Welcome to COI Time, a podcast series on markets and economies from DBS Group Research. I'm Tabei, chief economist. Welcome you to our 154th episode. This episode was recorded in Jakarta at the DBS Asia Insights Conference 2025 on the 21st of May. I had the privilege of discussing Indonesia's near and medium term outlook with Kati Basri.
Indonesia's former finance minister. In this conversation, Mr. Basri talks about Indonesia's strategy during a time of geoeconomic fragmentation, the ability of the economy to absorb shocks, what it would take to reach 8% growth, the challenges to education, health, and infrastructure, sectoral development strategies in place, and the future of jobs amid tech disruption. And erudite speaker, Mr. Bastri's insights are invaluable to those
following Southeast Asia's most populous economy. Let's now hear from Mr. Bastri. Basri, welcome to our program.
Hi, Dayer, thanks for having me.
I remember 2 years ago, we did something like this, so this is round 2
in a different situation,
slightly different situation. I went back to our conversation from 2 years ago. And I remember you began that conversation by describing Indonesia as a disappointing country. It disappoints the ones who think growth is about to collapse. It disappoints the one who think that it is just about to take off. Very different circumstances now. We just heard from Park Haim. We have been hearing from the government about a very ambitious growth agenda.
I want to talk about that later. I want to first talk about the global environment. Reciprocal tariff, country by country bilateral discussions with Donald Trump and his team about how to get some relief. We're in a bit of a pause, but I'm not too sure how long the pause will last. What's your assessment of this whole trade war situation?
Well, let me, perhaps let me start by putting the layout, the global context first. I think if you look at about the issue of the trade balance, you are an economist, timer. The trade balance is a reflection of the saving investment gap. Yeah, so the way I look at it. If this Trump administration would like to introduce the so-called uh the tax cut, this will widen the, the trade deficit.
And if the way they address the trade deficit by increasing tariff, I don't think that this This, this policy will entirely address this issue of district balance. What is happening in the US that you would expect that's probably there is a risk of the inflationary. Um, the slowdown of the economic growth. So under this kind of situation, it's not easy for the Fed to make a decision because the probability of recession will probably
will increase. At the same time there is a risk of the inflationary whether they have to cut the rate or they have to increase the rate, they are really at a crossroads now. Of course, this will have an implication to the global trade. Yeah, I can imagine that export in many. You know, emerging developing economies will be affected. But now let me talk about what will be the implication for Indonesia. Um, the way I look at it. The share of export Indonesia to GDP is only 25%, right?
And if you look at the share of export, Indonesia export to US is only 10%. So if you look at the direct impact, perhaps the direct impact to Indonesian GDP, it's probably about 2.5%. So the impact will be relatively limited. So I'm, I'm quite confident that this year, the economic growth in Isia will be faster than Singapore. Why is that? Because in the case of Singapore, your export to GDP is about 120%. 180 actually, and if you look at even Vietnam is
about almost 90%. So under this kind of situation, Indonesia will still maintain the relatively high growth in Southeast Asia. Of course, the Indonesian economy will be affected by. My estimate is probably about 0.5%, so if the baseline is about 5%, so probably we are, you know, we are experiencing the situation about 4.5% of the economic growth, uh, this year. It's not easy, but the good news is.
I would call Indonesia is the least, one of the least unattractive countries in the world, not because we are doing great, but because the other part of the world are in trouble. So if you are an investor, you're talking about you're not looking for perfection, you are looking for a relative return, and Indonesia is still an interesting
country to invest. Yeah. And then in addition to that, With the risk of the trade war between US and China, I won't be surprised if there is a sort of like relocation of the production base from China to Southeast Asian countries. Maybe to Vietnam, maybe to Indonesia, but the way I look at it, if you look at the trade surplus between Vietnam and the US, it's about $120 billion US dollars,
whereas for Indonesia it's about $19 billion US dollars. So for us it's relatively easy to settle this issue with the US, whereas in the case of Vietnam, if they want to settle this issue of the trade surplus, they probably have to increase their import about 11 to 12 times. It's not easy. Yeah, so that is why I can see. The possibilities of relocation from China into Indonesia provided the
government would implement the economic deregulation. The good news is President Prabowo already announced last April that government is committed to economic deregulation. I hope I respond to your question.
