Speaker 1: Welcome to COI Time, a podcast series on markets and
Speaker 1: economies from DBS Group Research. I'm Tabei, chief economist. Welcome
Speaker 1: you to our 154th episode. This episode was recorded in
Speaker 1: Jakarta at the DBS Asia Insights Conference 2025 on the
Speaker 1: 21st of May. I had the privilege of discussing Indonesia's
Speaker 1: near and medium term outlook with Kati Basri.
Speaker 1: Indonesia's former finance minister. In this conversation, Mr. Basri talks
Speaker 1: about Indonesia's strategy during a time of geoeconomic fragmentation, the
Speaker 1: ability of the economy to absorb shocks, what it would
Speaker 1: take to reach 8% growth, the challenges to education, health,
Speaker 1: and infrastructure, sectoral development strategies in place, and the future
Speaker 1: of jobs amid tech disruption.
Speaker 1: And erudite speaker, Mr. Bastri's insights are invaluable to those
Speaker 1: following Southeast Asia's most populous economy. Let's now hear from Mr. Bastri. Basri,
Speaker 1: welcome to our program.
Speaker 2: Hi, Dayer, thanks for having me.
Speaker 1: I remember 2 years ago, we did something like this,
Speaker 1: so this is round 2
Speaker 2: in a different situation,
Speaker 1: slightly
Speaker 1: different situation. I went back to our conversation from 2
Speaker 1: years ago.
Speaker 1: And I remember you began that conversation by describing Indonesia
Speaker 1: as a disappointing country. It disappoints the ones who think
Speaker 1: growth is about to collapse. It disappoints the one who
Speaker 1: think that it is just about to take off. Very
Speaker 1: different circumstances now. We just heard from Park Haim. We
Speaker 1: have been hearing from the government about a very ambitious
Speaker 1: growth agenda.
Speaker 1: I want to talk about that later. I want to
Speaker 1: first talk about the global environment.
Speaker 1: Reciprocal tariff, country by country bilateral discussions with Donald Trump
Speaker 1: and his team about how to get some relief. We're
Speaker 1: in a bit of a pause, but I'm not too
Speaker 1: sure how long the pause will last. What's your assessment
Speaker 1: of this whole trade war situation?
Speaker 2: Well, let me, perhaps let me start by putting the layout,
Speaker 2: the global context first. I think if you look at
Speaker 2: about the issue of the trade balance, you are an economist, timer.
Speaker 2: The trade balance is a reflection of the saving investment gap. Yeah,
Speaker 2: so the way I look at it.
Speaker 2: If this Trump administration would like to introduce the so-called
Speaker 2: uh the tax cut, this will widen the, the trade deficit.
Speaker 2: And if the way they address the trade deficit by
Speaker 2: increasing tariff, I don't think that this
Speaker 2: This, this policy will entirely address this issue of district balance.
Speaker 2: What is happening in the US that you would expect
Speaker 2: that's probably there is a risk of the inflationary.
Speaker 2: Um, the slowdown of the economic growth. So under this
Speaker 2: kind of situation, it's not easy for the Fed to
Speaker 2: make a decision because the probability of recession will probably
Speaker 2: will increase. At the same time there is a risk
Speaker 2: of the inflationary whether they have to cut the rate
Speaker 2: or they have to increase the rate, they are really
Speaker 2: at a crossroads now.
Speaker 2: Of course, this will have an implication to the global trade. Yeah,
Speaker 2: I can imagine that export in many.
Speaker 2: You know, emerging developing economies will be affected. But now
Speaker 2: let me talk about what will be the implication for Indonesia.
Speaker 2: Um, the way I look at it.
Speaker 2: The share of export Indonesia to GDP is only 25%, right?
Speaker 2: And if you look at the share of export, Indonesia
Speaker 2: export to US is only 10%. So if you look
Speaker 2: at the direct impact, perhaps the direct impact to Indonesian GDP,
Speaker 2: it's probably about 2.5%. So the impact will be relatively limited.
Speaker 2: So I'm, I'm quite confident that this year, the economic
Speaker 2: growth in Isia will be faster than Singapore. Why is that?
Speaker 2: Because in the case of Singapore, your export to GDP
Speaker 2: is about 120%.
Speaker 2: 180 actually, and if you look at even Vietnam is
Speaker 2: about almost 90%. So under this kind of situation, Indonesia
Speaker 2: will still maintain the relatively high growth in Southeast Asia.
Speaker 2: Of course, the Indonesian economy will be affected by.
Speaker 2: My estimate is probably about 0.5%, so if the baseline
Speaker 2: is about 5%, so probably we are, you know, we
Speaker 2: are experiencing the situation about 4.5% of the economic growth, uh,
Speaker 2: this year. It's not easy, but the good news is.
Speaker 2: I would call Indonesia is the least, one of the
Speaker 2: least unattractive countries in the world, not because we are
Speaker 2: doing great, but because the other part of the world
Speaker 2: are in trouble. So if you are an investor, you're
Speaker 2: talking about you're not looking for perfection, you are looking
Speaker 2: for a relative return, and Indonesia is still an interesting
Speaker 2: country to invest. Yeah. And then in addition to that,
Speaker 2: With the risk of the trade war between US and China,
Speaker 2: I won't be surprised if there is a sort of
Speaker 2: like relocation of the production base from China to Southeast
Speaker 2: Asian countries.
Speaker 2: Maybe to Vietnam, maybe to Indonesia, but the way I
Speaker 2: look at it, if you look at the trade surplus
Speaker 2: between Vietnam and the US, it's about $120 billion US dollars,
Speaker 2: whereas for Indonesia it's about $19 billion US dollars. So
Speaker 2: for us it's relatively easy to settle this issue with
Speaker 2: the US, whereas in the case of Vietnam, if they
Speaker 2: want to settle this issue of the trade surplus, they
Speaker 2: probably have to increase their import about 11 to 12 times.
Speaker 2: It's not easy. Yeah, so that is why I can see.
