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Export Performance Drops Early 2023, Ministry of Manpower Permits Industry to Cut Workers’ Salaries

BULETIN TEKSTIL.COM/ Jakarta – According to the Central Statistics Agency (BPS), Indonesia’s export value in February 2023 was roughly USD 21.4 billion, a 4.15% decrease from the previous month (month-on-month/mom).

As indicated in the graphic, the value of national exports has fallen for six months in a row from September 2022.

Monthly Export Value of Indonesia (January 2020-February 2023)

In the non-oil and gas sector, exports of precious metals/jewelry/gems, metal ore/slag/ash, footwear, machinery/mechanical equipment and its parts, and mineral fuels fell in February 2023.

Non-oil and gas commodities with enhanced export value include animal/vegetable fats and oils, iron and steel, electrical machinery/equipment and their components, chemical goods, and tin and its derivatives. However, the growth in commodity sales has not boosted national export performance.

Meanwhile, the World Bank had forecast a deterioration in Indonesia’s export performance.

The World Bank estimates that Indonesia’s economic growth would slow in 2023 owing to lower global demand in the December 2022 edition of the Indonesia Economic Prospects (IEP) report.

“Weaker global demand may harm Indonesia’s export performance and reduce foreign investment flow.” Global monetary tightening can potentially cause a greater outflow of capital, as well as a devaluation of the rupiah, which leads to inflation,” according to the World Bank.

In the middle of this circumstance, Minister of Manpower (Menaker) Ida Fauziyah permitted a number of sectors to make modifications, one of which was to reduce workers’ pay by up to 25%.

The specifics may be found in Article 8 of Minister of Manpower Regulation Number 5 of 2023, which states:

(1) Certain export-oriented labor-intensive industrial companies that are affected by changes in the global economy may make wage adjustments with the provision that the wages paid to workers/laborers are at least 75% (seventy five percent) of the wages normally received.

(2) The changes mentioned in paragraph (1) are made in accordance with an agreement reached between the entrepreneur and the worker/laborer.

The textile and garment industries, footwear business, leather and leather products sector, furniture industry, and children’s toy industry are among the export-oriented labor-intensive industrial enterprises included in the legislation.

Labor-intensive sectors that are permitted to reduce worker salaries must fulfill the following requirements:

  • The number of workers/laborers must be at least 200
  • he ratio of labor expenses in production costs must be at least 15%, and
  • production is dependent on orders from the United States and European nations, as indicated by an order request letter.

 

The World Bank predicts that Indonesia’s economy would contract in 2023.

According to the World Bank, Indonesia’s economic growth would slow from 5.2% in 2022 to 4.8% in 2023. This is stated in the Indonesia Economic Prospects (IEP) report for December 2022.

This forecast differs from the previous report, the East Asia and Pacific Economic Update for October 2022, in which the World Bank expected that Indonesia’s economy would remain steady until 2023.

Indonesia’s economic estimates have shifted as a result of a variety of reasons, including decreased export demand and growing inflation concerns in 2023.

 

Three international institutes predict that the RI economy would contract in 2023.

Several foreign organizations have issued reports on Indonesia’s economic estimates for 2023. In general, the forecasts are slowing.

The Asian Development Bank (ADB) expects that Indonesia’s GDP will expand 5.4% this year but 4.8% next year in the December 2022 edition of the Asian Development Outlook report.

Projection of Indonesian Economic Growth by ADB, OECD, IMF, and World Bank (2022-2023)

Indonesian consumption continued to rise beyond the pre-pandemic level in 2022. The major commodity export boom continues, and tourist visits were on the rise. However, growth would be constrained in 2023 due to declining goods exports, in accordance with the deterioration of developed nations’ economy, according to the ADB.

The Organization for Economic Cooperation and Development (OECD) made a similar prognosis. The group, which includes dozens of affluent nations, estimates that Indonesia’s GDP would increase 5.3% in 2022 before falling to 4.7% in 2023.

“The continued rise in commodity prices and strong investment flows are assisting Indonesia in meeting global economic challenges.” The inflation rate, however, is holding down domestic demand and public consumption growth,” they wrote in the November 2022 edition of the OECD Economic Outlook.

The OECD also believes that there are a number of threats to Indonesia’s future economic growth.

“The main risks ahead of the 2024 election are energy, fertilizer, food, and social tensions.” Monetary policy must remain tight, but assistance to vulnerable households must be maintained,” they advised.

The International Monetary Fund (IMF) estimates that the Indonesian economy would contract from 5.3% in 2022 to 5% in 2023 in the October 2022 edition of the World Economic Outlook.

The IMF also warns of risks that might drive up inflation next year, particularly in the energy and food sectors.

“Energy prices will continue to be highly sensitive to the Ukrainian conflict and other potential geopolitical conflicts.” Extreme weather occurrences “could jeopardize global food supplies, raise staple food prices, and have dire consequences for poorer countries,” according to the IMF.

However, not all forecasts are pessimistic. The World Bank anticipates that Indonesia’s economy would be steady with a 5.1% growth rate in 2022 and 2023 in the October 2022 issue of the East Asia and Pacific Economic Update report.

Nonetheless, the World Bank is mindful of risk factors for an economic downturn, ranging from weakening commodities export demand to rising interest rates in other countries, which might boost capital outflows and increase the cost of servicing foreign debts.

(Red B-Teks/Ly)

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