‘Strained’ Spending Power and the ‘Dissaving’ Phenomenon: Who Will Be the Next Finance Minister?

by Eko B. Supriyanto, Editor in Chief Infobank

PRESENTLY, rice is not only costly but also scarce. The community’s purchasing power appears to be struggling, with signs of the lower-income population starting to dip into their savings. Gradually, the savings of the lower-income class are stagnating, indicating that life is becoming more challenging, particularly with a decrease in income. Disparities are emerging in various sectors.

According to INFOBANK’s research bureau (Biri) records, by the end of 2023, the decline in income is evident in the slowing growth of both broad money supply (M2) and narrow money supply (M1), both serving as proxies for purchasing power. Life becomes difficult when there is no lubrication of money.

In line with this, the decrease in income has an impact on the weakening of purchasing power and, consequently, on consumer demand in general. This is also reflected in the declining confidence in purchasing durable goods among the lower-middle-income group.

Since May 2023, a phenomenon has been observed where those with small savings of less than IDR1 million are confidently “dipping into their savings,” as well as for savings below IDR5 million and IDR100 million. However, looking at the year-on-year figures for December 2023, there is a growth movement of around 5.7%. Meanwhile, savings below Rp5 million only grew by 4.6%, and 3.4% for savings below Rp100 million.

Two possibilities exist; the increase in savings below IDR1 million is either due to the social assistance (Bansos) poured in at the end of the year or an economic impact on the lower-income population. However, considering the purchasing power and income of the people, the increase may be due to the influx of Bansos before the February 14, 2024 elections.

Don’t inquire about the gap between small savers and big savers, the owners of jumbo accounts; it is certainly very disproportionate. This gap in savings makes the cost of funds expensive in banks. Fund owners can “negotiate” with banks, resulting in expensive funds, impacting loan interest rates. Furthermore, there is a gap in obtaining credit access.

Disparities occur in many aspects and sectors, not only in wealth but also in health, education, savings, as well as rural-urban disparities. The same applies to employment opportunities and business access. Strangely, the tax ratio remains in the range of 10%-11%.

Looking at the current conditions and phenomena, the future finance minister of Indonesia undoubtedly faces a heavy task. Their responsibility is not only to lighten the fiscal burden but also to share the psychological burden with Bank Indonesia (BI), the Financial Services Authority (OJK), and the Deposit Insurance Corporation (LPS), all part of the Financial System Stability Committee (KSSK). So far, good communication and mutual understanding have existed among KSSK members during upheavals.

However, if the upcoming cabinet excludes Sri Mulyani Indrawati (SMI) as the finance minister, there will undoubtedly be adjustments in communication within the KSSK. Moreover, the future finance minister may need to accommodate the policy of free lunch, which can have serious fiscal consequences and affect defense budget expenditures that have already proven to be “extravagant.” Whatever happens, BI must remain independent, and OJK must be strong and independent.

So, what kind of figure is suitable to fill the position of the future finance minister? Clearly, they must be as strong as SMI in the midst of not-so-light fiscal pressure, accommodating election promises, such as free lunch with the consequence of a burden of Rp450 trillion. The future finance minister of Indonesia must be willing to say “no” to flagship programs and extravagant budget spending. Do remember, our debt position is still continuing to soar, with debt interest already larger than health costs.

Meanwhile, the purchasing power of the people is still struggling, with the public entering the phase of dipping into savings. Do not arbitrarily appoint a finance minister—especially one who must bow to the “libido” of power that is becoming increasingly difficult to read in the market.

We do not want to experience what one of the famous economists said about the theory of the relationship between economic and political inequality, namely Karl Marx. Marx argued that economic inequality among social classes would trigger political conflict, ultimately changing the social and political structure of a society. This theory is known as class conflict theory.

In addition to Marx, other economists such as Joseph Stiglitz and Thomas Piketty have also expressed similar views on the impact of economic inequality on politics and social stability.

Hopefully, this will not happen to the upcoming government favored by the tycoons of this country. So, the future finance minister must genuinely consider quality growth to prevent widening disparities. These days are not just about free meal programs but also require job creation programs so that purchasing power does not struggle.