Speaker 2: The possibilities of relocation from China into Indonesia provided the
Speaker 2: government would implement the economic deregulation. The good news is
Speaker 2: President Prabowo already announced last April that government is committed
Speaker 2: to economic deregulation. I hope I respond to your question.
Speaker 1: I stay with the global agenda a little longer, um.
Speaker 1: To your point that if the US has an inflation problem,
Speaker 1: while the rest of the world does not, if the
Speaker 1: US has a savings investment gap problem which might be
Speaker 1: exacerbated if there is a tax cut, which looks likely,
Speaker 1: while the rest of the world really does not in
Speaker 1: a situation like that, where do you see the dollar
Speaker 1: go and then therefore what does it mean for RIA?
Speaker 1: Where do you see US interest go and what does
Speaker 1: it mean for Indonesia's interest rates?
Speaker 2: Very good
Speaker 2: question because.
Speaker 2: When you know before the reciprocal tariff.
Speaker 2: I was expecting with the universal tariffs about 10% when
Speaker 2: President Trump came to power. I was expecting that dollar
Speaker 2: will continue to be the safe haven asset.
Speaker 2: Yeah, but it seems to me that after the reciprocal tariff,
Speaker 2: there are some concerns from the financial market about the
Speaker 2: role of dollar to be the.
Speaker 2: The only one safe haven asset. So if you look at, I'm,
Speaker 2: I'm not saying that this, you know, will happen in
Speaker 2: the extreme case radically, but there is a tendency of
Speaker 2: the so-called the de-dollarization at this moment. And for that reason,
Speaker 2: we can see the depreciation of the US dollar against
Speaker 2: major currency, including the rupiah. Yeah, even though nowadays that
Speaker 2: the rupiah is still about $16,400. So the way I
Speaker 2: look at it.
Speaker 2: Timer under this kind of situation.
Speaker 2: I wouldn't be surprised if in the medium term we
Speaker 2: will see the depreciation of the US dollar against major currency,
Speaker 2: so there is room for a bank in Indonesia to
Speaker 2: cut the rate.
Speaker 2: Yeah, and then I think this.
Speaker 2: Just right now today, right, the, the Bank in Indonesia
Speaker 2: cut the 25 basis points. I can see more room
Speaker 2: because if you look at our inflation, it's about less
Speaker 2: than 3% now, 2.5%. If the tendency of the US
Speaker 2: dollar is depreciate against major currency, so I don't think, I,
Speaker 2: I think there is room for bank Indonesia to cut
Speaker 2: the rate and if you look at the real uh return, yeah,
Speaker 2: the spread between, let's say the Indonesian government bond.
Speaker 2: And the inflation and also the, the, the, the, um,
Speaker 2: you know, the, the SRBI for example, I think for,
Speaker 2: for many investors, you know, investing in the rupia is
Speaker 2: quite attractive. So I think there is a room for
Speaker 2: a bank in Indonesia to get the rate unless the
Speaker 2: Fed with this is not an easy situation at this moment,
Speaker 2: raise the interest rate. Yeah, but with the probability of recession.
Speaker 2: Probably around 40% for the US It is not easy
Speaker 2: for the Fed to raise the rate at least probably
Speaker 2: they what what they will do if they don't want
Speaker 2: to cut the rate, probably they will maintain the, the, the,
Speaker 2: the Fed fund rate at this level.
Speaker 1: I think we're exactly on the same page on this.
Speaker 1: If you were to advise Bank of Indonesia since you
Speaker 1: and I both believe that the dollar might have more
Speaker 1: downset ahead, would you advise Bank of Indonesia to reallocate
Speaker 1: some of their dollar reserve to different currency?
Speaker 2: Yes, I think it is very important. Now if you
Speaker 2: look at this is very interesting, this is the new
Speaker 2: development now. Well, probably not, not new development because it's
Speaker 2: also happened during the Trump 1.0. If you look at
Speaker 2: what happened during the Trump 1.0, the gold price also
Speaker 2: soaring at the time, right? Similar to this kind of situation.
Speaker 2: Correct me if I'm wrong, the BIS has just proof
Speaker 2: that gold to be part of the high quality asset
Speaker 2: at this moment, right?
Speaker 2: So looking at this, maybe it is very important to
Speaker 2: sort of like do the diversification of the basket currency, yeah,
Speaker 2: for any central bank all over the world.
Speaker 1: And for the client universe that's sitting here right now,
Speaker 1: would you also advise them to reduce their exposure to
Speaker 1: the US dollar?
Speaker 2: Well, I have to say that if you expect that
Speaker 2: the renminbi will replace the US dollar, this will take
Speaker 2: probably about 10 to 15 years because if you look
Speaker 2: at the share of the renminbi in the sovereign wealth
Speaker 2: fund in the global transaction, it's still pretty small. Euros
Speaker 2: still a very important role. It's about 40% and also
Speaker 2: US dollar.
Speaker 2: But under this kind of situation, I would say that
Speaker 2: the trend of the so-called the deloadization will happen even
Speaker 2: though will not replace the role of the US as the,
Speaker 2: you know, the risks of currency, at least for another
Speaker 2: 5 years.
Speaker 1: It's really an extraordinary time, especially with all three major
Speaker 1: ratings agencies having downgraded the US debt outlook. We sometimes
Speaker 1: wonder whether it is better to hold US high grade
Speaker 1: corporate bonds than US government bonds than maybe the debt
Speaker 1: issued by Apple is safer than some of the risk
Speaker 1: associated with US Treasury issuance. Uh, Park Masri, what about
Speaker 1: You just touched a little bit on gold, so let's
Speaker 1: talk about a little bit that whenever there is geopolitical
Speaker 1: uncertainty we have seen in the past, uh, gold related
Speaker 1: demand go up, um, would you see that continuing and
Speaker 1: in addition to gold, gold, we also have this digital
Speaker 1: gold cryptos.
Speaker 2: Well, first of all, I think it is very difficult
Speaker 2: to make a prediction about the geopolitical.
Speaker 2: Uh situation now. The way I look at it, we
Speaker 2: probably cannot entirely explain this current situation through the so-called
Speaker 2: Economic conventional, you know, the, the economic conventional theory, but
Speaker 2: we probably have to look at this issue more on the,
Speaker 2: the Bayesian games.
