Center for World Trade Studies (CWTS) UGM, together with the Suryakanta Institute, and  Sociology Student Families (KMS), held Volume 2 of the Sarasehan* of Indonesian Economic Democracy (SARDEIN) on February, 28th 2023. This event, held in Fisipol UGM’s East Seminar room, carried the theme of “Improving Job Creation Regulations in National Investment Projections”. The discussion was attended by guest speakers Dr. Zainal Arifin Mochtar, Dr. Rangga Almahendra, and Ardy Syihab, with the discussion guided by Head of CWTS UGM, Dr. Riza Noer Arfani.

Dr. Zainal Arifin Mochtar, both a legal expert and lecturer at UGM’s Faculty of Law, said that there is currently a weakening of oversight towards the Indonesian government. Autocratic legalism was cited as an observable symptom of the lapse in political and legal oversight. In addition to Job Creation regulations, Dr. Zainal also conveyed the importance of monitoring the formulation of new regulations because there remains the potential for undesirable precedents, which would hinder the progress of Indonesia’s democratic legal and political systems. A key point of the presentation was that while increased levels of investment and economic progress are important for Indonesia, they should not be pursued in a way that prevents the advancement of  democracy.

Discussions continued with Dr. Rangga Almahendra, lecturer at UGM’s Faculty of Business and Economics, underlining the increasing prevalence of uncertainty caused by Jo Creation regulations. Continuing, Dr. Rangga explained that because Indonesia’s economic foundation is fragile and reliant on other countries, the government should focus on its improvement.  Because of the importance of  the Job Creation  regulations it is vital that they are reviewed to ensure an increase in employment opportunities, rather than serving only  the interests of employers.

The positions shared by Dr. Zainal and Dr. Rangga were endorsed by Ardy Syihab, who represented Merdeka Sejahtera Union (Semesta). Ardy made a point of rejecting a number of items from the Job Creation regulations that increase uncertainty for, or could potentially harm, Indonesia's workforce. Examples included regulations regarding layoffs, long leave, and the increasing openness of labor positions for foreign workers. In line with the preceding discussion, Ardy also emphasized the importance of questioning who will benefit from the accelerating levels of investment into Indonesia. In particular, Ardy highlighted that without appropriate regulation, the wealth created by this investment would likely not be enjoyed by society at large, instead leaving workers more disadvantaged.

* Sarasehan (in Bahasa) is a semi-formal type of discussion between experts and audiences upon certain issues. 

On January 11th, 2023, the Center for World Studies (CWTS) UGM held the first volume of its Sarasehan* of Democracy bringing “Cross Order Democracy Discourse” topic at Fisipol UGM’s BRI Works Amphitheater. The event featured several experts as guest speakers, including Major General TNI (Purn) IGK Manila, Head of PSPD UGM Dr. Riza Noer Arfani, and Bagas Damarjati, who represented the UGM students.

Discussions commenced with a presentation from Major General TNI (Purn) IGK Manila, who emphasized the important role played by academics and universities in shaping the ideal narrative of democracy. The Major General suggested that academia’s strength are well suited for provisioning advice to politicians, rather than engaging in the practical aspects of politics 

Dr. Riza Noer Arfani was the next to speak. During his presentation, Dr. Riza conveyed that because Indonesia’s democracy remains relatively new there are bound to be challenging periods. Therefore, Indonesia requires its academicians and universities to engage in the democratic process by shaping a vision of ideal democratic practices in Indonesia.

The discussion then progressed to the importance of Indonesia’s students in helping to construct democracy’s narrative in Indonesia. Bagas Damarjati stressed the importance of this to democracy, noting that more could be done to accommodate the aspirations of Indonesia’s students.

Following guest speakers, a question and answer session was held to generate further discussion. Guided by PSPD UGM Researcher Mario Aden Bayu Valendo, this session provided an opportunity for the audience to share their own ideas and ask questions of the guest speakers. While the event was held offline, it was also broadcast online via Instagram Live. To view the recording, please visit the Center for World Studies’ Instagram account @CTWSUGM.

* Sarasehan (in Bahasa) is a semi-formal type of discussion between experts and audiences upon certain issues. 

