President Joko Widodo had underscored the importance of independent national economic strategy known as Trisakti Economy or Berdikari Economy. The point was that the nation must strive to the maximum to rely on domestic resources and minimize dependency on import including there in overseas debt, Government or corporate.
Many stakeholders at home had stated their view point that Indonesia bore a heavy burden of overseas debt willed to the nation by the past Governments and it was evident that overseas debt from the era of the New Order to the Reformation Era had been ineffective for solving economic problem. Trying to solve development financing problem by borrowing overseas fund would but make economic burden even heavier in time to come.
Reasonable because overseas debt would worsen Rupiah vulnerability and weaken national fundamental economy sustainably. In other words, as long as the Government still rely on overseas debt for financing development, pressures on State Budget would remain heavy. This was related to obligation of capital and interest payment of foreign debt each year.
Whats’s more, the most dangerous thing of dependency on overseas debt was that Indonesia was getting more dependent on foreign power. Be side the Rupiah depreciation factor, oil price increase factor had been burden to APBN State Budget year after which made national economic condition to weaken.
As increased subsidy for oil had always been covered with overseas credit, automatically Rupiah slump multiplied the amount of foreign debt. Evidently subsidy for energy and electricity in APBN State Budget 2014 soared up by Rp.44 trillion from Rp.44 trillion to become Rp.284 trillion against the previous Rp.328 trillion.
Thank God the Jokowi administration tackled oil subsidy problem wisely by increasing price of last. The step was probably unpopular but it allowed more room for Government’s foscal and at the same time controlled Government’s passion to borrow from overseas resources.
The Government was smart enough not to trapped in foreign debt, so release of promissory notes was the wayout. Hence dependency on foreign debt would be minimized and domestic investors would be given greater role.
Release of promissory notes would protect the nation from debt creisis the way it happened in Greece, Portugal, Spain, Italy and Northern Ireland sometime ago. Such was a reflection of Government’s spirit to be independent. It would be wrong step to keep relying on foreign debt amidst export slowdown.
As known, Indonesia’s export performance had been low in the part 2 years which made trade deficit to swell. Indonesia’s DSR increased from 43% in 2013 to 46.16% in September 2014, signaling that Indonesia’s fundamental economy was sensitive to global economic turbulence. DSR is total debt installment plus interest divided by total export.
Debt Service Ratio [DSR] increased if debt increased and income from export must be watched on. To improve DSR, export must be increased for better income. It would be advisable for the Government to learn a lesson from 1997.1998 crisis marked by increased overseas debt of the private sector.
So it was right if the Ministry of Trade and Ministry of Industry joined forces to jack up export. It was said that the Government planned to increase export up to 300% in the next 5 years. It was right if the Ministry of Industry set forth a program called “Quick Wins Industry 2014 – 2019” consisting of seven points among others: re designing of Industrialization Road Map by the spirit of Trisakti and Nawa Cita, downstreaming of agricultural industry to agro industry, building 10 industrial estates outside Java through collaboration of the Government and private sector.
Development of national economy must also consider promotion of direct investment as propeller machine. In this case permit application procedure must be made easy on one-stop service centralized at BKPM.
In this case it was important to synergize 3 points related to business permit i,e. formation of permit verification team, inter-ministerial synergy and list up of prioritized business line in line with the development system.
Specifically priority of permit would be given to business lines to agriculture, maritime, energy [electricity] or labor intensive industry which opened employment opportunities. Lastly to meet the target of opening 2 million job opportunities per year.
Indonesia was now the most attractive investment destination country when AEC would be in effect be early 2016. In the past 6 years Indonesia had been highly prospective for investors.
The Institute of Chartered Accountants in England and Wales [ICAEW] noted that growth of capital inflow almost reach 45% in 2013. The position was highest among other Southeast Asian states. The average growth of capital income in ASEAN was around 15% - 20% in 2013.
Indonesia’s ranking position excelled above Thailand since 2007. At that time growth of foreign investors in Indonesia stepped up from 10% - 25% to over 30% in 2018 and 20%-40% in 2012 – 2013. On the country in 2007 investment growth in Thailand shrunk by 22% down to 0% - 5% in 2013. Indonesia ia still in Asean.
Increased capital inflow to Asean was chain effect of the Fed’s action to run QE. However, after QE Asian countries including Indonesia still had the advantage of having market integration.
According to the World Bank, Indonesia’s potential to accommodate investment from the global market was still big. Unfortunately, the investment could not be a perfect process because they increased import of raw materials and spare parts. The ratio: for every USD 1 of investment there would be increase of import of USD 34 cent.
One way to balance import was by promoting export. Therefore Indonesia’s manufacturing industry must be export orientated. High export volume would minimize deficit in current account.
In the future, Indonesia could no longer rely on minery goods or commodities of vulnerable prices depending on global demand. Exported manufacturing products now must be of added value to escape price reduction at the international market. The potential export destination countries were among others China, the USA, Europe and Japan. (SS)
Business News - December 12, 2015