Indonesia to anticipate economic impacts of the Iran-Israel conflict 

16 Apr 2024


On Sunday, April 14, 2024, Iran launched drone attacks on Israel in retaliation for Israel’s recent destruction of the Iranian consulate in Damascus, Syria, earlier this month. The strike marked Iran's first direct attack on Israel in decades of conflict, heightening regional tensions and further posing global ramifications and macroeconomic risks for Indonesia. 


Following the attack, Indonesian Coordinating Economic Minister Airlangga Hartarto convened a meeting with deputy officials and ambassadors at the Office of the Coordinating Economic Minister on Monday, April 15, 2024. 


As reported by The Jakarta Post, Mr. Hartarto said anticipatory measures were being prepared to maintain market confidence amidst potential disruptions in commodity supplies, especially oil, and consequent increases in gold prices. 


He further highlighted the conflict's additional risks to the flow of goods in the Suez Canal, affecting cargo costs and the supply chain on products such as wheat, oil, and production components from Europe. 


Fundamentally, the Indonesian economy remains strong, maintaining a growth rate above 5 percent with controlled inflation.  


However, there are potential downturns in escalating tensions, which could depress this year’s economic growth to between 4.6 and 4.8 percent or falling short of the government’s target of 5.2 percent. 


This was stated by the former Indonesian Finance Minister Bambang Brodjonegoro during an Eisenhower Fellowships online event focused on the Iran-Israeli conflict, also held on Monday, April 15, 2024. 


Mr. Brodjonegoro anticipated heightened inflationary pressures due to the current economic climate. He attributed this potential rise to three primary factors: the high inflation of volatile food prices domestically; government-regulated price increases in commodities such as fuel and liquefied petroleum gas; and imported inflation due to rising prices abroad, a weakening rupiah, and disruptions in global distribution channels. 


He noted that Bank Indonesia (BI) might need to step in to stabilize the Indonesian currency. Nevertheless, such measures must be approached with caution, since overextending foreign exchange reserves could have severe consequences.  


“Even if BI raises interest rates, the impact might be limited given the broader context that dollar is strengthening against all currencies,” Bambang explained.