As the Chair of ASEAN in 2023, Indonesia adopts the theme of “ASEAN Matters: Epicentrum of Growth” in accordance with Indonesia’s G20 Presidency theme in the previous year, which focuses on the acceleration of  economic recovery and prosperity. This theme underlines the vision of Indonesia’s leadership to accelerate economic recovery, financial inclusivity, and sustainable development in Southeast Asia by strengthening the cooperation of all ASEAN member states.

Indonesia prioritizes three predominant issues upon the regional economy front, namely regional economic development, digital economy, and sustainable development. Instead of merely focusing on regional economic growth, Indonesia should seize its opportunity as a Chair to organize regional cooperation for sustainable development. This article will discuss the importance of the green economy, as a means of sustainable development, in ASEAN and recommend diplomatic actions for Indonesia, as the Chair of ASEAN, to spur the development this year. 

The Urgency of Accelerating Green Economy in ASEAN 

Regional cooperation of ASEAN member states is of utmost importance to tackle climate change issues that will negatively affect many crucial sectors in ASEAN. For instance, ASEAN will potentially lose up to 35% of its regional Gross Domestic Product (GDP) in 2050 caused by climate change. Furthermore, a report from the COP26 Universities Network and the British High Commission to Singapore entitled “Adaptation and Resilience in ASEAN: Managing Disaster Risks from Natural Hazards” reveals that the increasing intensity of rainfall will remarkably reduce regional agricultural productivity. Agriculture production, particularly rice, is predicted to dramatically drop by 50% because of floods, prolonged drought, and extreme weather events. Similarly, these issues will significantly affect the fisheries sector. 

Moreover, climate change will restrict the access to nutritious food in ASEAN. In 2020, 46% of ASEAN citizens were deprived of healthy and nutritious nourishment. The occurrence of a massive migration wave prompted by inadequate food supply, starvation, poverty, and human security due to climate change will arguably complicate regional integration and economic growth. 

Green economy is a system that does not merely see the importance of economic growth, but also environmental sustainability and inclusivity. In practice, this system can be implemented through production efficiency, carbon emission reduction, and pollution minimization. Looking at recent ASEAN conditions, the green economy system becomes necessary for both ASEAN member states’ governments and society.

ASEAN has formulated various regional frameworks related to the development of green economy in Southeast Asia. One of which is the Framework for Circular Economy for the ASEAN Economic Community (AEC) during the 20th AEC Council Meeting. This framework acts as a guideline for ASEAN to enhance regional economic development based upon the green economy. In addition, ASEAN has regularly released annual reports of climate change impacts towards the ASEAN region. 

Through the implementation of green economy, ASEAN will potentially have more than 30 millions of new job opportunities related to green businesses and industry in 2030. According to a report from Bain and Company, ASEAN will possibly profit around $1 billion dollars by establishing green economy. In addition to economic profit, ASEAN will reduce 80% of carbon emission caused by the decreasing consumption of fossil fuel for vehicles in some of the main cities in the region. Furthermore, ASEAN will also increase the efficiency and competition level of regional companies vis-a-vis competitors from outside the region.  

Indonesia’s Chairmanship and Green Economy in ASEAN

There are three diplomatic actions that can be exerted by Indonesia during its 2023 chairmanship to enhance ASEAN’S regional economic development through green economy. 

Firstly, Indonesia should further strengthen regional cooperation and exchanges of ideas and practices of green economy that have been implemented across ASEAN countries. For instance, Vietnam has formulated Environment Protection Laws 2020 to provide a legal foundation for domestic green economy encouragement. Arguably, this legal product can enlighten other ASEAN nations on the importance of providing legal foundation in accelerating the green economy.

Secondly, Indonesia should involve regional MSMEs in green economy implementation efforts through the existing ASEAN cooperation framework. This move is crucial since 90% of ASEAN’s business and industry are MSMEs. Support from ASEAN member states' governments is utterly important due to the vulnerability of MSMEs to numerous obstacles, such as the lack of human capital and funds to set up green and sustainable business models. Furthermore, member state governments should embrace domestic efforts and policies to stimulate the transition of MSMEs conventional business model into green business. 

Lastly, Indonesia should augment collaboration and cooperation with ASEAN external counterparts, such as the European Union, which has implemented green economy. Attracting more investments and regional cooperation in both fronts, policy making and technology, will enable the proliferation of the green economy in ASEAN faster. Arguably, Indonesia with its diplomatic roles in the region can lay the foundation of sustainable economic development to overcome investment and resources barriers, trade barriers that are based on advanced environmental standards, and regional policies that are not on the same level. 

