Thursday, 12 March 2015


Indonesia’s economic growth in 2014 was only 5.02% (y o y), the lowest percentage in the past 5 years. In terms of production, the highest growth was in the information-communication sector at 10.01%.

In terms of expenditure, the highest growth was in consumption of non-profit Governmental institutions 12.43%. BPS also disclosed that national economy in Q IV 2014 grew by 5.01% against Q IV 2013 (y o y) a slowdown same period the previous year at 5.61%.

Economy of Q IV also contracted by 2.06% against previous quarter (q to q), In terms of production, it was due to seasonal effect in agriculture, forestry, and fishery which contracted by 22.44%. In terms of expenditure it was due to reduced net export. In particular, economic growth 2014 was driven by economic activities in Java which grew by 5.59% against Sumatra 4.66%.

Still BI was optimistic that this year growth would be higher against last year. BI believed that growth would be around 5.4% - 5.8% with median of 5.6% this year considering broader fiscal space.

Last year fiscal had to maintain fiscal deficit as well be high subsidy so Government’s fiscal space was limited. So Government’s sustaining capacity for economic growth was limited.

Now with broader fiscal room thanks to oil price increase, it was expected to drive higher economic growth of 5.02%.

BI believed that increase of Government’s consumption and investment plus that of the private sector might strengthen national confident. Again BI believed that economic growth through 2014 and Q IV-2014 was still within BI’s estimation.

Besides the figure was still in line with macro economy stability management by BI and the Government especially to control inflation and deficit in current transaction.

BI also responded positively to calculation of GDP using 2010 as benchmark year as well as some reformations related to methodology and scope of component.

BI saw that increase of economic growth in Q IV-2014 was more driven by increasing domestic demand, especially investment in construction and Government’s consumption. Household consumption remained high although slightly slowing down.

On the external side there was notable contraction by 4.35% in export performance which was due to low demand in buyer countries and weakening of commodity prices. Besides export contraction was also due to setback in export calculation in Q IV-2013 in line with application of the Minerba Law.

It was right if BI had to monitor various development to make sure that macro economy remained sustainable.

Meanwhile the Ministry of Finance Bambang S. Brodjonegoro admitted he had to strive hard to play catch up with economic target growth of 5.7% this year.

In the eyes of the Government, investment was the key propeller factor to growth in line with Government plan to increase infra structure budget of Rp.100 trillion in APBN-P Budget 2015.

Increase of infra-structure expenditure of Rp.100 trillion would be allocated to 3 ministries, i.e. the Ministry of Public Works and People’s Housing, the Ministry of Agriculture, and the Ministry of Transportation. Some of the development being prioritized were irrigation, reservoir, and roads.

The projections signaled that national economy still rest on sound optimism. The Government and economists believed that economy could grow by 5.7% - 6% this year against last year’s 5.02%.

The pre condition was that the Government had to step up quality of budget absorption, realize infra-structure projects jack up investment through One-stop service system, exercise reformation of the bureaucracy and diversify export product and market, maintain inflation and to axe bank interest.

Indonesia’s fundamental economy was this year better than last year, domestic consumption would increase as inflation cooled off while external pressures was not so hard as oil price fell.

The Government even had the opportunity to increase local oil price by reducing subsidy. In addition to that, economic rebound in the USA would jack up national export performance and promote investments at home.

In RAPBN-P 2015 State Budget economic growth was set at 5.7%. Recently IMF axed projection of world’s economic growth from 3.8% to 3.5% and next from 4% to 3.7%. Recently the World bank also lowered projection of global economic growth from 3.4% to 3%.

Naturally 100 days to evaluate performance of the new Government was not enough; however it might be worthwhile for the public to appraise the Government’s performance in their first 100 days of office.

In the economic sector it was apparent that President Joko Widodo had enough moral obligation to make a strategic decision, the climax being the courage to increase oil price on November 18 next when the Government was barely on month old. Such was worthy of appreciation because the decision had to be made at the cost of public resistance and condemnation.

However President Jokowi dared to take various risks including fading popularity. The decision to increase oil price was then under question because world’s oil price then dropped drastically to as low as USD 45 per barrel. The world was puzzled about which way the oil price level was headed for.

Oil price might go up again as Saudi Arabia’s biggest producer axed their output or probably price might drop again when shale oil was produced in vast volume in the USA. Apparently Saudi Arabia refused to reduce their oil production while America’s shale oil reserves was abundant. The result was that oil price would fall, now the price was only around USD 45 – 50 per barrel.

From the above picture whatever the condition of global economy, the Government must be committed to jack up economic growth in line with their effort to increase tax. The tax income target this year amounting to Rp.2,221 trillion was no small amount.

Many circles rated that this tax income target was too high and called for stronger commitment to work harder. Hard sanctions on stubborn tax avoiders should be a positive effort to generate a deterrent effect.

Potensi pertumbuhan ekonomi domestic tumbuh lebih baik setidaknya dipengaruhi oleh tiga hal positif. Pertama, dari pos subsidi BBM yang tidak direalisasikan karena harga minyak dunia jatuh, pemerintah memiliki Rp.217 trilliun untuk stimulus ekonomi.

The potential domestic economic growth should be governed by 3 positive factors:

Firstly cash from the oil subsidy fund not being used because of falling oil price, now the Government had Rp.207 trillion of cash for economic stimulus.

That figure was a sizable amount of money to propel economy through infra structure development plus education and health. Indonesia and India were two of the countries most advantaged by lowered oil price, hence the two countries might post better economic growth in 2015.

Secondly, inflation was cooling off significantly. Over the past 2 years (2013-2014) Indonesia posted inflation of 8.36% in 2013 and 8.36% in 2014, both caused by increase oil price. This year it was almost certain oil price would not increase again drastically. Even if it increased, it would be merely in narrow range following world’s oil price.

World’s oil price would predictably move only in the range of USD 70 per barrel which was most unlikely to jack up inflation. Inflation would predictably only be around 5% - 6%. This would mean stimulus for BI to lower BI rate to the level of 7% - 7.5% so the banking sector real sector would move simultaneously.

Thirdly, foreign capital would gradually return to Indonesia. US economic rebound might cause capital backlow to America but it would not last long. Investors were getting wise and would not pile up all their entire asset in the USA. Global capital were again pulled out of America to flow back to the emerging markets. Hence IHSG index was crawling up to 5,500.

Hence combination of fiscal stimulus, low inflation and entry of foreign capital would be the growth stimulus of 2015 Predictably economic growth might reach around 5.1% toward 5.3%

Business players would not worry about global situation too much because the global economic condition had for long been anticipated. The biggest stimulator to business actives was the condition at home. As long as the domestic economic climate was favorable business would progress as normally. The domestic political climate would be the dominating factor.

For the matter all the potential turmoil must be ended to keep the golden momentum. As a country of middle low income category, economic growth must be spurred on to above 7% a year.

In view of Indonesia’s vast potentials, economic growth could in fact be spurred on the above 7%. Indonesia’s population which was 253 million people of which 60 million were middle class, vast nature with abundant natural wealth and well educated human resources potential were all national asset whereby to pursue high economic growth.

The momentum to pursue high economic growth must be grabbed. Indonesia’s new Government under President Joko Widodo had people’s strong support, from the lower-middle class of businesspeople at home and abroad. This was indeed a social asset to rely on in the effort to achieve economic growth. Let it be. (SS)

Business News - February 20, 2015

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