Speaker 2: Yeah, there are two players, the US and then, and China,
Speaker 2: and then the only one, only one player have the
Speaker 2: perfect information with this US. So the option for this,
Speaker 2: you know, the geopolitical tension, it really depends on the
Speaker 2: move made by the United States. If President Trump bling
Speaker 2: with President Xi, he gave a sort of like a
Speaker 2: signal that he would like to visit China to negotiate,
Speaker 2: then you can see immediately the stock market.
Speaker 2: You know, a rebound, the bond market rebound, so give
Speaker 2: us sort of like a positive impact. But on the
Speaker 2: other hand, one thing that I'm concerned about, I hope
Speaker 2: this is not going to happen.
Speaker 2: One thing that President Xi is perceived by many, that
Speaker 2: one thing that he would like to have for his
Speaker 2: legacy is to have one China.
Speaker 2: And that could be a very dangerous situation because the
Speaker 2: way I look at it, if this happened,
Speaker 2: Then there is a risk of the fragmentation of the
Speaker 2: global financial architecture because probably I don't know whether the
Speaker 2: US will retaliate or give a sanction similar like in
Speaker 2: the case of Russia, then probably in many countries emerging
Speaker 2: developing economies, we have to trade in both renminbi and
Speaker 2: the US dollar and the transaction cost will be very expensive.
Speaker 2: Now back to your question about this, you know, the
Speaker 2: digital currency.
Speaker 2: Honestly speaking, I'm, I'm, I'm not a big fan of this,
Speaker 2: you know, in the sense that the way I look
Speaker 2: at it, I can see there is a role, but
Speaker 2: maybe I always call this, this, this crypto as a,
Speaker 2: you know, as a greenback, you know, in the US dollar,
Speaker 2: there is a word, there is a sentence that In
Speaker 2: God We Trust, similar with the crypto, In God We
Speaker 2: Trust because there is no underlying.
Speaker 2: Right? So it really depends on the, on the supply
Speaker 2: and demand, and I can, uh, it's for me, it's
Speaker 2: hard to imagine this kind of sort of like, you know,
Speaker 2: medium of exchange of sort of value will be the
Speaker 2: replacement for the US dollar.
Speaker 1: Uh, talk to you a little bit about commodities, uh,
Speaker 1: both energy and non-energy commodities. On the energy side, Donald
Speaker 1: Trump is very keen on driving down the price of energy, um, which, uh,
Speaker 1: is probably negative for green transition, but for the near term,
Speaker 1: especially with Indonesia in mind, uh, weak energy price environment
Speaker 1: is bad for commodity exporters. So, do you think it is.
Speaker 1: Sustainable this this 50 to $60 oil that we have
Speaker 1: right now and what does it mean for a country
Speaker 1: like Indonesia?
Speaker 2: Yeah, this is a very good question because at this
Speaker 2: moment you see that there are two competing forces here.
Speaker 2: The first one is we will see the risk of
Speaker 2: the slowdown of the global trade.
Speaker 2: With this will have an implication of the slowdown of
Speaker 2: the global economy, the export, then you would expect the
Speaker 2: negative impact on the oil price in the sense that
Speaker 2: you would expect probably the, the, the oil price will decline,
Speaker 2: but at the same time with the some uh sort
Speaker 2: of like initiative made by the US to.
Speaker 2: Not to say I, I, I would say that probably
Speaker 2: entirely focused on the renewable energy but also exploring the
Speaker 2: possibility of the fossil fuel. There is sort of like,
Speaker 2: you know, a possibility of the.
Speaker 2: A rising oil price. So my answer to this is,
Speaker 2: it really depends on what will be the net effect
Speaker 2: between these two competing forces. In the case of Indonesia,
Speaker 2: this is a very interesting timer.
Speaker 2: Because we are not important at this moment.
Speaker 2: The declining of oil prices somehow will help our fiscal.
Speaker 2: Yeah, so I won't be surprised if by the end
Speaker 2: of the year if the oil price continues between $50
Speaker 2: to $60 US dollars, then you will see maybe the
Speaker 2: budget deficit will stay around 2.4%. So the concern about
Speaker 2: this budget deficit go beyond 3%. I don't think that's
Speaker 2: sort of like something that maybe the investors should worry about,
Speaker 2: especially under this kind of situation.
Speaker 1: Uh, beyond oil, uh, particularly on the natural gas base
Speaker 1: of which Indonesia is a consequential exporter.
Speaker 1: If the US demands that China as part of a
Speaker 1: trade deal would have to buy more LNG from the
Speaker 1: US or in the case of things breaking down, China
Speaker 1: refuses to buy any LNG for the US under those
Speaker 1: two sort of extreme circumstances, one where China-US relationship.
Speaker 1: Gets tighter at the expense of other natural gas exporters
Speaker 1: or it breaks down at the benefit of other natural
Speaker 1: gas exporters. What's your probability assessment of these two?
Speaker 2: Well, let me put it this way, I think Indonesia should.
Speaker 2: Sort of like, you know, should take this opportunity. Let
Speaker 2: me put it this way.
Speaker 2: If you look at our trade balance, trade surplus with
Speaker 2: the US, it's about $19 billion US dollars at this moment,
Speaker 2: 18 to $19 billion US dollars.
Speaker 2: And we import oil.
Speaker 2: From Middle East and also Nigeria is about $40 billion
Speaker 2: US dollars. So if Indonesia wants to address this issue.
Speaker 2: One thing that they can do, what, what we will
Speaker 2: do is to import oil, for example, somehow to relocate
Speaker 2: to US. This is part of the negotiation.
Speaker 2: And in addition to that, also related to LNG.
Speaker 2: Yeah, because this is also very important and maybe the
Speaker 2: possibility of Indonesia could be hard for Southeast Asia under
Speaker 2: this kind of situation. So, so we probably have to,
Speaker 2: to observe, you know, about all the possibilities that what
Speaker 2: is happening now and also I, I think that the
Speaker 2: the the name of the game is how to be
Speaker 2: part of this, the US supply chain at this moment, yeah.