As the Chair of ASEAN in 2023, Indonesia should bridge the interest of economic prosperity and environmental sustainability by implementing green economy. Various initiatives and diplomatic activities in advancing the green economy are not only crucial in enhancing ASEAN economic prosperity, but also in ensuring that the economic advancement will not exacerbate ASEAN’s environment conditions.

Currently, the implementation of circular economy has gained more attention in Indonesia.  In fact, Indonesia has incorporated the circular economy concept into the vision and development strategy of the five priority sectors in Indonesia's 2020-2024 National Medium-Term Development Plan (RPJM). The implementation of circular economy aims to balance economic benefits with environmental sustainability. 

In advancing the circular economy, Indonesia Circular Economy Consortium (KESI), affiliated with the UGM Center for World Trade Studies (CWTS) aims to boost circular economy-based SMEs, communities, and institutions based on local wisdom and knowledge. Currently, KESI has more than 20 members in Yogyakarta, Bali, and other regions in Indonesia, such as Rumijo Eco Indonesia, Sekolah Sampah Renggas Trengginas, and Sekolah Anak Sanggar Alam (SALAM). In  December 2022, KESI was also actively involved in organizing the Circular Economy Expo, which was attended by more than 50 participants from industry, community, and education sectors.

After developing and strengthening the consortium network, KESI held its routine meeting on 28 January 2023, at the PSPD UGM Office in which KESI Secretariat is also located. This meeting was KESI's initial milestone in reflecting on its commitment to realizing a sustainable, circular economy for its members. In this meeting, KESI members discussed the opportunities and challenges of implementing a circular economy in various sectors, particularly in SMEs and community sectors.

As a follow-up to this discussion in the next few months, KESI will soon organize skills, management, and marketing training classes for its members, and then it will be opened for the public. This program is expected to be a key solution to the problems of MSMEs that have limited access to upgrade their skills, management, and marketing proficiency. Furthermore, this training program aims to accommodate the vast range of participants, including training that is accessible to everyone, not just to KESI members. Thus, KESI will continue to be committed to implement circular economy practice based on collaboration and empowerment for all levels of society.

It has been a long time since the Special Region of Yogyakarta has faced the waste management problem. A bulk of the budget has been allocated to carry out waste management in this region, yet implementing well-operated waste management is still a far-finish line to be accomplished. As the existing reality so far, the response towards the waste management problem is based on short-term solutions namely opening and expanding dump fields and prohibiting inorganic waste. Nevertheless, to what extent are those solutions able to endure when the waste relatively increases? 

Concerning the existing conditions, waste management in Yogyakarta should be handled through a cross-sector approach. Waste management should involve various stakeholders such as industry sector, community, and government. 

Boy Chandra, the initiator of Guwosari Training Center (GSTC), thought that integration in waste management in Yogyakarta should be deepened. Interestingly, increasing waste volume in Yogyakarta is not a ‘problem’, Boy argued. Waste management-based industries are able to maximize their production capacity in the middle of expanding the demand for recycled-originated products. Boy mentioned several ideas regarding the integration and diversification strategy in managing waste.

First, cross-sector cooperation in waste management is imperative to protect the environment and benefit all entities around the waste management ecosystem. It means that the “One Village, One Waste Management System” policy to create end-products is such a significant step in the sub-district. Hence, the village becomes a first-hand entity in controlling waste flow within the local community. That policy can be commenced by raising the local community’s awareness about the importance of waste governance and creating community-powered waste management in the next step to go.

Second, beside the need to deepen multi-sector coordination, community-powered waste management should agree on the use of diversification or specialization strategy, based on types of waste that are cycled by the advanced waste recycling industry. This approach is expected to encourage collaboration between waste recycling industries and avoid unhealthy competition. Furthermore, the diversification approach will easily map the potential outputs of the waste recycling industry in Yogyakarta.

Tourism Awareness Group (or so-called "Pokdarwis" in Bahasa) is a community-powered group that focuses on energizing the village's potential in the tourism sector. Pokdarwis of Sumber Sumilir is a Tourism Awareness Group based in Sumberharjo Village, Prambanan Sub-district, Sleman Regency. This village is well-known for its two tourist destinations一Teletubbies Hill and Domes-shaped house一beside the lovely scenery because of the expanse of rice fields and greenery. 

