Two Macroeconomic Challenges According to OJK

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The Financial Services Authority (OJK) again stated that the world is in crisis. The “dark clouds” will still cover the world in 2023.

Chairman of the OJK Board of Commissioners Mahendra Siregar said that two things pose macroeconomic challenges, namely reducing inflation by raising interest rates, and lowering interest rates in the face of a recession so that the wheels of the economy can keep moving.

According to him, this dilemma will be a challenge for the world economy next year.

“But next year, those two things will happen at once. Inflation is high. The recession is severe. So raising interest rates will further recession, if don’t raise interest rates, inflation will continue to rise. This is an extraordinary dilemma,” Chairman of the OJK Board of Commissioners said virtually, Monday (12/19/2019) 2022).

Mahendra explained that for too long the global economy has been flooded with large amounts of funds flowing at very low costs. “To deal with the sluggishness of the pandemic, even those that previously weakened the economy in developed countries, as a result, the number of funds that are so large and cheap causes inflation,” he said

Moreover, geopolitics adds to the burden, which causes problems in the supply chain and logistics. Until in turn, a country will limit supply thereby triggering inflation that occurs in developed countries.

“Even for Europe, it was up to 2 digits above 10%. In Europe itself, they last experienced 2 digits in the early 1980s. So they returned to an inflation rate of 11-12% after 45 years without ever,” he added.

Mahendra further explained that several European countries, including Britain, France, Belgium, and Italy, had entered the brink of recession. This is because the country is not only experiencing economic problems but also global geopolitical problems.

“Even though inflation hasn’t come down either. Yesterday’s inflation in England was still almost 10%. America, which is not as bad as Europe, has been able to come down but is still at 7%, again the highest for 50 years,” he said.

Mahendra further revealed, actually, the existing instruments at the central bank, including Bank Indonesia (BI), are not to overcome these challenges. This is because the main task of the central bank is only to deal with inflation, not to overcome the economic downturn.

“It’s not the central banks around the world. But it’s in tackling price stability. But if prices are so high and the economy is in a dilemma, only the central bank can handle it,” he said.

Need intervention from the government to encourage economic growth. Thus, the central bank can participate in maintaining and controlling inflation. So far, there has been a vacuum in the policies of developed countries, both the United States (US), Europe, Japan, and Korea.

“They always use monetary instruments and control inflation. But there are no instruments to stimulate the real economy,” he concluded.