Speaker 2: Where we are also observing about the possibility of the
Speaker 2: trade war between the US and China.
Speaker 1: What is your sense of the kind of dialogue the
Speaker 1: Indonesian authorities have so far managed to have with the
Speaker 1: US on this issue?
Speaker 2: I am quite
Speaker 2: Um, optimistic in the sense that because as I said
Speaker 2: to you, our trade surplus is relatively small, it's only
Speaker 2: $19 billion US dollars, and then the, the, the government
Speaker 2: already established the so-called the task force.
Speaker 2: Uh, on this negotiation and to, to the best of
Speaker 2: my knowledge they are working very hard on this to
Speaker 2: come up with some proposals. Yeah, I've got a chance
Speaker 2: to see some people in in Washington about a couple
Speaker 2: of weeks ago and then based on my impression.
Speaker 2: The Indonesian proposal is pretty good, yeah, in the sense
Speaker 2: again because this, this trade surplus is pretty small. The
Speaker 2: only thing that we need to anticipate is.
Speaker 2: I think the main goal for the US is not
Speaker 2: for all the Southeast Asian countries. Their main objective is
Speaker 2: to deal with China.
Speaker 2: Yeah. So one thing that we have to anticipate is
Speaker 2: about once the US-China deal happened, what will be the
Speaker 2: implication for the others, right? This is something that we
Speaker 2: need to anticipate.
Speaker 1: Well, you just wrote my next question. That's exactly where
Speaker 1: I was coming to.
Speaker 1: Um, I was in Washington DC during the spring meetings, uh,
Speaker 1: of World Bank and IMF, and some of the feedback
Speaker 1: that I got from the US side, as well as
Speaker 1: those from Mexico and Canada who have been privy to
Speaker 1: the first round of conversations with US Treasury and US
Speaker 1: Trade Representative's office, was that it is not about creating
Speaker 1: a tariff mode around the US, it is about creating
Speaker 1: a tariff mode around China.
Speaker 1: That many countries will be asked to replicate US tariffs
Speaker 1: and restrictions on China. How can any country in Southeast
Speaker 1: Asia do that?
Speaker 2: This is the thing that we probably have to look
Speaker 2: at carefully for especially.
Speaker 2: For many ASEAN countries, yeah, because one thing that probably
Speaker 2: US will ask is through the so-called the rule of origin.
Speaker 2: So they limit the rule of origin in which that
Speaker 2: China can participate in, you know, any particular product, there
Speaker 2: is a limit of it. So indirectly this will exclude
Speaker 2: China from any countries in Southeast Asia, but of course
Speaker 2: it will come as a cost for Southeast Asian countries,
Speaker 2: and I think this is really the gist of the
Speaker 2: negotiation for any Southeast Asian countries because like it or not.
Speaker 2: China is one of
Speaker 2: Uh, the largest trading partner in Southeast Asia and it's
Speaker 2: not easy for Southeast Asian countries to exclude China. Yeah,
Speaker 2: in fact, the message that we have to convey.
Speaker 2: is with this kind of policy, there is a tendency
Speaker 2: of the Southeast Asian countries will work more closely with China, yeah,
Speaker 2: and then I think it is also very dangerous for
Speaker 2: the Southeast Asian countries to rely too much on China.
Speaker 2: That is why cooperation with the US, investment from the US,
Speaker 2: trade with the US is also very important to maintain
Speaker 2: this geopolitical balance.
Speaker 1: You have spoken about the relatively small impact on Indonesia
Speaker 1: given its limited trade sur visa with the US and
Speaker 1: the largely domestic demand driven nature of Indonesia's economy. But
Speaker 1: then there's second round impacts. If China slows around the
Speaker 1: trade war, if Vietnam slows, if Singapore slows, there's a
Speaker 1: 2nd round impact on Indonesia.
Speaker 1: Um, so when you talk about 50 basis points downside
Speaker 1: to your view of 2025 growth, you're taking the second
Speaker 1: round impact into
Speaker 1: account?
Speaker 2: No, this is just a, a direct impact. My estimate
Speaker 2: is 1% decline of economic growth in China. It's probably
Speaker 2: the impact the Tunisian economy is about 0.3%. So if
Speaker 2: you're talking about, you know, after all, the China effect
Speaker 2: as well.
Speaker 2: The economic growth in the worst case scenario will grow
Speaker 2: between 4 to 4.45%. Yeah, but hopefully this has not
Speaker 2: happened because with the possibility of the
Speaker 2: You know, the, the agreement between US and China, I
Speaker 2: hope that this will not happen, but even in the
Speaker 2: worst case scenario, I still believe that the Indonesian economy
Speaker 2: can still grow by about 44.2%, even the direct impact
Speaker 2: to China. As I said, timer, that our export share
Speaker 2: to GDP is relatively small. Don't forget, yeah, during the
Speaker 2: global financial crisis when the global economy plummeted at the time.
Speaker 2: Negative growth in the US in the global economy. Indonesian
Speaker 2: economy still maintained growth 4.6% at that time. So this
Speaker 2: number is probably, you know, won't change so much, yeah,
Speaker 2: a lot compared to what we had back on the
Speaker 2: global financial crisis.
Speaker 1: Can Indonesia have successful green transition, successful introduction of the
Speaker 1: next generation of technology without absorbing China's new technology?
Speaker 2: This is a very good question because the way I
Speaker 2: look at it in the, we are facing in the,
Speaker 2: we are in the era of what we call the
Speaker 2: techno nationalism at this moment, right? There is a competition
Speaker 2: between US and China in terms of this technology, the
Speaker 2: AR energy transition, etc. But despite, regardless of all of
Speaker 2: this issue, I think if you're talking about this green technology,
Speaker 2: energy transition, one thing that the government should focus on.
Speaker 2: Is to getting the price right.
Speaker 2: Yeah, because the way I look at it, timer will
Speaker 2: be very difficult for Indonesia.
Speaker 2: To into the transition of this energy or the green
Speaker 2: economy without phasing out the real subsidy. Let me give
Speaker 2: an example about EV, for example.