By setting a mission to reactivate tourism in this village that has been in a downturn caused by the pandemic for two years, Pokdarwis of Sumber Sumilir chooses a progressive approach accommodating friendly policy towards the environment. In doing so, Pokdarwis put the priority on community empowerment approach to rectify the existing environmental condition, hoping that it will attract tourists to come. That approach is assessed as a significant step in addressing unwell-managed waste.

Regarding that environmental issue, Pokdarwis of Sumber Sumilir precisely re-ignited tourism activities in Sumberharjo Village by upholding the environmental-motivated movement initiated by Andy Purnawan. Andy is a 'creativepreneur' specializing in a leather craft named "Kenandy." Kenandy steadily strengthens the circular economy vision by becoming a member of the Indonesia Consortium for Circular Economy (ICCE). Andy argued that the spirit of protecting nature has to be integrated with the community empowerment agenda. 

Lack of waste management and environmental education in this village, Andy aims to improve these conditions. Tourism and a good environment are two things that should bolster hand-in-hand, Andy thinks. Therefore, Andy envisions that the tourist attractions in the Sumberharjo Village will be based on ecotourism一 a concept that combining local wisdom of rural life with natural tourist attractions. In general, the concept of ecotourism will be packaged through “Clean Village” activities.

Simultaneously, to achieve a better situation of tourism in Sumberharjo Village, Pokdarwis, presided over by Andy, has initiated concrete actions involving 18 sub-village in Sumberharjo in regard to collecting the waste by its types. Collaborating with Rapel Indonesia, this action has successfully launched three waste banks in Sumberharjo for the past four months, namely Cincing Jarik, Puspa, and Brilian Teletubbies.

Cincing Jarik, one of the excellent precedents of the bank of waste in Sumberharjo, has been running its business for the last three months. This waste bank consists of 10-12 households as its members. Every single member household in this waste bank is responsible for classifying wastes by their types on the level of family basis before storing them in a collecting point each month.

Beyond existing banks of waste, Andy and his team, on December 21st, 2022, also massively held a seminar about classifying inorganic waste in Sengir Sub-village. Marta Yenny, the representative of Rapel Indonesia taking a role as speaker, underlined that the bank of waste and its system will directly support circular economy practices to realize a cleaner environment and healthier people, exceedingly Sumberharjo is identified as a tourism village. To conclude, Andy also reaffirmed that this so-far action will get enough attention from various stakeholders to empower the tourism sector in Sumberharjo in the context of a post-pandemic recovery agenda.

The surge of inflation and economic crisis potential in many countries significantly affect the financial sustainability of the garment and textile industry in Indonesia. The once blossoming industries in the 1990s have recently suffered global economic consequences of COVID-19. Alas, the unavoided situation propels the garment and textile industry to implement mass layoffs. 

Garment and textile industry are correlated, yet the focus of each industry differs. While the garment industry focuses on manufacturing items of clothing, the textile industry focuses on producing, processing, and manufacturing of fabrics. In 2021, Indonesian textile industry became a labor-intensive industry with up to 1,4 million workers.

The Increasing Number of Layoffs

The mass layoffs in the garment and textile industry have occurred in various regions in Indonesia. The Executive Director of Indonesian Footwear Association (Aprisindo) Firman Bakrie mentioned that the amount of orders for export has, in fact, been declining since July 2022. The late gathering of data after export makes the garment and textile industry still seem to be growing when the reality proves otherwise. This is also the reason for the delayed realization of the mass layoff that is currently happening.   

This phenomenon also occurs in Subang, West Java, in which the Head of Manpower Agency (Disnakertrans) of Subang Yenni Nuraeni revealed the existence of 10.000 fired workers from 25 garment factories in Subang. The spokesperson of the Textile Business Organization in Subang (PPTPJB) Sariat Arifia also stated that companies have reduced their workforce by up to 50%. Moreover, data from PPTPJB shows that the closure of 18 garment factories in West Java caused 90.000 job losses. Based on a survey by the Central Bureau of Statistics (BPS), there is a diminution of the textile industry workforce from 1,13 million to 1,08 million in August 2022. 

