BI’s policy to increase
benchmark rate by BI rate by 25 bps to become 7,75% on November 20 last brought
pressure to businessplayers and the banking sector. Increase of BI rate was in
response to oil price increase.
Companies were burdened by
heavier production cost as oil price was increased on November 18 last. The
Ministry of Finance stated that to increase of oil price was inevitable to
support APBN state budget.
Understandable because oil
subsidy was a wrong policy to adopt. It had negative effect on state budget’s
structure, the Government needed fund for building infra structure.
It would be the right step
of the Government built infra structure for the sectors of agriculture,
maritime and energy. To control poverty, the Government was promoting social
aid through distribution of Indonesia Smart Card, Indonesia Healthy Card and
Indonesia Prosperous Family Card.
One thing was sure oil
price increase had its impact on Indonesia’s economic outlook. In the next 3
months there was going to be additional inflation of around 2% plus 1.5% all
through next year this was inclusive of BI’s factor who had increased benchmark
rate by 7.75%.
BI must have a forecast of
the ensuing inflation and a scenario for tackling it. Oil price increase had
caused economy to suffer from cost-push inflation; this was related to
increasing production cost due to increasing price of raw materials.
Fast moving cost push
inflation could cause economic growth to slowdown, which if in continued it
could lower people’s welfare level significantly. Economic growth would no
longe be inclusive and sustainable.
Increased oil price would
reduce people’s purchasing power. Consequently economic growth in terms of
household consumption would be corrected. Application of the “wizard card”
system could not be fully effective as price was higher than buying power.
If inflation was under
control, it would be easy for BI to troubleshoot by monetary policy, but if
inflation was beyond expectation due to increased world’s oil price, then
monetary approach alone would have no effect on inflation control. In that case
BI must coordinate with the Government to better the supply side. BI and the
Government were advised to apply the monetary-fiscal policy.
In the short run, increase
oil price would drive inflation up, suppress people’s purchasing power and
reduce household consumption. Jokowi-JK expectation to attain 7% economic
growth in the 2014-2019 period would have to face challenges. To set growth
target of 7% growth, the investment needed was Rp5,500 trillion
Under the present
circumstance, President Joko Widodo needed support of all the people including
the political elite. The KMP Coalition Group and KIH Coalition Groups should
better reconciliate and combine forces.
Noteworthy was ex Finance
Minister M Chatib Basri’s opinion who said that now was not the time for
Indonesia to aim high in economic growth. All effort must refer to the actual
fundamental economy.
The point was that
Indonesia’s economy was in the state of uncertainty. This was made worse with
the world’s economy which was not fully recovered. Even China was having economic
slowdown and this would have its effect on the merging markets.
According to Chatib, the
world’s economy was having economic slowdown. The world’s unending crisis had
its impact on the emerging markets and not impossible also Indonesia.
However, growth target of
around 6% - 6,5% must still be pursued for the next 2 – 3 years because it
would have ,multiplier effect especially in opening employment opportunities.
The only thing was that economic strategy must focus more on the tradeable
sector rather than the non-tradeable.
The consequences of
focusing economic strategy on no-tredeable sector was difficulty to reduce poverty.
Low quality economic growth was visible in widening income index where the
latest position was 0.41 in 2013.
The portion of constructive
poverty reduction budget was still extremely small which was apparent in the
inclusion of state’s capital to support the Credit Program for Small Business
[KUR] amounting to Rp.2 trillion through 2011 – 2014.
It was undeniable that
poverty solution fund in the State Budget over the past 5 years had been
constantly increasing and by end of 2013 it came to Rp503.2 trillion but over
that same span of time population of the poor was only reduced by 3.1% on the
average.
The year 2014 and 2015 were
the year of economic consolidation where BI and the Government agreed to
prioritize economic stability instead of growth because of high inflation and
deficit in current transaction. (SS)
Business News - December 3, 2015
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