Speaker 2: The price of EV electric vehicles, um uh car is
Speaker 2: still relatively expensive compared to the, the combustion engine. At
Speaker 2: the same time, the fossil fuel, the gasoline is subsidized
Speaker 2: by the government about 40 to 60%, right? So what's
Speaker 2: the point to buy EV at this moment unless you
Speaker 2: just follow the trend or you have this.
Speaker 2: You know, conscious about the issue of this environment, but
Speaker 2: besides that, from the economic perspective, you don't see much,
Speaker 2: you know, much, um, benefit from shifting into this, you know, the,
Speaker 2: the combustion engine into the, the EP. So I think
Speaker 2: to address your question, the first step the government should do.
Speaker 2: In order to push the transition to energy, is to
Speaker 2: phasing out the fuel subsidy. Without that, I think this
Speaker 2: process is not going to be easy.
Speaker 1: I
Speaker 1: Whenever I go to China, um, I feel that I
Speaker 1: see the benefits of EVs.
Speaker 1: More powerfully than any statistic can tell me.
Speaker 1: When we look at studies, we can tell that in
Speaker 1: the large cities in China, particularly the emission has gone
Speaker 1: down because of the evification of the auto fleet. But
Speaker 1: unless you have gone for an early morning run in
Speaker 1: Shanghai or Beijing or Shenzhen like I do, you will
Speaker 1: miss out on the biggest benefit of green transition. It
Speaker 1: is the decline in the sound level. These cities are
Speaker 1: quieter than ever before. In the morning when I run
Speaker 1: in Beijing, roads are full of cars, but they don't
Speaker 1: make any sound.
Speaker 1: So I can listen to my podcast. I can listen
Speaker 1: to music. So the decline in sound pollution in, in
Speaker 1: addition to particular emission, I think it's a very powerful
Speaker 1: motivation for those who actually go and see that. They'll
Speaker 1: want that to happen in their own countries. Pugwari, let's
Speaker 1: talk about the big story, the 8% growth going back
Speaker 1: to the Indonesia, disappoints the bulls and the bears, and
Speaker 1: somewhere in the middle used to be the story two
Speaker 1: years ago. Where do you stand now?
Speaker 2: Well, let me put this way.
Speaker 2: Bear with me if I'm talking with number, OK? This
Speaker 2: is the old number that we discussed about 2 years ago.
Speaker 2: Our incremental capital output ratio timer is about 6.66.8 now,
Speaker 2: so 1% economic growth will require investment over GDP about 6.8%.
Speaker 2: So if you're talking about investment over uh you're talking
Speaker 2: about 8% economic growth, this will require investment over GDP 6.8%
Speaker 2: multiply by 8%. You're talking probably about 54% investment over GDP.
Speaker 2: So at this moment, our investment ratio to GDP is about.
Speaker 2: 37 out of GDP 23,000. So you're talking probably about
Speaker 2: almost 9000 trillion.
Speaker 2: Rupia at this moment.
Speaker 2: Yeah, it's about $500 billion US dollars.
Speaker 2: If you want to grow by 8%, you have to
Speaker 2: increase the investment from 9000 to around 12,000 trillion.
Speaker 2: Or even more. So you probably need to increase the
Speaker 2: investment at least by 30%.
Speaker 2: Now
Speaker 2: The question is, how should we do this?
Speaker 2: The first answer is we have to improve productivity in
Speaker 2: order to lower the ICO.
Speaker 2: Yeah, then if we, let's say, improve the productivity, we
Speaker 2: probably need less capital to produce.
Speaker 2: The similar output, the same output.
Speaker 2: So improving productivity is the key.
Speaker 2: And if you're talking about improving productivity, then it means
Speaker 2: that we have to improve the quality of human capital, infrastructure,
Speaker 2: and governance.
Speaker 2: How should we do this?
Speaker 2: You know, during my time when I was at the MOF,
Speaker 2: we introduced the so-called the endowment fund for the scholarship
Speaker 2: is under the name of the LPDP. Now many Indonesian
Speaker 2: students get accepted in the top 200 universities in the world,
Speaker 2: but this will take one generation. So the best way
Speaker 2: to do it is to have this management or technologies
Speaker 2: spill over from foreign direct investment.
Speaker 2: If you recall in the 80s, most of the Indonesian
Speaker 2: bankers were Citibank alumni because they have the best executive
Speaker 2: development program, right? So why don't we ask the private
Speaker 2: sector to do it and give the double deduction for
Speaker 2: tax if they do training. If you're talking about AI,
Speaker 2: if you're, why don't you ask NPDA, for example, to
Speaker 2: do a training rather than you build the government training center.
Speaker 2: That's one thing in improving the quality of human capital,
Speaker 2: so the government should work with the private sector definitely.
Speaker 2: I'm not a big fan of industrial policy, but I
Speaker 2: can see the justification of industrial policy if you improve
Speaker 2: the quality of the human capital. The second aspect is
Speaker 2: continue to build an infrastructure because with the aggressive development
Speaker 2: under Djokovic's administration, we're still deficient.
Speaker 2: Yeah, uh, in terms of the the infrastructure is still inadequate.
Speaker 2: And then governance. This is very important because let me
Speaker 2: be open and frank with you, time or even when
Speaker 2: I was in the cabinet, I said that one of
Speaker 2: the reasons why many Indonesians become religious is because they
Speaker 2: have to deal with the government.
Speaker 2: You know, so if you, let's say if you apply
Speaker 2: on something.
Speaker 2: There is nothing you can do except pray to God
Speaker 2: because a lot of uncertainties. That is why this economic
Speaker 2: deregulation is very important, so I'm very, I'm very happy.
Speaker 2: I'm glad.
Speaker 2: You know, when the president made a decision that he
Speaker 2: announced that
Speaker 2: Economic deregulation will be the top priority of his administration,
Speaker 2: and he announced it openly in public. He will remove
Speaker 2: the import quota. He will, you know, change the local
Speaker 2: content requirement to become an incentive. He will remove the
Speaker 2: so-called the, the technical regulation. I think this is one way,
Speaker 2: you know, to improve the productivity. So provided the government can.
