Ministry of Industry Prepares Anticipation for the Impact of World Geopolitical Situations on the Industrial Sector

Jakarta, INTI - The Ministry of Industry continues to monitor the tumultuous world geopolitical situation. Currently, the situation in the Middle East is escalating with the recent conflict between Iran and Israel. The geopolitical escalation in the region is feared to affect Indonesia and other ASEAN countries.

The ongoing conflict is expected to impact at least three aspects: an increase in energy prices, rising logistics costs, and strengthening of the US Dollar (USD) exchange rate. These consequences are part of the global economy and supply chain.

Therefore, the government needs to analyze and prepare smart policies to mitigate the impact on the domestic manufacturing sector. The Ministry of Industry will also coordinate with industry players, "Currently, the Ministry of Industry has mapped out the issues and is trying to mitigate solutions to secure the industrial sector from the impacts of the ongoing conflict," Minister of Industry Agus Gumiwang Kartasasmita stated in Jakarta on Thursday (18/4).

The solutions formulated by the Ministry of Industry include preparing incentives for the import of industrial raw materials from the Middle East due to the possibility of disrupted supply of raw materials for domestic industries, especially in the upstream chemical industry sector that imports most of its raw materials from the region. Relaxation of certain raw material imports is also needed for ease of obtaining raw materials, considering that other countries are also racing to secure alternative suppliers to meet their industrial raw material needs.

Furthermore, expediting steps to deepen, strengthen, and spread industrial structure, aimed at immediately increasing import substitution programs. This needs to be supported by tightening Domestic Component Level (TKDN) regulations to anticipate excess trade diversion from other countries to Indonesia. In other words, Ministries/Agencies must be more disciplined in procuring goods and services using Domestic Products.

Minister of Industry added that this is also the right moment for the industrial sector to obtain certainty regarding the implementation of Certain Natural Gas Prices (HGBT) policies. The risk of increased energy prices can affect the decline in productivity and competitiveness of sub-sector industries. Therefore, HGBT policy is crucial to improve production competitiveness.

The Ministry of Industry urges the increase in the use of local currency (Local Currency Transaction) for bilateral transactions conducted by businesses in Indonesia and partner countries. In other words, Indonesian and partner country customers can pay or receive payments in local currency without going through USD. "This step is to reduce dependence on hard currencies, especially USD, considering the increasing economic scale and trade volume between Asian countries, and also to improve the stability of the Rupiah exchange rate," explained the Minister of Industry.

In addition, efforts to improve the performance of the logistics sector to support the growth of the industrial sector are also necessary. Throughout the first quarter of 2024, there has been an increase in the world logistics cost index, which is a result of the Israel-Palestine conflict. The increasing logistics costs will depend on the escalation of further possible conflicts. Meanwhile, Indonesia is currently ranked 63rd in the world and 6th in ASEAN for the Logistics Performance Index (LPI), far below Singapore, Malaysia, Thailand, the Philippines, and Vietnam. This means that the cost and time of handling logistics in Indonesia are much higher and longer compared to other countries in the world and in the ASEAN region.

Another note is the productive loan ratio in Indonesia, which is still lower than consumptive loans, indicating the need to facilitate the industrial sector in obtaining credit. Looking at the conditions in China, more credit flows into the production sector compared to consumption. The Minister of Industry hopes that the credit ratio in Indonesia can also shift and be dominated by production credit, so that the industrial sector can further develop.

However, Agus reassured that the current condition is still calm and under control. "Business actors do not need to worry about the situation. Indonesia has a strong economic foundation, and the government is striving to prepare strategic policies to safeguard the industrial sector," he concluded.