I stay with the global agenda a little longer, um. To your point that if the US has an inflation problem, while the rest of the world does not, if the US has a savings investment gap problem which might be exacerbated if there is a tax cut, which looks likely, while the rest of the world really does not in a situation like that, where do you see the dollar go and then therefore what does it mean for RIA? Where do you see US interest go and what does it mean for Indonesia's interest rates?
Very good question because. When you know before the reciprocal tariff. I was expecting with the universal tariffs about 10% when President Trump came to power. I was expecting that dollar will continue to be the safe haven asset. Yeah, but it seems to me that after the reciprocal tariff, there are some concerns from the financial market about the role of dollar to be the.
The only one safe haven asset. So if you look at, I'm, I'm not saying that this, you know, will happen in the extreme case radically, but there is a tendency of the so-called the de-dollarization at this moment. And for that reason, we can see the depreciation of the US dollar against major currency, including the rupiah. Yeah, even though nowadays that the rupiah is still about $16,400. So the way I look at it. Timer under this kind of situation.
I wouldn't be surprised if in the medium term we will see the depreciation of the US dollar against major currency, so there is room for a bank in Indonesia to cut the rate. Yeah, and then I think this. Just right now today, right, the, the Bank in Indonesia cut the 25 basis points. I can see more room because if you look at our inflation, it's about less
than 3% now, 2.5%. If the tendency of the US dollar is depreciate against major currency, so I don't think, I, I think there is room for bank Indonesia to cut the rate and if you look at the real uh return, yeah, the spread between, let's say the Indonesian government bond. And the inflation and also the, the, the, the, um, you know, the, the SRBI for example, I think for, for many investors, you know, investing in the rupia is
quite attractive. So I think there is a room for a bank in Indonesia to get the rate unless the Fed with this is not an easy situation at this moment, raise the interest rate. Yeah, but with the probability of recession. Probably around 40% for the US It is not easy for the Fed to raise the rate at least probably they what what they will do if they don't want to cut the rate, probably they will maintain the, the, the, the Fed fund rate at this level.
I think we're exactly on the same page on this. If you were to advise Bank of Indonesia since you and I both believe that the dollar might have more downset ahead, would you advise Bank of Indonesia to reallocate some of their dollar reserve to different currency?
Yes, I think it is very important. Now if you look at this is very interesting, this is the new development now. Well, probably not, not new development because it's also happened during the Trump 1.0. If you look at what happened during the Trump 1.0, the gold price also soaring at the time, right? Similar to this kind of situation. Correct me if I'm wrong, the BIS has just proof that gold to be part of the high quality asset at this moment, right?
So looking at this, maybe it is very important to sort of like do the diversification of the basket currency, yeah, for any central bank all over the world.
And for the client universe that's sitting here right now, would you also advise them to reduce their exposure to the US dollar?
Well, I have to say that if you expect that the renminbi will replace the US dollar, this will take probably about 10 to 15 years because if you look at the share of the renminbi in the sovereign wealth fund in the global transaction, it's still pretty small. Euros still a very important role. It's about 40% and also US dollar.
But under this kind of situation, I would say that the trend of the so-called the deloadization will happen even though will not replace the role of the US as the, you know, the risks of currency, at least for another 5 years.
It's really an extraordinary time, especially with all three major ratings agencies having downgraded the US debt outlook. We sometimes wonder whether it is better to hold US high grade corporate bonds than US government bonds than maybe the debt issued by Apple is safer than some of the risk
associated with US Treasury issuance. Uh, Park Masri, what about You just touched a little bit on gold, so let's talk about a little bit that whenever there is geopolitical uncertainty we have seen in the past, uh, gold related demand go up, um, would you see that continuing and in addition to gold, gold, we also have this digital gold cryptos.
