Is it true that the Economic Crisis threatens Indonesia? Here are the facts.

"Indonesia is said to be facing a serious economic crisis threat, triggered by various internal and external factors. The uncertain global economic instability further exacerbates the situation."

One of the main factors exacerbating the threat of the economic crisis in Indonesia.  is a high dependence on imports. The rise in global commodity prices and fluctuations in the value of the rupiah have increased import costs, which has impacted the domestic economy.

Several factors indicate that the economy is not doing well, including the recorded data from the Indonesia Manufacturing Purchasing Managers Index (PMI) in July 2024, which decreased to a level of 49.7, while in the previous month, June 2024, it was at a level of 50.7. Then, the Consumer Price Index (CPI) recorded deflation at a level of 0.18% as of July 2024.

The economic crisis in Indonesia is not a new phenomenon. History records several periods in which the country experienced severe economic pressure, such as the monetary crisis of 1997-1998. Economic crises can occur due to various factors, including ineffective economic policies, political instability, or drastic changes in the global economy.

Definition of Economic Crisis

Economic crises are often avoided by a country and its government. An economic crisis is a phenomenon that can disrupt the financial stability and welfare of a country.

In the context of current globalization, the impact of the economic crisis is not only felt by the countries experiencing it, but can also affect the global economy. A real example is the economic crisis in 1998 and 2008.

This is why understanding the definition and signs of an economic crisis becomes important for policymakers, business actors, and society in general.

The definition of an economic crisis according to John Maynard Keynes, a leading economist of the 20th century, is a situation in which aggregate demand in the economy drastically decreases, causing production and employment to significantly decline.

According to Keynes, economic crises are often triggered by a decline in consumer and investor confidence, which results in decreased spending and investment.

Milton Friedman's view on economic crises, as an economist from the monetarist school, sees economic crises as a result of poor monetary policy. Friedman emphasizes the importance of controlling inflation and currency stability to prevent economic crises.

"According to him, crises often occur when central banks fail to manage the money supply properly, which can lead to hyperinflation or deflation that damages the economy."

Joseph Stiglitz's Perspective on the Economic Crisis Joseph Stiglitz, the Nobel Prize-winning economist, views the economic crisis as a result of market failures caused by asymmetric information and inadequate regulation.

Stiglitz argues that when markets fail to allocate resources efficiently, it can lead to economic bubbles and ultimately crises. Therefore, he emphasizes the importance of effective regulation to prevent crises.

Source: Coverage 6

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