Economist and Policy Director at the Prasati Foundation, Peter Abdullah, stressed the importance of taking swift action to address potential disruptions in the supply of raw materials and energy due to escalating global geopolitical tensions. This statement was made during his remarks in Jakarta on Thursday, where he pointed out that these disruptions could lead to increased production costs and a decline in productivity in the industrial sector.
Peter explained that policies ensuring energy availability for industries, including industrial gas, are essential. He also called for a review of tariffs on raw materials and auxiliary materials to reduce the production cost structure, which contributes to maintaining the efficiency and competitiveness of the national industry amid global pressures.
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In this context, Peter noted that changes in the financial market, such as rising energy prices and a weakening currency, require a rapid response to maintain the stability of the financial system. He emphasized the importance of coordination among economic authorities, including the Indonesian Central Bank, the Financial Services Authority, and the Ministry of Finance, to ensure the stability of the financial system in the future.
He also addressed the government's policy on stabilizing fuel prices, indicating that this step aims to maintain citizens' purchasing power. However, the sustainability of this policy depends on developments in global oil prices, warning that continued price increases could make it difficult to maintain current fuel prices.
Background & Context
Indonesia faces multiple economic challenges, as the country is affected by rising global oil prices due to geopolitical tensions. This price increase is a direct result of the pressures experienced in the global market, increasing the risks of economic instability.
Forecasts suggest that oil prices in the 2026 budget could reach around $70 per barrel, while current market prices range between $90 to $100 per barrel. This gap indicates an increase in geopolitical risks and a tightening of global energy supplies.
Impact & Consequences
The Prasati Foundation anticipates that adjustments in fuel prices will have noticeable effects on inflation rates, with analyses indicating that fuel price adjustments could add approximately 0.7 to 1.8 percentage points to inflation rates, depending on the size and timing of the adjustment. This reflects the pressures Indonesia faces due to global market fluctuations.
These pressures result from the interaction of several factors, including rising oil prices, a weakening rupiah, and increased pressures on public finances, which narrow the available space for economic policies. Therefore, Prasati calls for more cautious macroeconomic policy management amid these geopolitical tensions.
Regional Significance
Arab countries are also affected by fluctuations in global oil prices, as these countries are among the largest producers and exporters of oil. The rise in oil prices due to geopolitical tensions may lead to increased revenues in some Arab countries, but it may also cause economic pressures in other countries that rely on energy imports.
Ultimately, the current situation requires greater international coordination to address the increasing economic challenges, as countries must collaborate to ensure market stability and protect their economic interests.