The Trump rate shock must encourage Indonesia to reform their economy

They kick while they are down: the expression appropriately illustrates what the tariff bomb of US President Donald Trump is doing, for the economy of Indonesia, who has not fallen for some time. In 2024, according to the Ministry of Manpower, as much as 77,965 Employees were fired. This in turn caused enough dent in the purchasing power of the average household that set the set of Deflation for five months in a rowfrom May to September 2024. The start of the holiday season before the end of the year ended this deflation chain, but there was still a visible decrease in the holiday expenditure At the end of 2024 compared to the previous year.

Then came 2025, which started unfavorably with the last-minute cancellation of the proposed increase in the tax of added value (VAT) by the government of President Prabowo Subianto. However, the damage was partly done if the Preventive inflation Prior to the proposed VAT had already taken place. It is important to note that the preventive inflation that took place at the end of 2024 and early 2025 was not the result of the previous deflation period. Instead, it was activated by the market expectation of the government’s plan to increase the VAT rate from 11 to 12 percent on January 1, 2025. It happened crucial while the purchasing power of households plummeted.

Then came the tax implication of the Coretax Debacle. Coretax is a new digital tax system developed by Directorate General of Taxes, which aims to improve compliance with tax and income. However, the system has resulted in technical difficulties during the taxpayer’s report, such as system crashes and other operational problems, which saw a historical collapse into tax revenuesThat fell by 41.86 percent in January, followed by a decrease of 30.19 percent in February. The government responded by trying to sharpen its belt, but the move included a number of very unpopular measures, as proposed cuts on education Financing and a postponement of appointments by civil servant For more than seven months.

In the meantime, the government seemed adamant to continue with programs that are both expensive and did not inspire market confidence, such as Prabowo’s free school meal program and the formation of the Danantara Sovereine Wealth Fund, which could transfer more money from the shrinking coffee of the state. It is not surprising that the market reacted unfavorably. On March 18, the Indonesia Stock Exchange came by 5 percent less than three hours after the opening, activating a temporary one halt in trade.

So even without Donald Trump hits a hard ‘reciprocal’ rate on import from Indonesia, the economy of the country is already in a sufficiently large that is already capable of; And whether the rate is 32 percent or 10 percent, it will get worse. Until now, the government’s policy has not been sufficient to keep the economy up. A policy change is required to reduce the coming crisis.

Maintaining domestic purchasing power

Normally the classic Keynesian answer to this problem would be a form of government intervention in the economy. By pumping money in the economy through many public work projects, the government could help households to maintain their purchasing power by offering work in the midst of the economic decline. However, there are some reservations for this possible solution.

Firstly, the entire point of the government intervention at the time of economic decline is to keep the economy going on by protecting the purchasing power of the average household, so that it should not be too low, so that the demand for goods and services must be paid. That is why the government must give priority to expenditure that helps household consumption, such as purchasing programs that are labor -intensive, direct cash transfers and financial incentives for small companies.

Although Indonesia has to respond to external shocks by rolling out more stimulus, the government is greatly limited by its shrinking tax head space and limited in its ability to spend stimulus packages in itself. That is why it could collaborate with Bank Indonesia to issue sufficient incentive via a monetary-tax policy mix.

Secondly, the government must also re -assess some of its flagship programs, such as the free school meal program and the critical mineral downstreaming program. The first could help the household purchasing power, but not in its current form. Research by Celios has suggested that evenly distributing the free meal into every school child can lead to an inclusive out -out of 34.2 percent, whereby the children of rich households also receive what a welfare program for school children from the background of the middle and a lower income receives. The current school meal program is also based on large suppliers who have less impact on the local economy. In order to increase its effectiveness in supporting the purchasing power of the average Indonesian households, the program must be overhauled by being more focused and to involve more in local companies.

Regarding the electricity program, it must be reduced. The international market was thrown in disorder thanks to the general rate of Trump, and so it would be unwise to continue to follow export -oriented programs in this uncertain international environment. The government must first give priority to the interior -oriented policy.

Thirdly, to finance various projects for public works and to strengthen domestic consumption, the government needs a robust and reliable tax system. The problematic and unreliable Coretax system must be again evaluated, while the directorate general of taxes must strengthen the capacity of its staff.

Finally, a special measure must be taken to minimize unemployment. This can take many forms, from soft loans for starting small companies to specific skills training for the unemployed. Since Trump’s rates have caused great uncertainty on the world market, we cannot expect reliable sources of employment from large private companies, and therefore these measures must be aimed at small local companies.

A chorus, no entry

As much as it is tempting in the Footsteps from China And to apply a retribution rate to American goods, the government is right to do this because it would be counterproductive for the economy and the aim of maintaining the purchasing power of households.

On the other hand, it is not necessary to step in Trump’s bullying tactics. The Grace period of 90 days Offered by Trump is probably a false hope, the root of the rates of the rates. A hasty, almost knee dress decision to send Three ministerial level Delegations to Washington, DC to appease Trump can be counterproductive in the long term. The seven most important points that the coordination of Minister of Economic Affairs Airangga Hartarto reportedly brings to the negotiating table sound less like a national strategy and more like a national capitulation. He has offered zero rates For American goods and preferential treatment for American companies. This can appeal to the market for the time being, but in the long term it can lead to the industrialization for Indonesia. Even worse, the influx of cheap agricultural products from the US can slowly strangle our already struggling farmers. So much for Pabowos Plan for agricultural self -supply.

What Indonesia can do instead is to compensate for the threat of Trumpian rates by deepening trade relations and regional cooperation with other countries. Forging a trade agreement that reduces the trade barrier with the most important trading partners of Indonesia, including China and Japan, or the regional cooperation with fellow-ASEAN countries is increasing-for example by critical minerals who are much better movements than Tit-For-Tat Renal Department in Intra-ASEAN-Trade.

Ultimately, what Indonesia needs is to prevent kowtowing to require demands, while reforms are being implemented to restore our already battered economy. The government should not sell the future of people for a short -term profit; It must first re -evaluate its own domestic economic policy before having a hasty concession to a foreign party.