Alarm for Government, Early Economic Indicators for 2025 Worsen

JAKARTA, KOMPAS — Several macroeconomic indicators in early 2025 show that the Indonesian economy is facing pressure, both externally and domestically. Deflation, depressed rupiah exchange rate, stock market collapse, and APBN revenue anomalies are alarms for the government to act.

The Central Statistics Agency (BPS) noted that the Consumer Price Index (CPI) experienced monthly deflation in January and February 2025. Although there was annual inflation of 0.76 percent, the CPI in January 2025 experienced monthly deflation of 0.76 percent.

The trend continued in February 2025, which recorded a monthly deflation of 0.48 percent. Deflation even occurred annually at 0.09 percent. The last time annual deflation occurred was 25 years ago, in March 2000 at 1.10 percent.

On the other hand, the movement of the rupiah exchange rate based on the Jakarta Interbank Spot Dollar Rate (Jisdor) at the beginning of the year was in the range of IDR 16,200-IDR 16,500 per US dollar, and even touched the level of IDR 16,575 per US dollar on February 28, 2025. The last time the rupiah was hit to the level of IDR 16,500 per US dollar was five years ago.

At the end of February 2025, the Composite Stock Price Index (IHSG) also plunged to the level of 6,300 or was corrected by 5 percent compared to the closing of trading in the previous week. This is also the lowest record since 2021.

Meanwhile, the Ministry of Finance also reported that the realization of the 2025 State Budget until February 2025 recorded a deficit of Rp 31.2 trillion or 0.13 percent of gross domestic product (GDP). The anomaly at the beginning of the year was caused by, among other things, the plunge in tax revenues.

Executive Director of the Center of Reform on Economics (CORE) Indonesia Mohammad Faisal argues that the various indicators indicate that the economic conditions are deteriorating. Although there are inherited factors from the previous regime, the current government's policies are inappropriate and have the potential to cause new problems.

He cited the issue of the weakening of the middle class that had occurred before 2024. When the Prabowo government came in, the problem was not handled with the right policies. Instead of solving the problem, new problems emerged.

"Starting from fiscal, spending that exceeds capacity, plus revenue that is now plummeting," he said when contacted from Jakarta, Thursday (13/3/2025).

There are also several policies since the beginning of Prabowo's administration until now that have attracted public attention. The back and forth of the Value Added Tax (VAT) rate increase policy, budget efficiency, and the emergence of various corruption cases have raised doubts among the public, business people, and investors, in seeing the condition of Indonesia.

According to Faisal, the situation will potentially make economic growth this year lower than expected or below 5 percent. Instead of accelerating higher growth as expected, various government policies can actually suppress economic growth.

The problems inherited from the previous regime are also not resolved, and have the potential to worsen. Therefore, the government should immediately realize and fix this by consolidating policies to respond to problems quickly.

Senior Economist of PT Samuel Sekuritas Indonesia Fithra Faisal Hastiadi said that the deflation that occurred during early 2025 indicated low demand or weakening purchasing power of the community. The condition was even beyond expectations.

The main problem is indeed from the demand side which causes deflation. This then makes a number of rating agencies downgrade.

In addition, the weakening of people's purchasing power occurred due to the decline in the number of middle-class population in recent years. Furthermore, the low purchasing power of the people is also reflected in the core inflation rate which is still below the achievement before the Covid-19 pandemic.

He assessed that the main problem came from the demand side which caused deflation. That made a number of rating agencies lower Indonesia's investment asset rating. Because, the potential for return on equity is limited based on the estimated slowing economic growth.

"So, they see that our economic growth this year is not very good, because there is a breakdown on the consumption side," said Fithra.

In February 2025, Morgan Stanley Capital International (MSCI) issued a recommendation for investment assets in Indonesia with an underweight or low-performing rating level. A similar step was followed by Goldman Sachs Group Inc, which lowered the rating of Indonesia's investment assets along with increasing fiscal risks.