Speaker 2: You know, fulfill all this requirement that 8% would be
Speaker 2: possible without that.
Speaker 2: Then it will be difficult for us.
Speaker 1: So one of the things that I picking up from
Speaker 1: President Prabowo's administration is that they would like to see
Speaker 1: more competition both from foreign capital coming into Indonesia as
Speaker 1: well as um increasing domestic competition.
Speaker 1: But the last 30, 40 years of this nation, if
Speaker 1: we look at it, the track record is one where
Speaker 1: the vested interests thrive on the lack of competition.
Speaker 1: Is it really going to be possible to break that
Speaker 1: uh stronghold?
Speaker 2: Well, let me put it this way, I always believe
Speaker 2: that bad times makes good policy.
Speaker 2: Yeah. Only during the bad times, politicians will listen to
Speaker 2: the hanocrat.
Speaker 2: You cannot expect that the politician will listen to the
Speaker 2: technocrat during the good times because what's the point to
Speaker 2: spend the political capital if the economic situation is already good,
Speaker 2: you know, I was able to convince SBA to adjust
Speaker 2: the fuel price by 45% because they put tantrum and
Speaker 2: now the reciprocal tariff, the global situation, this will push
Speaker 2: the government to do the good things, and I think
Speaker 2: that's the reasons why the president announced the economic deregulation.
Speaker 2: So this is the sadly. Bad times makes good policy.
Speaker 2: Good times makes bad policy.
Speaker 1: Well, finger crossed on that one. green transition.
Speaker 1: When I visited Indonesia in recent years, I heard a
Speaker 1: lot about Indonesia's sort of goal toward wind energy, solar energy,
Speaker 1: tapping into its, uh, natural gas potential and so on.
Speaker 1: The US is sort of turning away from that. Is
Speaker 1: that going to have a negative impact on green transition
Speaker 1: in developing countries?
Speaker 2: Definitely, I, I, I hate to say this, but I think.
Speaker 2: You know, with the, the US withdraw from the from
Speaker 2: the Paris Agreement, for example, this will have this negative
Speaker 2: impact to the commitment towards that because you can see,
Speaker 2: you know, my, my concern is under this kind of
Speaker 2: situation if US is no longer the leader of this
Speaker 2: Grand region like in the under Biden administration, this is
Speaker 2: not easy for the emerging developing economies because European countries
Speaker 2: will take the leadership.
Speaker 2: And if you're talking about leadership of the European countries,
Speaker 2: it is very ideological rather than, you know, based on
Speaker 2: the economic rationale. So this somehow will
Speaker 2: Create a sort of like additional transaction costs for the
Speaker 2: uh emerging developing countries, you know, to pursue the idea
Speaker 2: of this energy transition because they said that probably the
Speaker 2: requirement will be very difficult and honestly speaking time, this
Speaker 2: is the problem with the many emerging developing economies.
Speaker 2: The issue of the energy transition or climate.
Speaker 2: I always considered as a luxury goods.
Speaker 2: Yeah, because we are too busy with the day to
Speaker 2: day problem, with the issue of poverty, the poor quality
Speaker 2: of infrastructure. So in order to put this energy transition
Speaker 2: or environment.
Speaker 2: In the government agenda is to link it with the
Speaker 2: issue of development. Without that, I don't think the government
Speaker 2: will put the priority on the energy transition and their policy.
Speaker 1: I, I want to connect this with your earlier point
Speaker 1: that bad times make for good policy. If I travel
Speaker 1: to India, for example, I see issues related to water shortage,
Speaker 1: to steady rise in summer temperature really creating havoc, and
Speaker 1: as a result, you don't really have to convince people
Speaker 1: on the need to reduce particulate emission.
Speaker 1: Are we so fortunate in Indonesia that climate change is
Speaker 1: not visible in our face?
Speaker 2: It is, but you know, this is, this is what
Speaker 2: the behavioral economists call the present bias, right?
Speaker 2: Because the priority for people, they will think, well, this
Speaker 2: issue of this climate probably will happen in the 2050, 2060,
Speaker 2: and for a politician, why should I spend my political
Speaker 2: capital if my my successor will take the benefit of it, right?
Speaker 2: It is better for, for us, for example, you know,
Speaker 2: to focus on something that's tangible.
Speaker 2: Yeah, if you do something on climate, you cannot cut
Speaker 2: the ribbon for the improving of the climate, right? This
Speaker 2: is really one generation, but you can cut the ribbon
Speaker 2: for the building bridges.
Speaker 2: And politicians don't forget about the political cycle. It's 5 years.
Speaker 2: They need to build something that's really tangible. That is
Speaker 2: why the incentive is how to link this issue, the
Speaker 2: climate issue, with the issue of development that could be
Speaker 2: sort of like something that tangible for politicians. So if
Speaker 2: I may give an example.
Speaker 2: The issue of the job creation is important, OK.
Speaker 2: Why don't the government create the so-called the cash for work,
Speaker 2: but the project is mangrove. So you use the green
Speaker 2: project to create the jobs.
Speaker 1: OK, one more time, you have basically prepared the ground
Speaker 1: for my next question because I was gonna ask you
Speaker 1: about jobs. Um, artificial intelligence, large language models, and the
Speaker 1: serious threat it poses to white collar jobs. All this time,
Speaker 1: the Trump narrative, the Indonesian narrative that blue collar jobs
Speaker 1: are being taken away by China's overcapacity and that sort
Speaker 1: of stuff, very soon we'll be talking about white collar
Speaker 1: jobs being taken away by Chad GPT.
Speaker 1: How does a country like Indonesia needs to generate millions
Speaker 1: and millions of jobs? It's a prerequisite to the 8%
Speaker 1: plus growth target. How does it ensure that?
Speaker 2: Of course this is a problem for every country all
Speaker 2: over the world now, but the way I look at it, I'm,
Speaker 2: I'm trying to be optimistic timer. This is not the
Speaker 2: first time the world is facing the impact of the
Speaker 2: technology to the humankind. Look at what happened during the
Speaker 2: industrial revolution.