Well, first of all, I think it is very difficult to make a prediction about the geopolitical. Uh situation now. The way I look at it, we probably cannot entirely explain this current situation through the so-called Economic conventional, you know, the, the economic conventional theory, but we probably have to look at this issue more on the, the Bayesian games. Yeah, there are two players, the US and then, and China, and then the only one, only one player have the
perfect information with this US. So the option for this, you know, the geopolitical tension, it really depends on the move made by the United States. If President Trump bling with President Xi, he gave a sort of like a signal that he would like to visit China to negotiate, then you can see immediately the stock market. You know, a rebound, the bond market rebound, so give
us sort of like a positive impact. But on the other hand, one thing that I'm concerned about, I hope this is not going to happen. One thing that President Xi is perceived by many, that one thing that he would like to have for his legacy is to have one China.
And that could be a very dangerous situation because the way I look at it, if this happened, Then there is a risk of the fragmentation of the global financial architecture because probably I don't know whether the US will retaliate or give a sanction similar like in the case of Russia, then probably in many countries emerging developing economies, we have to trade in both renminbi and the US dollar and the transaction cost will be very expensive.
Now back to your question about this, you know, the digital currency. Honestly speaking, I'm, I'm, I'm not a big fan of this, you know, in the sense that the way I look at it, I can see there is a role, but maybe I always call this, this, this crypto as a, you know, as a greenback, you know, in the US dollar, there is a word, there is a sentence that In God We Trust, similar with the crypto, In God We Trust because there is no underlying.
Right? So it really depends on the, on the supply and demand, and I can, uh, it's for me, it's hard to imagine this kind of sort of like, you know, medium of exchange of sort of value will be the replacement for the US dollar.
Uh, talk to you a little bit about commodities, uh, both energy and non-energy commodities. On the energy side, Donald Trump is very keen on driving down the price of energy, um, which, uh, is probably negative for green transition, but for the near term, especially with Indonesia in mind, uh, weak energy price environment is bad for commodity exporters. So, do you think it is. Sustainable this this 50 to $60 oil that we have right now and what does it mean for a country like Indonesia?
Yeah, this is a very good question because at this moment you see that there are two competing forces here. The first one is we will see the risk of the slowdown of the global trade. With this will have an implication of the slowdown of the global economy, the export, then you would expect the negative impact on the oil price in the sense that you would expect probably the, the, the oil price will decline, but at the same time with the some uh sort of like initiative made by the US to.
Not to say I, I, I would say that probably entirely focused on the renewable energy but also exploring the possibility of the fossil fuel. There is sort of like, you know, a possibility of the. A rising oil price. So my answer to this is, it really depends on what will be the net effect between these two competing forces. In the case of Indonesia, this is a very interesting timer. Because we are not important at this moment. The declining of oil prices somehow will help our fiscal.
Yeah, so I won't be surprised if by the end of the year if the oil price continues between $50 to $60 US dollars, then you will see maybe the budget deficit will stay around 2.4%. So the concern about this budget deficit go beyond 3%. I don't think that's sort of like something that maybe the investors should worry about, especially under this kind of situation.
Uh, beyond oil, uh, particularly on the natural gas base of which Indonesia is a consequential exporter. If the US demands that China as part of a trade deal would have to buy more LNG from the US or in the case of things breaking down, China refuses to buy any LNG for the US under those two sort of extreme circumstances, one where China-US relationship. Gets tighter at the expense of other natural gas exporters or it breaks down at the benefit of other natural
gas exporters. What's your probability assessment of these two?
Well, let me put it this way, I think Indonesia should. Sort of like, you know, should take this opportunity. Let me put it this way. If you look at our trade balance, trade surplus with the US, it's about $19 billion US dollars at this moment, 18 to $19 billion US dollars. And we import oil. From Middle East and also Nigeria is about $40 billion US dollars. So if Indonesia wants to address this issue.