The Cause of Mass Layoffs

The mass layoffs in the garment and textile industry is prompted by one main issue: the decreasing export demand. According to the Deputy of Apindo Workforce Division Aloysius Santoso, the demand for textile and garment products from the United States and Europe have diminished significantly by as much as 50% until mid-2023. The surging prices of basic goods drives the society to increase their savings by reducing expenditures on garment and textile products. In consequence, there has been an excessive supply of garment and textile products because the products are not fully absorbed by the market.

Furthermore, the COVID-19 related regulation to restrain cargo ships mobility also impinge the process of garment and textile products export. The regulation delayed the arrival time of garment and textile products, which lowered new demands. 

The Role of the Indonesian Government

The escalating number of mass layoffs in the garment and textile industry has righteously caught the Indonesian government’s attention. Hence, the government should do in depth research and calculation before implementing the policies to prevent further layoffs. Febrio Kacaribu mentioned that the aggregate growth of the textile and garment industry is still considered well so the government has to thoroughly investigate the developing issues of mass layoffs.

Not merely affecting the garment and textile industry, this issue urges the government to implement cautious approach and policies. Vice Chairman of Indonesia Parliament (DPR) Abdul Muhaimin Iskandar reiterated the need for the government’s concern wherein the layoffs in the garment and textile industry may impact other industries as well, particularly during the economic crisis that is predicted to happen next year. He suggested concrete policies from the government to tackle the issue, such as policies to absorb garment or textiles products from SMEs. Furthermore, the Indonesian government should aim for the non-conventional export market for the domestic garment and textile industry.  

Indonesia will still host the U-20 World Cup in 2023. In the aftermath of the Kanjuruhan Stadium tragedy, Indonesia’s right to conduct the U-20 World Cup was questioned due to the possible sanctions from FIFA – the world's highest governing body of football. However, the sanctions were not discussed in the meeting between President Joko Widodo and the President of FIFA last month. Contrarily, FIFA’s President, Gianni Infantino, announced  the FIFA team’s plan to visit Indonesia as a way to enhance cooperation and collaboration in preparing the tournament. 

The U-20 World Cup is expected to bring plenty of advantages for Indonesia on its first hosting experience. These are the U-20 World Cup’s economic benefits for Indonesia.

What is the U-20 World Cup?

The World Cup is an international football competition organised by FIFA every four years. Each country gets a chance to become the host of the World Cup, which has been held regularly since 1930. FIFA also organises other international football tournaments for youth players (U-20 World Cup and U-17 World Cup), for women (U-20 Women's World Cup and U-17 Women's World Cup), for football clubs (Club World Cup), and for other types of football such as Futsal World Cup and Beach Soccer World Cup.

As one of the most popular youth tournaments, the U-20 World Cup is held biannually for national team players who are under 20 years old. So far, there have been 24 teams from 24 countries that will compete for the prestigious trophy. The 24 countries that qualify for the final stage will be drawn into six groups of four teams. Currently, Indonesia has joined five teams from Europe, four teams from North America, and two teams from Oceania.

Although the locations of city and stadium for next year's U-20 World Cup has not been determined, Indonesia has been preparing six stadiums, namely the Bung Karno Stadium in Jakarta, Si Jalak Harupat Stadium in Bandung, Manahan Stadium in Solo, Gelora Bung Tomo Stadium in Surabaya, I Wayan Dipta Gianyar Stadium in Bali, and Gelora Sriwijaya Stadium in Palembang. To support the preparations, the Indonesian government is currently renovating the stadiums’ infrastructure, especially upon the stadium grass.

The Economic Benefits of Hosting the World Cup

In general, the World Cup provides an opportunity for the host country to increase international perception. Broadcasted both by national and international media, the U-20 World Cup provides an opportunity for Indonesia to exhibit not only the grandeur and success of the tournament, but also the potential of tourism in various regions in Indonesia.

The advancement of Indonesia’s tourism sector through the U-20 World Cup is expected to bring  several multiplier effects, wherein the presence of foreign tourists as the spectator of this competition will boost the sector. This projection is based on Poland's economic growth after hosting the U-20 World Cup in May and June 2019. According to the Polish Statistics Agency, there was an increase in the number of domestic and foreign tourists as seen from the occupancy rate of hotels and similar inns. In May 2019, the number of residents was recorded at 3,280,645. This result increased by 8.9% compared to the previous year.

