smelters first than we will renew it. When it also cannot be realized, we took it over; we acquired 51 percent of the company. After gaining 51 percent, the majority, we built the smelter in Gresik.
You will see the value added generated from copper that we have exported raw for more than 50 years after the smelter in Gresik be in operation in 2024. And after we stop exporting bauxite, it will generate around US$30 billion, as well as from nickel, copper, and bauxite. I am sure about it.
Now, we can see that trade balance between us and China that used to show a minus… I remember our balance recorded minus US$13 billion in 2014, and minus US$2.4 billion in 2021. This year, I ensure you that we have a surplus trade balance with China because we have stopped exporting raw materials.
Similar situation also occurred with the USA. In 2012, our trade balance recorded US$3.3 [billion], but it reaches US$14.4 billion now. But we do not need to mention it over and over again. I do it rarely but I have already mentioned it so let it be. Our GSP (Generalised Scheme of Preferences) facility can be revoked because of it. We actually should not further discuss about it.
We also experienced a surplus of US$5.6 billion with India. It has been 27 months, right Minister? Our trade balance always shows a surplus lately after showing minus balance in previous years. We used to pay no attention to this kind of details. What are the reasons for the surplus?
Third is the digitalization. It is important particularly things that related to the economy, MSMEs. Around 61 percent of our MSMEs have contributed to the national GDP. Given the turbulence, they must be supported to go digital, and join the e-commerce and other digital platforms. In the past three years, we have assisted 19 million out of 64 million MSMEs to go digital. We have set a target to make 30 million [MSMEs] join digital ecosystem in 2024.
If we do this consistently, I believe our GDP in 2030 will exceed 3 trillion [in USD]. I believe, insyaallah, God willing, it will exceed 3 [trillion]. I also believe our per capita income… I’m not sure about Minister of Finance; it’s also fine to have different opinion. I have my own calculation, so does the Minister; it’s okay. Based on my [calculation], we will generate 10 [thousands in US$] of per capita income if we consistently carrying out the program, and our successors also do the same. We don’t need to worry if the issue is brought to the WTO because we stop exporting nickel. It’s okay. And if we lose the lawsuit, it is also okay as long as we have the products and built the industry. It will be no problem. Why are we afraid if the issue is brought to the WTO and we lose [the lawsuit]? It’s okay even if we lose. It will be great if we win. But losing is also fine since the industry is already established. The results will be the same. It will improve our management and generate added value.
Let me cite an example of Freeport. Yesterday I asked Minister of Finance, how much we receive from Freeport? 62? 62 percent from Freeport, from the dividend, from the royalty, taxes. When it is added with the partners, we can receive 70 percent from Freeport’s income. If all mining industries can contribute that much, our state budget will be more healthy.
I think that concludes my remarks on this auspicious occasion. The common concern of all countries is economic growth and inflation rate. We have also calculated the impact of fuel subsidy reallocation that was announced last week to the inflation rate. Based on calculation from several ministers, the rate will increase by 1.8 percent. However, we can do nothing; we must intervene.
How can we intervene? The regions must act as we did to address COVID-19. Two percent of the General Allocation Fund can be used to tackle inflation and to finance social assistance programs. Unexpected expenditure budget can be used to address inflation. How can we do that? Cover transportation costs, cover distribution costs on the ground. And I have done this. For example, the price of shallots increased due to an increase in transportation costs. Then, the local government covered the transportation costs. What does it mean? The price of shallots in the market is the same as the prices from farmers because the transportation costs have been covered by the regional government and it is small money.
I also have calculated the cost of shallots transported from Brebes to Lampung, Rp3 million for a truck. It can last for a week. And it can be in form of other commodities, for example eggs. Egg price increased, and the regional governments covered the transportation cost. Which regions that have high demand of eggs? Bogor, Blitar, the transportation cost was covered. If all regional governments apply it, I believe our inflation rate can be maintained.
That concludes my remarks. The most important things for me are to maintain unity, maintain solidarity, and to help each other for the sake of the state. That’s all. I thank you.
Wassalamu’alaikum warahmatullahi wabarakatuh,
By saying bismillahirrahmanirrahim, I declare the Conference of 100 Indonesian Economists officially open.
I thank you.