One thing that they can do, what, what we will do is to import oil, for example, somehow to relocate to US. This is part of the negotiation. And in addition to that, also related to LNG. Yeah, because this is also very important and maybe the possibility of Indonesia could be hard for Southeast Asia under
this kind of situation. So, so we probably have to, to observe, you know, about all the possibilities that what is happening now and also I, I think that the the the name of the game is how to be part of this, the US supply chain at this moment, yeah. Where we are also observing about the possibility of the trade war between the US and China.
What is your sense of the kind of dialogue the Indonesian authorities have so far managed to have with the US on this issue?
I am quite Um, optimistic in the sense that because as I said to you, our trade surplus is relatively small, it's only $19 billion US dollars, and then the, the, the government already established the so-called the task force. Uh, on this negotiation and to, to the best of my knowledge they are working very hard on this to come up with some proposals. Yeah, I've got a chance to see some people in in Washington about a couple of weeks ago and then based on my impression.
The Indonesian proposal is pretty good, yeah, in the sense again because this, this trade surplus is pretty small. The only thing that we need to anticipate is. I think the main goal for the US is not for all the Southeast Asian countries. Their main objective is to deal with China. Yeah. So one thing that we have to anticipate is about once the US-China deal happened, what will be the implication for the others, right? This is something that we need to anticipate.
Well, you just wrote my next question. That's exactly where I was coming to. Um, I was in Washington DC during the spring meetings, uh, of World Bank and IMF, and some of the feedback that I got from the US side, as well as those from Mexico and Canada who have been privy to the first round of conversations with US Treasury and US Trade Representative's office, was that it is not about creating a tariff mode around the US, it is about creating a tariff mode around China.
That many countries will be asked to replicate US tariffs and restrictions on China. How can any country in Southeast Asia do that?
This is the thing that we probably have to look at carefully for especially. For many ASEAN countries, yeah, because one thing that probably US will ask is through the so-called the rule of origin. So they limit the rule of origin in which that China can participate in, you know, any particular product, there
is a limit of it. So indirectly this will exclude China from any countries in Southeast Asia, but of course it will come as a cost for Southeast Asian countries, and I think this is really the gist of the negotiation for any Southeast Asian countries because like it or not. China is one of Uh, the largest trading partner in Southeast Asia and it's not easy for Southeast Asian countries to exclude China. Yeah, in fact, the message that we have to convey.
is with this kind of policy, there is a tendency of the Southeast Asian countries will work more closely with China, yeah, and then I think it is also very dangerous for the Southeast Asian countries to rely too much on China. That is why cooperation with the US, investment from the US, trade with the US is also very important to maintain this geopolitical balance.
You have spoken about the relatively small impact on Indonesia given its limited trade sur visa with the US and the largely domestic demand driven nature of Indonesia's economy. But then there's second round impacts. If China slows around the trade war, if Vietnam slows, if Singapore slows, there's a 2nd round impact on Indonesia. Um, so when you talk about 50 basis points downside to your view of 2025 growth, you're taking the second round impact into account?
No, this is just a, a direct impact. My estimate is 1% decline of economic growth in China. It's probably the impact the Tunisian economy is about 0.3%. So if you're talking about, you know, after all, the China effect as well. The economic growth in the worst case scenario will grow
between 4 to 4.45%. Yeah, but hopefully this has not happened because with the possibility of the You know, the, the agreement between US and China, I hope that this will not happen, but even in the worst case scenario, I still believe that the Indonesian economy can still grow by about 44.2%, even the direct impact to China. As I said, timer, that our export share to GDP is relatively small. Don't forget, yeah, during the global financial crisis when the global economy plummeted at the time.
Negative growth in the US in the global economy. Indonesian economy still maintained growth 4.6% at that time. So this number is probably, you know, won't change so much, yeah, a lot compared to what we had back on the global financial crisis.
Can Indonesia have successful green transition, successful introduction of the next generation of technology without absorbing China's new technology?
This is a very good question because the way I look at it in the, we are facing in the, we are in the era of what we call the techno nationalism at this moment, right? There is a competition between US and China in terms of this technology, the AR energy transition, etc. But despite, regardless of all of this issue, I think if you're talking about this green technology, energy transition, one thing that the government should focus on. Is to getting the price right.