Speaker 2: The premise at a time that every job will be
Speaker 2: replaced by machine, yeah, but look at what happened after this.
Speaker 2: So the way I look at it, what is happening is,
Speaker 2: is not a sort of about of like the destruction
Speaker 2: of job, but the redefinition of job. The same job
Speaker 2: will be available but will require a different skill of set.
Speaker 2: Yeah, so for example,
Speaker 2: We still need
Speaker 2: Medical doctor.
Speaker 2: We still need nurse.
Speaker 2: But both nurse and doctor will require a different skill
Speaker 2: set because they have to know how to operate.
Speaker 2: The artificial intelligence, for example, the technology, for example. So
Speaker 2: the solution is about the reskilling, about the training. That's
Speaker 2: really the important. That's one thing that we probably need
Speaker 2: to anticipate. That is why, as I said to you,
Speaker 2: the role of the private sector in providing in helping
Speaker 2: the training is a very important one.
Speaker 2: But I have a concern here.
Speaker 2: I am more worried about the government 4.0 rather than
Speaker 2: industrial 4.0.
Speaker 2: Why? can you imagine with this?
Speaker 2: the disruption of the technology. The product cycle is getting
Speaker 2: shorter and shorter, right?
Speaker 2: How do you position the government?
Speaker 2: In
Speaker 2: Introducing the policy if the product is only lasts for
Speaker 2: about 6 months because after that,
Speaker 2: The product is no longer exists. It's obsolete.
Speaker 2: As a regulator, it will be very difficult for you
Speaker 2: if you keep if you keep a man your regulation
Speaker 2: every 6 months, right? So I think this will require
Speaker 2: the change of mindset. The ideal solution is will be
Speaker 2: an agile bureaucracy, but agile bureaucracy is an oxymoron. There
Speaker 2: is no way bureaucracy can be agile, so the bureaucracy
Speaker 2: should change the mindset from agree on rules to agree
Speaker 2: on principle, and this is not an easy thing.
Speaker 1: Not easy at all. And again, as you say, it
Speaker 1: is not an Indonesia specific, it's a whole, you know,
Speaker 1: humanity is a big challenge going forward. Are you in
Speaker 1: the camp that we're on the cusp of a big
Speaker 1: productivity revolution thanks to AI?
Speaker 2: I
Speaker 2: think so. I think so. Let me give just give
Speaker 2: an example. We have to change all the, you know,
Speaker 2: all the conventional thinking method, etc. Let me give an example.
Speaker 2: I'm teaching at the Department of Economics at the University
Speaker 2: of Indonesia.
Speaker 2: We always expect the student to be able to answer
Speaker 2: the question during the exams, right?
Speaker 2: But in the future, from now on, I don't think
Speaker 2: anybody will be smarter than the GPT in providing the answer.
Speaker 2: So what's the point to ask the student to provide
Speaker 2: an answer?
Speaker 2: So what we teach them at the university is not
Speaker 2: by to provide an answer, but to ask the question
Speaker 2: that GPT cannot provide an answer. So this is something that,
Speaker 2: you know, a new different, a new different method. Yeah,
Speaker 2: that is why I'm putting in my exams. The first
Speaker 2: question is not to answer the question, but to ask
Speaker 2: the question. And if this question never crossed to my mind,
Speaker 2: that will be the very good research question.
Speaker 1: And what's your sense? the students are adapting to this
Speaker 1: new
Speaker 2: world? Um, the student, they do, but not the lecturer.
Speaker 1: Uh, Pai, we have some questions from the audience. Uh,
Speaker 1: so in the limited time that we have, let's put
Speaker 1: them up. So start with an FX question, uh, related
Speaker 1: to DXY weakening and um.
Speaker 1: Uh, uh, and then what's the like outlook for the rupia. So, uh,
Speaker 1: the fact that most currencies in the world have appreciated
Speaker 1: against the US dollar, while the rupia has been rather
Speaker 1: muted in his appreciation, do you read something into that.
Speaker 2: Yes, I think
Speaker 2: Let me put it this way, because if you're talking
Speaker 2: about the uh the currency rupiah, yeah, two factors play
Speaker 2: a role here. The first one is of course the
Speaker 2: global situation, the reciprocal tariff, etc. the weakening of the
Speaker 2: DXY index, but at the same time, also the country risks.
Speaker 2: You know, some concern, let me be frank and honest
Speaker 2: with you, when Danan Tara was announced, yeah, there's a
Speaker 2: lot of questions came from the investors about the governance,
Speaker 2: about the management.
Speaker 2: Until
Speaker 2: They came up with a good management system, then you see.
Speaker 2: You know, markets started to rebound when they mentioned about
Speaker 2: the importance of governance, they put people like Ray Dalio,
Speaker 2: you know, Jeff Sachs as an advisor or, or, um,
Speaker 2: Chapman Taylor, for example. Markets start to believe that, you know,
Speaker 2: the government is serious in this, at least in the government,
Speaker 2: at least on the governance issue. So this is really
Speaker 2: a combination of.
Speaker 2: You know, external and also internal. So the rupia has
Speaker 2: been appreciated a little bit compared to
Speaker 2: What's about, you know, it's about.
Speaker 2: A month ago, yeah, it was almost about 17,000. Now
Speaker 2: it's about 16,400, but the way I look at it,
Speaker 2: if we do sort of like give more confidence, yeah,
Speaker 2: that the best side, you would expect that more sort
Speaker 2: of like appreciation of the rupee, yeah, yeah, the other
Speaker 2: concern from the market is about the budget deficit.
Speaker 2: Because so many government programs, whether the government will hit
Speaker 2: the budget deficit, go beyond 3%, I would say no,
Speaker 2: I don't think so, and my bet is, you know,
Speaker 2: we'll see what really happens, you know, by the end
Speaker 2: of this year. I believe that the budget deficit will
Speaker 2: stay around 2.4%, especially because the oil price remains about
Speaker 2: $50 to $60 US dollars. So I don't think that
Speaker 2: investors should worry about it.
