Central Bank Policy Mix
“Child, finish your food…or you will upset the rice."
“Your sibling's school uniform is still in good condition, better to hand it down than buy a new one."
Sound familiar? Maybe few of us realise but these simple steps are tangible measures to help save our children and grandchildren in accordance with the concept of a circular economy.
An ever-expanding human population during this era of global warming is an inevitability. The practices of the circular economy, however, offer important anti-hedonism lessons.
The circular economy is not just about recycling waste. The circular economy is a concept to maximise value by reusing a product and its components, which thus avoids wasting resources (resource efficiency).
Input efficiency is prioritised by maximising the reuse value of a product/component, thereby extending its life so that no resources are wasted. Simple activities can be done, such as not wasting food nor replacing clothing that has fallen out of style. Clothing can also be donated before it becomes threadbare or is forgotten at the back of a wardrobe. Furthermore, old furniture can be rejuvenated with new designs.
The point is to produce interchangeable components for various products. Such products, therefore, can be converted readily into different products with different benefits according to the desires of the consumer. Distinguished from conventional economic concepts or linear economics, the circular economy targets a balanced relationship between quality economic growth (including well-being) and limits of tolerance for natural regeneration, or eco friendly.
Consequently, supply chains must flow in a circular motion, otherwise known as a closed-loop supply chain. This necessitates careful design, however, because producers from different economic sectors must work together in the supply chain to create mutually beneficial ecosystems based on transparency with a mutual objective, namely zero waste.
Safeguarding resource efficiency, the circular economy not only focuses on the production system, yet also considers the consumption system an important driver for the creation of a circular economy ecosystem. Producers and consumers need to work together to create a mutually beneficial zero waste system that is scalable, requiring planning and innovation to ensure that all outputs from the production process are utilised optimally.
An example of circular economy innovations includes the use of coffee grounds for eco-friendly yarn. Innovation does not necessarily entail huge costs for extraordinary benefit. The sale of by-products is another source of income that increases productivity. Green research conducted at BINS has shown empirically that productivity increases for producers that apply circular economy practices.
Other research using a sample of companies in Indonesia demonstrated that circular economy practices affect company productivity positively but at different levels between economic sectors. In addition, other productivity determinants show that companies implementing circular economy practices are also more resilient, which is typically in line with the application of design circularity and short supply chains.
On the other hand, a circular economy not only offers zero waste (carbon neutrality), but also provides potential carbon sequestration, namely the process of recapturing and storing atmospheric pollution, while improving biodiversity, especially in the agricultural and livestock sectors.
Learning from the diverse experiences of various green MSMEs under the mentorship of Bank Indonesia, the motivation for MSMEs to implement circular economy practices varies. This includes constraints to obtaining subsidised chemical fertilisers (organic rice), observing an opportunity to transform waste into money (common water hyacinth, shells), or simply because these are hereditary practices passed down from our ancestors. In fact, local Indonesian wisdom cherishes the natural cycles of environmental ecosystems. Be it the culture of leaving arable land fallow to allow the land to recover, as practised by the Papua people, or indigenous tribes on other islands in Indonesia.
Moreover, the emergence of issues concerning the green economy has increased calls in many countries to start enacting regulations that require sustainable economic activities, including import, export and investment activities, towards the implementation of a green economy.
Will we be swallowed or ride the crest of this global green wave? The circular economy offers massive potential and a new path to green Indonesia's key industries by taking advantage of existing opportunities and increasing export competitiveness in Indonesia.
Preliminary findings of green research by BINS show that the export performance of champion 'Made in Indonesia' products is primarily supported by global demand conditions and supply-side constraints in competing countries, while Indonesia's level of competitiveness for these products is still comparatively low. This implies that increasing competitiveness is crucial if Indonesia wants to improve and maintain export performance.
This is not an easy task. Government support, political commitment and various stakeholders are needed. A reliable, internationally recognised green certification institute is a must, which is also affordable and, thus, accessible to MSMEs.
BI support for the green economy and finance, including green MSMEs as well as digital farming for the adaptation to and mitigation of climate change, is in line with the BI vision to become the foremost digital central bank that creates a tangible contribution to the national economy and the best amongst emerging market countries towards an Advanced Indonesia (Indonesia Maju – Onward Indonesia).
Live small so we can live big. For our grandchildren.
 Champion 'Made in Indonesia' products are determined using a ranking system based on Revealed Comparative Advantage (RCA), Comparative Export Performance (CEP) and Constant Market Analysis (CMS), involving the growth effect on the global market, export destination market effect and residual effect representing competitiveness.
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