Yeah, because the way I look at it, timer will be very difficult for Indonesia. To into the transition of this energy or the green economy without phasing out the real subsidy. Let me give an example about EV, for example. The price of EV electric vehicles, um uh car is still relatively expensive compared to the, the combustion engine. At the same time, the fossil fuel, the gasoline is subsidized
by the government about 40 to 60%, right? So what's the point to buy EV at this moment unless you just follow the trend or you have this. You know, conscious about the issue of this environment, but besides that, from the economic perspective, you don't see much, you know, much, um, benefit from shifting into this, you know, the, the combustion engine into the, the EP. So I think to address your question, the first step the government should do. In order to push the transition to energy, is to
phasing out the fuel subsidy. Without that, I think this process is not going to be easy.
I Whenever I go to China, um, I feel that I see the benefits of EVs. More powerfully than any statistic can tell me. When we look at studies, we can tell that in the large cities in China, particularly the emission has gone down because of the evification of the auto fleet. But unless you have gone for an early morning run in Shanghai or Beijing or Shenzhen like I do, you will miss out on the biggest benefit of green transition. It is the decline in the sound level. These cities are
quieter than ever before. In the morning when I run in Beijing, roads are full of cars, but they don't make any sound. So I can listen to my podcast. I can listen to music. So the decline in sound pollution in, in addition to particular emission, I think it's a very powerful motivation for those who actually go and see that. They'll
want that to happen in their own countries. Pugwari, let's talk about the big story, the 8% growth going back to the Indonesia, disappoints the bulls and the bears, and somewhere in the middle used to be the story two years ago. Where do you stand now?
Well, let me put this way. Bear with me if I'm talking with number, OK? This is the old number that we discussed about 2 years ago. Our incremental capital output ratio timer is about 6.66.8 now, so 1% economic growth will require investment over GDP about 6.8%. So if you're talking about investment over uh you're talking about 8% economic growth, this will require investment over GDP 6.8% multiply by 8%. You're talking probably about 54% investment over GDP.
So at this moment, our investment ratio to GDP is about. 37 out of GDP 23,000. So you're talking probably about almost 9000 trillion. Rupia at this moment. Yeah, it's about $500 billion US dollars. If you want to grow by 8%, you have to increase the investment from 9000 to around 12,000 trillion. Or even more. So you probably need to increase the investment at least by 30%. Now The question is, how should we do this? The first answer is we have to improve productivity in order to lower the ICO.
Yeah, then if we, let's say, improve the productivity, we probably need less capital to produce. The similar output, the same output. So improving productivity is the key. And if you're talking about improving productivity, then it means that we have to improve the quality of human capital, infrastructure, and governance. How should we do this? You know, during my time when I was at the MOF, we introduced the so-called the endowment fund for the scholarship
is under the name of the LPDP. Now many Indonesian students get accepted in the top 200 universities in the world, but this will take one generation. So the best way to do it is to have this management or technologies spill over from foreign direct investment. If you recall in the 80s, most of the Indonesian bankers were Citibank alumni because they have the best executive development program, right? So why don't we ask the private sector to do it and give the double deduction for
tax if they do training. If you're talking about AI, if you're, why don't you ask NPDA, for example, to do a training rather than you build the government training center. That's one thing in improving the quality of human capital, so the government should work with the private sector definitely. I'm not a big fan of industrial policy, but I can see the justification of industrial policy if you improve
the quality of the human capital. The second aspect is continue to build an infrastructure because with the aggressive development under Djokovic's administration, we're still deficient. Yeah, uh, in terms of the the infrastructure is still inadequate. And then governance. This is very important because let me be open and frank with you, time or even when I was in the cabinet, I said that one of the reasons why many Indonesians become religious is because they have to deal with the government.
You know, so if you, let's say if you apply on something. There is nothing you can do except pray to God because a lot of uncertainties. That is why this economic deregulation is very important, so I'm very, I'm very happy. I'm glad. You know, when the president made a decision that he announced that Economic deregulation will be the top priority of his administration, and he announced it openly in public. He will remove the import quota. He will, you know, change the local
content requirement to become an incentive. He will remove the so-called the, the technical regulation. I think this is one way, you know, to improve the productivity. So provided the government can. You know, fulfill all this requirement that 8% would be possible without that. Then it will be difficult for us.