Speaker 2: Yeah, so I can see sort of like, you know,
Speaker 2: more confidence to the rupia related to this.
Speaker 1: Pug Bastri. I've been covering Indonesia for perhaps 15 years now,
Speaker 1: and so many times we have had similar conversations that
Speaker 1: the deficit is going to be destabilizing for the market.
Speaker 1: By and large, every single time Indonesia is always surprised
Speaker 1: on the downside. So yeah, I'm also not particularly fussed
Speaker 1: about it.
Speaker 1: Um, clearly a lot of questions on that 8% growth
Speaker 1: target and the trade war issues. So there is one
Speaker 1: question that sort of combines both. It might require you
Speaker 1: to sort of repeat some of the things you said,
Speaker 1: but might as well just read the question to you.
Speaker 1: As US China compete in many aspects of technology and
Speaker 1: tariffs are kicking in, what would it take for Indonesia
Speaker 1: to stay on track with this ambitious target, uh, and, uh,
Speaker 1: is there anything we can learn from past episodes of
Speaker 1: geopolitical rivalry to cast Indonesia's target into context? Uh let,
Speaker 2: let me share with you.
Speaker 2: One episode back when I was chairman of the investment board,
Speaker 2: the minister of Investment like Paros and is um have
Speaker 2: this job now. It was back in 2011, if I'm
Speaker 2: not mistaken, time or there was a big flood in Thailand.
Speaker 2: Yeah, as a result.
Speaker 2: To Utah
Speaker 2: Could not produce their production in Southeast Asia because this
Speaker 2: big flood in Bangkok, yeah, if you recall, I was
Speaker 2: the chairman of the investment board, so I went to
Speaker 2: Tokyo to meet Akio Toyoda. At the time he was
Speaker 2: the CEO of Toyota, and I spoke to Toyota Sun.
Speaker 2: I said that this is about the time for you
Speaker 2: to invest in Indonesia.
Speaker 2: And then he asked me why and I said, not
Speaker 2: because Indonesia is better than Thailand, but you need to
Speaker 2: diversify your risks because if something natural disaster happened like
Speaker 2: what is happening, what was happening at the time in Bangkok,
Speaker 2: you cannot produce your supply chain stop. You know there
Speaker 2: is a supply chain disruption. It is better for you
Speaker 2: to have, you know, some production based in Southeast Asia
Speaker 2: and Indonesia is one of the options.
Speaker 2: So I was able to convince him. Toyota decided to
Speaker 2: put the production base $3.7 billion US dollars, not because
Speaker 2: Indonesia is better than Thailand, because there is a need
Speaker 2: for Toyota to diversify the race, and I can see
Speaker 2: the similar analogy now.
Speaker 2: Many production base in China should be relocated, not to
Speaker 2: other Southeast Asian countries, not because we are better than China,
Speaker 2: but they need to diversify the risk now because the
Speaker 2: geopolitical tension. And if you're talking about Vietnam is probably.
Speaker 2: Overcapacity at this moment, right? So Indonesia is very important.
Speaker 2: So if Indonesia would like to maintain this 8% economic growth,
Speaker 2: we can take this opportunity, provided that we do the
Speaker 2: economic deregulation.
Speaker 1: Very critical point related to that issue. OK, you are
Speaker 1: convincing a foreign investor that from a risk diversification perspective
Speaker 1: it makes sense to invest in Indonesia. What about the
Speaker 1: fact related to your earlier point that even during GFC
Speaker 1: this country did not lose growth momentum the way most
Speaker 1: open economies in the world did? Do you consider that
Speaker 1: also as an important resilient factor?
Speaker 2: I couldn't agree more with you. I think we have
Speaker 2: to change our strategy timer.
Speaker 2: Many people believe, including the, you know, I believe that
Speaker 2: many investors here always talking about one of the attraction for,
Speaker 2: you know, investors to invest in Asia because huge domestic market.
Speaker 2: If people talk about India, huge domestic market, but let
Speaker 2: me put it this way.
Speaker 2: Indonesia, India, and China have this huge domestic market since
Speaker 2: a century ago.
Speaker 2: But they only grew China only in the late, in the,
Speaker 2: in the 80s, India only in the 90s, Indonesia only
Speaker 2: in the mid 80s. Why?
Speaker 2: And when, when they started to connect the domestic economy
Speaker 2: into the global economy, India did the reform under Mamohan
Speaker 2: Singh in the early 90s. China sent to WTO. Indonesia
Speaker 2: introduced the economic deregulation in the mid 80s. So the
Speaker 2: way I look at it, if we want to promote
Speaker 2: the economic growth, it should be export oriented sector. You
Speaker 2: put Indonesia as a production base to serve the global
Speaker 2: economy because the issue with Indonesia, even though we have
Speaker 2: this huge domestic market.
Speaker 2: The purchasing power is relatively low. You won't be surprised.
Speaker 2: I don't know whether you'll be surprised, the number of
Speaker 2: subscribers of Netflix in Indonesia.
Speaker 2: is smaller than the number of subscribers of Netflix in
Speaker 2: Singapore because the issue of purchasing power, right? So I
Speaker 2: think if we want to pursue the economic growth, we
Speaker 2: should follow the Vietnam style, you know, export-oriented, financed by
Speaker 2: the foreign direct investment.
Speaker 1: Pug Basri, you've been very generous with your time and
Speaker 1: fantastic insights. Really appreciate it, everybody. A big hand for Pogbastri.
Speaker 2: Thanks, Daya. Thanks for having me.
Speaker 1: Thanks to our listeners as well. Copy Time was produced
Speaker 1: by Ken Delbridge at Spy Studios. Daisy Sharma and Viet
Speaker 1: Lee provided additional assistance. It is for information only and
Speaker 1: does not constitute any investment advice. All 154 episodes of
Speaker 1: COIT Time are available on YouTube and on all major
Speaker 1: podcast platforms, including Apple and Spotify. As for our research material,
Speaker 1: you can find them all by Googling DBS Research Library.
Speaker 1: Have a great day.