Besides tourism, Indonesia can take advantage from the entry of investment. The need to increase the accommodation, transportation, and infrastructure facilities for the competition can be utilised to attract and establish partnerships between domestic and foreign investors. Indonesia’s Minister of Tourism and Creative Economy Sandiaga Uno plans to massively promote Indonesian tourism through digital marketing. Apart from investing in the tourism sector, domestic and foreign investors can actively participate in various infrastructure renovation projects for the U-20 World Cup. 

The infrastructure renovations and the increasing accommodation facilities will create more jobs that will subsequently contribute to the GDP of the host country. Various international events require international infrastructure and facilities standard, with no exception the U-20 World Cup. Therefore, the tournament requires  a large number of workers to achieve the standard. Lee and Taylor (2004) reported more than 31,000 jobs created in Japan and South Korea during their collaboration in hosting the 2002 World Cup. This job creation helped create an economic impact of approximately $1.35 billion in output, with an additional $1 billion directed toward collective income and value.

Looking from the previous hosts’ pattern of experiences, Indonesia will likely receive similar economic benefits from hosting the U-20 World Cup in 2023. The national and local government are required to not only prepare the tournament, but also utilise the economic potential of the international competition for national economic development. 

The World Trade Organization (WTO)’s decision of Indonesia vis-à-vis the European Union (EU)’s dispute over the ban on nickel exports is expected to be announced soon. On November 22, 2019, the EU filed a lawsuit to the WTO regarding Indonesia’s raw nickel export ban policy which is considered detrimental to the nickel industry in the EU countries. The EU lawsuit covers five main topics, namely: (a) nickel export restrictions, including actual export bans; (b) domestic processing needs for nickel, iron ore, chromium, and coal; (c) domestic marketing obligations for nickel and coal products; (d) nickel export licensing requirements, and; (e) prohibited subsidy schemes.

Recently, the President of Indonesia Joko Widodo (Jokowi) mentioned that Indonesia will likely lose in this dispute. Despite the WTO decision, Indonesia still insists on banning nickel exports and applies similar rules to other raw commodities such as coal, bauxite, copper, and gold. "It looks like we will lose at the WTO, but it’s fine, the industry is already built," Jokowi said.

This article will discuss the nickel industry’s potential in Indonesia, the reasons behind the issuance of the nickel export ban policy, and other Indonesia’s nickel related issues. The nickel export ban policy indicates a protectionist move for the domestic nickel industry. The Indonesian government should pay attention to several risks that come with the policy. This article will comprehensively discuss these aforementioned points.

The Potential of Indonesia's Nickel Industry

Indonesia is a nickel exporting country that controlled up to 20 percent of world nickel exports before the ban was imposed two years ago. Indonesia produces 1 million metric tons per year and contributed to 37% of the world's total nickel production in 2021, which is around 2.7 million metric tons. Yet, despite the export ban, Indonesia has still been able to reap significant profit from nickel-based products exports with $20.9 billion in revenue in 2021. This value has increased dramatically, considering that the export revenue of Indonesia's nickel-based products 7 years ago was only $1 billion. Jokowi opined that Indonesia's consistency in this policy will lead Indonesia's gross domestic product (GDP) to reach $3 trillion by 2030.

Reasons for Indonesia's Export Ban

There are two main reasons behind the Indonesian nickel export ban policy: 

1. The development of smelter technology in Indonesia will likely propel domestic demand for nickel ore. Indonesia currently has 21 smelters out of the targeted 53 smelters in 2024. Domestic nickel ore demand from the increasing smelters is predicted to reach 100 million tons by 2022 and will continue to increase. Processed nickels have higher quality and price that will generate more export revenue for Indonesia compared to nickel ore. Instead of being sold abroad, the government aims to store domestic nickel ore for smelters.
2. Indonesia's nickel export ban policy aims to develop domestic downstream industries related to nickel commodities. The Indonesian government aims to attract more investment in the nickel downstream industry that is mainly related to the electric battery industry. Currently, Indonesia can only produce grade 2 nickel derivative products for stainless steel. Meanwhile, grade 1 nickel derivative products are needed for the manufacture of electric batteries. In his statement, President Jokowi wants Indonesian nickel to be upgraded to grade 1 nickel products for lithium batteries in electric vehicles. The level 1 nickel processing industry is considered lucrative for Indonesia nickel industry.