So one of the things that I picking up from President Prabowo's administration is that they would like to see more competition both from foreign capital coming into Indonesia as well as um increasing domestic competition. But the last 30, 40 years of this nation, if we look at it, the track record is one where the vested interests thrive on the lack of competition. Is it really going to be possible to break that uh stronghold?
Well, let me put it this way, I always believe that bad times makes good policy. Yeah. Only during the bad times, politicians will listen to the hanocrat.
You cannot expect that the politician will listen to the technocrat during the good times because what's the point to spend the political capital if the economic situation is already good, you know, I was able to convince SBA to adjust the fuel price by 45% because they put tantrum and now the reciprocal tariff, the global situation, this will push the government to do the good things, and I think that's the reasons why the president announced the economic deregulation.
So this is the sadly. Bad times makes good policy. Good times makes bad policy.
Well, finger crossed on that one. green transition. When I visited Indonesia in recent years, I heard a lot about Indonesia's sort of goal toward wind energy, solar energy, tapping into its, uh, natural gas potential and so on. The US is sort of turning away from that. Is that going to have a negative impact on green transition in developing countries?
Definitely, I, I, I hate to say this, but I think. You know, with the, the US withdraw from the from the Paris Agreement, for example, this will have this negative impact to the commitment towards that because you can see, you know, my, my concern is under this kind of situation if US is no longer the leader of this Grand region like in the under Biden administration, this is not easy for the emerging developing economies because European countries will take the leadership.
And if you're talking about leadership of the European countries, it is very ideological rather than, you know, based on the economic rationale. So this somehow will Create a sort of like additional transaction costs for the uh emerging developing countries, you know, to pursue the idea of this energy transition because they said that probably the requirement will be very difficult and honestly speaking time, this is the problem with the many emerging developing economies.
The issue of the energy transition or climate. I always considered as a luxury goods. Yeah, because we are too busy with the day to day problem, with the issue of poverty, the poor quality of infrastructure. So in order to put this energy transition or environment. In the government agenda is to link it with the issue of development. Without that, I don't think the government will put the priority on the energy transition and their policy.
I, I want to connect this with your earlier point that bad times make for good policy. If I travel to India, for example, I see issues related to water shortage, to steady rise in summer temperature really creating havoc, and as a result, you don't really have to convince people on the need to reduce particulate emission. Are we so fortunate in Indonesia that climate change is not visible in our face?
It is, but you know, this is, this is what the behavioral economists call the present bias, right? Because the priority for people, they will think, well, this issue of this climate probably will happen in the 2050, 2060, and for a politician, why should I spend my political capital if my my successor will take the benefit of it, right? It is better for, for us, for example, you know, to focus on something that's tangible. Yeah, if you do something on climate, you cannot cut
the ribbon for the improving of the climate, right? This is really one generation, but you can cut the ribbon for the building bridges. And politicians don't forget about the political cycle. It's 5 years. They need to build something that's really tangible. That is why the incentive is how to link this issue, the climate issue, with the issue of development that could be sort of like something that tangible for politicians. So if I may give an example.
The issue of the job creation is important, OK. Why don't the government create the so-called the cash for work, but the project is mangrove. So you use the green project to create the jobs.
OK, one more time, you have basically prepared the ground for my next question because I was gonna ask you about jobs. Um, artificial intelligence, large language models, and the serious threat it poses to white collar jobs. All this time, the Trump narrative, the Indonesian narrative that blue collar jobs are being taken away by China's overcapacity and that sort of stuff, very soon we'll be talking about white collar jobs being taken away by Chad GPT.
How does a country like Indonesia needs to generate millions and millions of jobs? It's a prerequisite to the 8% plus growth target. How does it ensure that?