Indonesia's downgrade was driven by an estimated budget deficit that could potentially reach 2.9 percent of GDP or above the 2025 State Budget target of 2.53 percent.

The sentiment of the APBN deficit from foreign investors is also influenced by the perception of budget efficiency as a budget cut, rather than a reallocation. Therefore, the government needs to establish good communication with the public and investors, so as not to cause turmoil in the market.

"From the APBN side, what needs to be done is to continue efficiency so that the budget does not swell. From the tax side, it must be optimized, such as the Coretax problem must also be fixed immediately," said Fithra.

Bank Danamon Indonesia economist, Hosianna Evalita Situmorang, said that Indonesia's investment grade rating is still maintained at BBB level with a stable outlook by Fitch and Moody's. A sign that Indonesia's economic fundamentals are still considered quite strong.

However, there are several risk factors that need to be considered. One of them is the APBN deficit at the beginning of this year which is an anomaly compared to previous years. He assessed that it could raise investor concerns about Indonesia's fiscal credibility.

"This could increase volatility in financial markets, especially for rupiah-based instruments," he said.

However, Finance Minister Sri Mulyani Indrawati stated that the Indonesian economy still has resilience amid global uncertainty. The positive performance of the domestic manufacturing sector is believed to have maintained the resilience of the external sector well.

This is reflected, among other things, in Indonesia's Balance of Payments at the end of 2024, which recorded a surplus of 7.2 billion US dollars, growing 15 percent compared to 2023. This achievement was supported by a capital and financial transaction surplus of IDR 216 trillion.

In addition, Indonesia's Trade Balance in January 2025 still recorded a surplus of 3.5 billion US dollars. This figure is greater than the Trade Balance surplus in January 2024 which was 2 billion US dollars or grew 75 percent annually.

"This puts Indonesia in a good and advantageous position, even in a world situation that is so disruptive and volatile," said Sri Mulyani in a press conference for the March 2025 Edition of Our State Budget, in Jakarta, Thursday (13/3/2025).

On the other hand, the stability of the domestic financial market is maintained, along with the inflow of foreign investment in the domestic market. During 2024, the inflow of foreign capital was recorded at IDR 216 trillion.

Many people interpret that we are experiencing deflation because people's purchasing power is sluggish. Not really.

The trend continued from the beginning of the year until March 6, 2025, which recorded a net purchase of foreign investment in the domestic financial market of IDR 5 trillion.

Sri Mulyani claims that Indonesia is one of the countries that is able to maintain the inflation rate, even recording deflation as of February 2025.

"Many interpret that we are experiencing deflation because people's purchasing power is sluggish. Not really, because there are many (factors) of administered prices this year, such as a 50 percent electricity discount, toll rate discounts, and ticket price discounts. These contribute to deflation. So it's because of the policy, not because there is no demand," he said.

Sri Mulyani ensured that the budget deficit will be maintained according to the 2025 State Budget, which is 2.53 percent of GDP. In addition, the government will remain vigilant of the downward trend in revenue without causing turmoil or alarm.

On the other hand, the rupiah exchange rate for the current calendar year was recorded to have depreciated by 1.48 percent. This achievement is still better than other developing countries, such as India which recorded a depreciation of 2 percent.

Head of BI Monetary Management Department Edi Susiato added that global sentiment lately tends to be conducive to the movement of developing countries' exchange rates. This is reflected in the US dollar index against major currencies (DXY) which in the last two weeks has weakened by 3.53 percent to 103.81.

Based on Jisdor data at the market close on Thursday (13/3/2025), the rupiah closed at Rp16,428 per US dollar. Instead of strengthening significantly along with the weakening of the DXY in the last two weeks, the rupiah only appreciated by 0.88 percent.

"Indeed, for the rupiah there is something that market players need clarity. The press conference (Our State Budget) by the Minister of Finance can provide the clarity that market players expect, so that the rupiah today is relatively stronger," he said.