Based on these reasons, the nickel export ban policy implemented by the Indonesian government appears to be oriented towards the development of the domestic industry. The nickel processing industry, which has not acquired the resiliency to compete with other large industries, requires investment assistance and protection from the government. Protectionism policies, such as export bans, are carried out by a country to make its new industries reach economies of scale and sufficient capability to compete internationally

In a broader context, Indonesia's unchanging commitment is based on Indonesia's vision to shift its role from an exporter of raw materials to a producer of processed nickel with high economic value. This attitude is emphasised by Jokowi's statement, where "Indonesia always exports raw materials, while it is better to process and consume them through downstream industries or domestically". The export value of nickel ore is currently around $30 per tonne, whereas that value may increase to $100 per tonne if converted into ferronickel – an alloy of iron and nickel used as an alloying material in steelmaking. By advancing the downstream nickel industry, Indonesia expects to increase profits in this sector through the value of nickel processed products, job creation, and reduced carbon emissions.

Nickel Industry-related Issues

Besides the potential, the Indonesian government needs to pay attention to a number of important issues that come with the export ban. The issues include: (a) state revenue loss; (b) added value transfer, and; (c) employment.

First, Indonesia needs to consider the potential loss in government revenues. The ban on nickel exports risks the diminution of state tax revenue from companies and export duties so state revenues from downstream nickel industry must be able to replace the loss. One effort that can be done is to create incentives to attract investors. The government can offer tax holidays or tax leave – reductions to corporate income tax (PPh) exemptions for a certain period of time. In addition, government support in the form of ease of licensing to shorten the processing of investment permits can also minimise losses from reduced income. 

Several investors have shown interest in investing in nickel refining and processing in Indonesia. A Chinese company, GEM Co., has committed around $30 billion to invest and become partners in Indonesia’s nickel industry development projects. In mid-April 2022, Chinese battery giant producers, CATL, also began exploring investments in Indonesia for nickel mining and electric vehicle batteries production.

The second issue is the transfer of added value from mining companies to smelters. Indonesia’s local mining sector has to bear with the problems surrounding domestic nickel selling prices and the metal test grade assessment system. The export ban has forced mining companies to sell their nickel ore to domestic smelters at lower prices amid the current high world nickel price. Furthermore, national entrepreneurs have to deal with injustice in the nickel metal test levels assessment system. This discrimination shows when businessmen holding nickel mining business licences are required to use surveyors appointed by the government, while foreign smelter investors may appoint their own surveyors. The requirement caused different results of nickel content analysis, where the outcome of buyer surveyor analysis is often far below that of mining surveyors. Although the government aims to simplify the policies for foreign investors, the government must ensure that its policies will not affect domestic entrepreneurs negatively.

The third issue is related to employment. Although the ban on nickel ore exports is claimed to increase employment levels, especially in the smelting sector, the government should consider the impact of streamlining the mining sector. Despite the absence of credible statistics about workers in the nickel mining sector, data from BPS state that the proportion of the Indonesian manufacturing industry workforce in 2018-2020 has not increased significantly. Therefore, it is not certain that the export ban will benefit the community in this aspect.

Indonesia's policy to ban nickel ore exports is not a risk-free step. Indonesia's persistence will only bring benefits if it is balanced with special attention and risk mitigation from the Indonesian government on tax issues, ease of investment, transfer of added value from mining companies to smelters, and a concrete increase in the workforce. Synergy is utterly important to overcome risks and capitalise Indonesia's nickel export ban policy potential.

Various global financial institutions such as the International Monetary Fund and the World Bank have issued early warnings about the possibility of a global economic recession in 2023. The economic crisis that occurs in several countries this year is an early indication for next year’s recession. Moreover, Ned Davis Research predicts that the chance of next year's global economic recession is up to 98.1%.  

Quoted from Investopedia, recession is a condition in which a country's economy is slowing down significantly for a long period of time. The decrease of Gross Domestic Bruto (GDP), increasing unemployment rate, and declining consumer trust are the indications of recession. What are the factors that cause global economic recession in 2023 and how likely will Indonesia’s economy be in 2023?

High Inflation 

According to Bank Indonesia, inflation is the continuous increase of goods and services prices during a period of time. Inflation is not always bad if it still occurs within reasonable limits of each country’s national economy. For example, the United States (US) targets 2% of inflation yearly, Indonesia targets 4%, while Turkey targets 5% in one year. Yet, the current surge of inflation above the targets set in various countries impacts negatively on the economy. 