Of course this is a problem for every country all over the world now, but the way I look at it, I'm, I'm trying to be optimistic timer. This is not the first time the world is facing the impact of the technology to the humankind. Look at what happened during the industrial revolution. The premise at a time that every job will be replaced by machine, yeah, but look at what happened after this. So the way I look at it, what is happening is, is not a sort of about of like the destruction
of job, but the redefinition of job. The same job will be available but will require a different skill of set. Yeah, so for example, We still need Medical doctor. We still need nurse. But both nurse and doctor will require a different skill set because they have to know how to operate. The artificial intelligence, for example, the technology, for example. So the solution is about the reskilling, about the training. That's really the important. That's one thing that we probably need
to anticipate. That is why, as I said to you, the role of the private sector in providing in helping the training is a very important one. But I have a concern here. I am more worried about the government 4.0 rather than industrial 4.0. Why? can you imagine with this? the disruption of the technology. The product cycle is getting shorter and shorter, right? How do you position the government? In Introducing the policy if the product is only lasts for about 6 months because after that,
The product is no longer exists. It's obsolete. As a regulator, it will be very difficult for you if you keep if you keep a man your regulation every 6 months, right? So I think this will require the change of mindset. The ideal solution is will be an agile bureaucracy, but agile bureaucracy is an oxymoron. There is no way bureaucracy can be agile, so the bureaucracy should change the mindset from agree on rules to agree on principle, and this is not an easy thing.
Not easy at all. And again, as you say, it is not an Indonesia specific, it's a whole, you know, humanity is a big challenge going forward. Are you in the camp that we're on the cusp of a big productivity revolution thanks to AI?
I think so. I think so. Let me give just give an example. We have to change all the, you know, all the conventional thinking method, etc. Let me give an example. I'm teaching at the Department of Economics at the University of Indonesia. We always expect the student to be able to answer the question during the exams, right? But in the future, from now on, I don't think anybody will be smarter than the GPT in providing the answer. So what's the point to ask the student to provide an answer?
So what we teach them at the university is not by to provide an answer, but to ask the question that GPT cannot provide an answer. So this is something that, you know, a new different, a new different method. Yeah, that is why I'm putting in my exams. The first question is not to answer the question, but to ask the question. And if this question never crossed to my mind, that will be the very good research question.
And what's your sense? the students are adapting to this new
world? Um, the student, they do, but not the lecturer.
Uh, Pai, we have some questions from the audience. Uh, so in the limited time that we have, let's put them up. So start with an FX question, uh, related to DXY weakening and um. Uh, uh, and then what's the like outlook for the rupia. So, uh, the fact that most currencies in the world have appreciated against the US dollar, while the rupia has been rather muted in his appreciation, do you read something into that.
Yes, I think Let me put it this way, because if you're talking about the uh the currency rupiah, yeah, two factors play a role here. The first one is of course the global situation, the reciprocal tariff, etc. the weakening of the DXY index, but at the same time, also the country risks. You know, some concern, let me be frank and honest with you, when Danan Tara was announced, yeah, there's a lot of questions came from the investors about the governance, about the management.
Until They came up with a good management system, then you see. You know, markets started to rebound when they mentioned about the importance of governance, they put people like Ray Dalio, you know, Jeff Sachs as an advisor or, or, um, Chapman Taylor, for example. Markets start to believe that, you know, the government is serious in this, at least in the government, at least on the governance issue. So this is really a combination of.
You know, external and also internal. So the rupia has been appreciated a little bit compared to What's about, you know, it's about. A month ago, yeah, it was almost about 17,000. Now it's about 16,400, but the way I look at it, if we do sort of like give more confidence, yeah, that the best side, you would expect that more sort of like appreciation of the rupee, yeah, yeah, the other concern from the market is about the budget deficit.
Because so many government programs, whether the government will hit the budget deficit, go beyond 3%, I would say no, I don't think so, and my bet is, you know, we'll see what really happens, you know, by the end of this year. I believe that the budget deficit will stay around 2.4%, especially because the oil price remains about $50 to $60 US dollars. So I don't think that investors should worry about it. Yeah, so I can see sort of like, you know, more confidence to the rupia related to this.
