Wednesday 18 December 2013

THE IMPLICATION OF ECONOMIC SLOWDOWN



The monetary and fiscal policy which tend to be tight to improve the Indonesia Balance of Payment [NPI] particularly in terms of current transaction had negative effect on various sectors which were directly affected. Take for example the property sector.

Chairan of the Indonesia Real Estate [REI] Setyo Maharso stated that they objected BI’s policy who lately made regulations which were not supportive to property growth.

And yet the real sector in Indonesia, according to research exercised by the University of Indonesia played positive role and contributed significantly in propelling Indonesia’s economic growth, i.e. by 26%-28%.

Setyo stated that if the contribution of housing sector to economic growth in Indonesia was high, then support of the Government and the monetary authority’s would be needed so the housing sector could keep growing and be the locomotive of growth, considering that backlog had come to 15 millions units.

Recently BI decided to increase BI rate by 25 bps to become 7.5%. According to property circles the policy must be watched on because it would have negative effect on the business sector including real estate. Previously BI had issued a circular letter effective as per October 1, 2013 to restrict LTV and KPR indent.

As known, many parties understood well that the monetary policy adopted by BI signaled BI’s cautious stance against Deficit in Current Transaction and global adverse condition. However the business circles underlined that BI’s action must be balanced with monetary control over the real sector as it might trigger chain effect which threaten economic growth.

Real estate developer circles rated that increase of BI rate was a fearful thing especially for people who had not owned homes. The dream to be able to buy a house with banks credit would be a far cry. To the people who could afford to buy a house by mortgage, were haunted by heavy life’s burden due to high credit interest.

It was expected that the Government would adopt a policy which was more accommodative to the businessworld particularly small and medium developers. The Government’s policy and monetary authority should be synchronous and non contra-productive to bank’s partners. To the banking sector, they also pled not to be hasty in increasing bank interest.

The Government was urged to make a regulation which was against domination of mortgage by brokers for investment so fulfillment of public need for houses was below expectation. The Government had their objective to promote the property sector whereby to enable people own decent homes. But what happened was people having difficulty in having homes due to monetary policy.

On the other hand, property business was much dominated by certain people, even foreigners as investment. The property sector was growing, but did not meet people’s need for homes, especially the lower-middle class group.

Indeed there is problem in the property sector in Indonesia, where need was high, but supply was limited. In other words, there is backlog. Naturally people buy houses for sale or for rent. This sector also needed change in regulations in regard to foreign ownership as foreign ownership in the property sector for investment or business was alarmingly growing.

This condition needed to be observed more closely by the Government as Indonesia had to join the AEC free market community 2015. In that era, automatically developers from Asean would enter Indonesia. They would need homes; unless there was the right regulation, the might pose as danger. For example if there was any foreign developer entering Indonesia and offer low interest rate from their country of origin, local developers would be in trouble because they would lose competition.

The Indonesian Real Estate Association [REI] also asked for the stakeholders in the real estate sector to support small and medium developers. Again developers were urging the Government and monetary authorities not to issue counter productive policy packages wwich would harm that very sector.

In this case two economic propeller sectors: property and automotives, had to face serious pressures in the post monetary and fiscal policy era. Therefore the Ministry Industry Moh. Saleh Hidayat said that growth in the two economic sector must not be hindranced as it was feared they would hindrance national economic growth as a whole.

About the property sector, the Government believed that the sector had tremendous potential and high multiplier effect. Moreover, the property sector was labor intensive and capital intensive so close collaboration among all parties would be necessary.

It seemed right if the Government continued to analyze various incentives, fiscal and non fiscal to promote the property sector. Besides, the Government also encouraged REI to actively participate in the Domestic Products Use and Upgrading Program.

The Ministry of Industry’s policy was response to developers through REI that the housing sector could serve as locomotive of national economic growth which had been well underway.

In the past two or three decades, the housing sector contributed significantly to the growth of nations including Indonesia. Some world’s surveys also disclosed that the contribution of housing sector to GDP was great.

Broadly speaking businessplayers of all sectors must adjust their business expansion plan next year in accordance with BI’s plan to put brakes on economic growth by slowing down credit growth to the level of 15% - 17% for 2014.

By slowing down economic growth through adjustment of business growth percentage, demand for imported raw materials and auxiliary goods for industry could be reduced. This coulf help to minimize deficit ratio and ease pressures. Automatically inflation would cool down as well as imported inflation was reduced.

However the effort of monetary authority must be accompanied by Government’s serious effort to put brakes on import of oil fuel. Development of cheap transportation mode must begin soonest. Diversification of non fossil energy fuel like bethanol, bio fuel, and bio diesel must be enhanced. Restriction of oil fuel consumption must exercised immediately whereby to reduce oil importing.

Reduction of oil importing would improve deficit ratio, tame inflation and Rupiah strengthening as demand for USD by importers would lessen. Those were the sacrifice by all parties to make Indonesia’s economy healthy and sustainable. 

Business News - December 4, 2013

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