Jahja Setiaatmadja, President Director of PT Bank Central Asia Tbk (BCA), has identified the main causes of declining consumer purchasing power.

Key Points:

• Gambling Activities, Fewer Online Bargains, and Illegal Loans
• Indonesia’s Economic Challenges: Gambling, Reduced Online Discounts, Illegal Loans, and Widespread Layoffs
• Impact of Gambling, Fewer Online Deals, Illegal Loans, and Massive Layoffs on Indonesia’s Economy

According to him, there are three primary reasons for this decline:

Firstly, the prevalence of online gambling (judol) has significantly impacted consumer spending. Jahja noted that online gambling causes people to lose substantial amounts of money.

“People are losing hope due to gambling. Even banks are being drawn into this. Gambling methods include e-wallets and large amounts of cash that are hard to trace. This erodes consumer purchasing power,” he said at the BCA UKM Fest event at Mal Kota Kasablanka on Wednesday, August 7.

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Secondly, the reduction in online shopping discounts is affecting consumer spending. Jahja explained that in previous years, online shopping platforms offered numerous discounts, which boosted consumer spending. This phenomenon, known as "burning money" by online shopping platforms, saw platforms spending heavily on promotions.

“In 2022, they burned Rp80 trillion, benefiting the middle class. However, many lower-income individuals received indirect subsidies,” Jahja added.

Currently, these discounts have diminished, leading to higher online shopping costs and a subsequent decrease in consumer purchasing power.

Thirdly, the reduction in illegal online loans (pinjol) has also contributed to the decline in purchasing power. Jahja mentioned that during the COVID-19 pandemic, illegal online loans were widespread in Indonesia.

As a result, many people borrowed money excessively. He cited an example where one person could borrow from up to 20 illegal lenders simultaneously, effectively using one loan to pay off another.

While this situation indirectly maintained consumer purchasing power, the crackdown on illegal online loans by the Financial Services Authority (OJK) has now led to a reduction in consumer purchasing power.

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Courtesy Source Photo: Eugenia Clara on Unsplash

The overall decline in purchasing power in Indonesia is influenced by several factors. Firstly, deflation has been recorded for three consecutive months. Secondly, a decline in manufacturing performance has pushed the Manufacturing Purchasing Managers' Index (PMI) into contraction territory. Thirdly, numerous layoffs have occurred due to weakening demand, resulting in reduced production and declining exports.

Data from the Mandiri Spending Index shows that savings among middle-class consumers, ranging from Rp1 million to Rp10 million, fell from around 100 in January 2023 to 96.6 in May 2024.

The most significant depletion of savings occurred in April 2024, with levels dropping to around the 90s.

On the other hand, the purchasing power of the middle class also decreased from the 130s in January 2023 to 122.7 in May 2024.