Boediono categorizes inflation into four types. First, mild inflation which is characterized by a low rate of inflation that occurs for a long period of time. This inflation is below 10% per year. Second, moderate inflation that may reduce people's welfare with a fixed income. This inflation category is up to 10-30%. Third, heavy inflation which is marked by the public's unwillingness to save in banks because the yields given are below the inflation rate. This inflation ranged from 30-100%. Lastly, hyper-inflation that is indicated by a general goods price increase up to more than 100% in a year period.

The most recent high inflation is ascribed to the huge disparity between supply and demand of commodities, which is further exacerbated by the Russia-Ukraine war. The disruption caused by the Russia-Ukraine war utterly impacts the supply of oil, gas, and food supply globally. Subsequently, the war prompts the surge of diminishing energy and commodities prices that lead to higher inflation. OECD’s interim chief economist Alvaro Pereira notes that the significant increase of raw material and energy is a consequence the world should pay for the ongoing Russia-Ukraine war. 

Based on the year-on-year data in August 2022, the inflation in Turkey and Argentina is 80,21% and 78,5% respectively. Developed nations such as the US and Germany also experience inflation up to 8,3% and 7,9% as of August 2022. Inflation in the US is at its highest in 40 years. As per August 2022, the inflation rate in Indonesia is at 4,69% and reached 5,95% in September which was caused by the rising price of food and energy.  

The differing influence each country has over international trade and economy matters in assessing the severity of global inflation. On one hand, countries with great economic power like the United States will have a worse impact on other countries and the entire global economy if inflation occurs. On the other hand, countries with little to no significant power will generate minimum impact. 

Additionally, the Executive Director of Institute for Development of Economics (INDEF) Ahmad Tauhid mentioned that the high level of inflation in various countries will increase the number of people living in poverty. Consequently, middle and poor households suffer more from their reduced purchasing power and savings as the prices of basic goods continue to soar.

The Rise of Interest Rate

In short, interest rate refers to the amount of interest set by the central bank as the reference for other financial institutions and products. To slow down the inflation, the central bank needs to increase the interest rate which will decrease the willingness of society to spend and borrow money. Increasing the interest rate will curtail the consumption demand level and eventually reduce the inflation rate. 

The aggressive policies to increase the interest rate have been implemented in many countries to reduce inflation. The US Central Bank, The Federal Reserve (The FED), has maintained its interest rate policy in recent months to push down inflation. The FED is predicted to increase the interest rate up to 3-4%, the highest in 15 years. Likewise, the central banks in England and the European Union also increase their interest rate. England sets the interest rate up to 2,25% as of September 2022, the highest in 14 years. The European Union central bank also sets the highest interest rate in 11 years, up to 1,25% as of September 2022. 

Despite aiming to impede the inflation, the surge of interest rate does not automatically dismiss the possibility of recession. The decreasing demand level due to high interest rates will decelerate the economic activity. According to the World Bank, the aggresive increasement of interest rate policy in many countries will also lead the world into a global economic recession in 2023. The increase of interest rate to reduce the inflation will slow down world Gross Domestic Product growth up to 0,5% in 2023 and induce global recession. 

Recession Potential in Indonesia

Minister of Finance of Indonesia Sri Mulyani mentioned that Indonesia will unlikely to experience an economic recession in 2023. Furthermore, Mulyani mentioned that some factors will obviate Indonesia from recession. The surplus of Indonesia’s international trade balance in August 2022 and the increase of manufacturing activity have been the positive catalyst for Indonesia’s economy in the midst of global economic uncertainty. Amidst the economic slowdown in several countries, the IMF and World Bank predict that Indonesia’s economy will still be able to grow up to 5,1% – 5,3% in 2022. Similarly, the Head of Fiscal Policy Agency (BKF) Indonesia Febrio Kacaribu mentioned that Indonesia’s economy will still grow up to 5,6% – 6% in the third quarter of 2022. 

However, Sri Mulyani urges Indonesian policymakers to stay vigilant in formulating and executing financial and monetary policies. The surge of interest rates to fight inflation prompts economic slowdown globally. Hence, despite the positive prediction of Indonesia’s economic stability, Indonesia policymakers should formulate and implement policies to anticipate and prevent domestic recession.