Pug Bastri. I've been covering Indonesia for perhaps 15 years now, and so many times we have had similar conversations that the deficit is going to be destabilizing for the market. By and large, every single time Indonesia is always surprised on the downside. So yeah, I'm also not particularly fussed about it. Um, clearly a lot of questions on that 8% growth target and the trade war issues. So there is one
question that sort of combines both. It might require you to sort of repeat some of the things you said, but might as well just read the question to you. As US China compete in many aspects of technology and tariffs are kicking in, what would it take for Indonesia to stay on track with this ambitious target, uh, and, uh, is there anything we can learn from past episodes of geopolitical rivalry to cast Indonesia's target into context? Uh let,
let me share with you. One episode back when I was chairman of the investment board, the minister of Investment like Paros and is um have this job now. It was back in 2011, if I'm not mistaken, time or there was a big flood in Thailand. Yeah, as a result. To Utah Could not produce their production in Southeast Asia because this big flood in Bangkok, yeah, if you recall, I was the chairman of the investment board, so I went to
Tokyo to meet Akio Toyoda. At the time he was the CEO of Toyota, and I spoke to Toyota Sun. I said that this is about the time for you to invest in Indonesia. And then he asked me why and I said, not because Indonesia is better than Thailand, but you need to diversify your risks because if something natural disaster happened like what is happening, what was happening at the time in Bangkok, you cannot produce your supply chain stop. You know there
is a supply chain disruption. It is better for you to have, you know, some production based in Southeast Asia and Indonesia is one of the options. So I was able to convince him. Toyota decided to put the production base $3.7 billion US dollars, not because Indonesia is better than Thailand, because there is a need for Toyota to diversify the race, and I can see the similar analogy now.
Many production base in China should be relocated, not to other Southeast Asian countries, not because we are better than China, but they need to diversify the risk now because the geopolitical tension. And if you're talking about Vietnam is probably. Overcapacity at this moment, right? So Indonesia is very important. So if Indonesia would like to maintain this 8% economic growth, we can take this opportunity, provided that we do the economic deregulation.
Very critical point related to that issue. OK, you are convincing a foreign investor that from a risk diversification perspective it makes sense to invest in Indonesia. What about the fact related to your earlier point that even during GFC this country did not lose growth momentum the way most open economies in the world did? Do you consider that also as an important resilient factor?
I couldn't agree more with you. I think we have to change our strategy timer. Many people believe, including the, you know, I believe that many investors here always talking about one of the attraction for, you know, investors to invest in Asia because huge domestic market. If people talk about India, huge domestic market, but let me put it this way. Indonesia, India, and China have this huge domestic market since a century ago.
But they only grew China only in the late, in the, in the 80s, India only in the 90s, Indonesia only in the mid 80s. Why? And when, when they started to connect the domestic economy into the global economy, India did the reform under Mamohan Singh in the early 90s. China sent to WTO. Indonesia introduced the economic deregulation in the mid 80s. So the way I look at it, if we want to promote
the economic growth, it should be export oriented sector. You put Indonesia as a production base to serve the global economy because the issue with Indonesia, even though we have this huge domestic market. The purchasing power is relatively low. You won't be surprised. I don't know whether you'll be surprised, the number of subscribers of Netflix in Indonesia. is smaller than the number of subscribers of Netflix in
Singapore because the issue of purchasing power, right? So I think if we want to pursue the economic growth, we should follow the Vietnam style, you know, export-oriented, financed by the foreign direct investment.
Pug Basri, you've been very generous with your time and fantastic insights. Really appreciate it, everybody. A big hand for Pogbastri.
Thanks, Daya. Thanks for having me.
Thanks to our listeners as well. Copy Time was produced by Ken Delbridge at Spy Studios. Daisy Sharma and Viet Lee provided additional assistance. It is for information only and does not constitute any investment advice. All 154 episodes of COIT Time are available on YouTube and on all major podcast platforms, including Apple and Spotify. As for our research material, you can find them all by Googling DBS Research Library. Have a great day.