July 21, 2022
JAKARTA – Last week’s Group of 20 Finance Ministers and Central Bank Governors (FMCBG) meeting can be seen as a glass half full.
There was no tension like the hostile reception some delegations showed toward Russia at the G20 Foreign Ministers’ Meeting a week earlier. Also absent was the walkout of country representatives that tainted the second FMCBG meeting in Washington in April.
Rather, the participants of the Bali meeting showed a more positive inclination toward collaboration as the world economy feels the threat of a looming recession and awe over Sri Lanka’s bankruptcy.
But the third FMCBG wasn’t deemed a success, as conflicting views among G20 members over Russia’s invasion of Ukraine and the war’s overarching impacts had prevented them from producing the traditional communiqué at the meeting’s conclusion.
An agreement to battle the food crisis was voiced during a seminar attended by finance chiefs, including United States Secretary of the Treasury Janet Yellen, but no formal deal was reached.
There was also strong support for host Indonesia’s proposal to set up a joint finance and agriculture ministerial forum to ease trade restrictions and protectionism on food products and fertilizers, but it will take greater commitments from the member countries for any agreements to materialize.
This is indeed a gloomy time for all countries, both rich and poor, which have been struggling to recover from the pandemic and the disruptive impacts of the Ukraine war. And in this moment of vulnerability, governments are finding it hard to join hands or even share their burdens. It is not easy to put other countries’ welfare before the welfare of one’s own people.
Even Indonesia, which has been praised by International Monetary Fund managing director Kristalina Georgieva for faring better than other countries, stands on fragile ground.
The country’s annual inflation, which reached 4.35 percent in June, was relatively lower than figures in the rest of the world because the government poured more funds into electricity and fuel subsidies to reach a whopping Rp 520 trillion (US$35 billion), more than triple the initial allocation of Rp 152.5 trillion.
But with the energy crisis expected to last until the end of this year, the government may need to allocate more money to keep inflation in check.
The state budget is neither invincible nor bottomless in sustaining the country’s 270 million population. It has been in a relatively wide deficit, reaching 4.65 percent last year after a regulation temporarily lifted the 3 percent cap at the beginning of the pandemic.
While a major part of the state budget, including the deficit, is financed domestically, a significant part is covered by the central bank. In 2020, Bank Indonesia and the government agreed to a burden-sharing scheme of Rp 574.59 trillion to finance the deficit. Last year, the Finance Ministry reported that the central bank would buy Rp 439 trillion in government bonds between 2021 and 2022.
The pandemic-era regulation resets the budget deficit cap at 3 percent next year, meaning the government will not be as strong in shouldering more subsidies as it is at present, particularly if global inflation and the energy and food crises persist.
The uncertainty requires countries, including Indonesia, to tread carefully. Peace, rather than war, will at least help us withstand the storm.