In the latest report released in Economic Quarterly of July 2015 edition the World Bank remarked that although Indonesia’s economic growth was better than other exporter countries, low growth of long term investment and low consumer’s expenditure had caused slowdown in GDP growth.
Economic growth in 2015 was predicted by the World Bank at 4.7%, lower than the previous 5.2%. The 4.7% growth in Q 1 of 2015 was the lowest growth rate since 2009.
In the eyes of the World Bank, negative factors like low commodity prices and low investment growth kept suppressing which made economy to progress slow. Indonesia could increase infra-structure expenditure while still maintaining fiscal deficit at 3% of GDP.
In terms of expenditure, the World Bank underscored the importance of clearing obstacles to capital expenditure while in terms of income tax would be increased by up to 30% but unexpectedly slumped by 1.3% against same period the years before.
The application of tax reporting the electronic way was praiseworthy, but still more extra effort was needed to maximize result.
Just like other medium income states, Indonesia’s economy must still cope with falling commodity prices and the Fed’s monetary Policy which had caused deficit current transaction, reduced income of commodity traders and hold back private investment.
Investment remained to contribute 1.4% to GDP growth (y o y) I Q-1 of 2015 –or half the average contribution in 2010. Investment was expected to increase by second half of 2015 but the rate was not as high as previously predicted.
The World bank also appraised Indonesia’s fundamental economy which enable the nation to prevent severe slowdown due to falling commodity prices the way it happened to Brazil, south Africa, Chile an Peru.
In this case Indonesia managed to grow at higher rate, but to pursue higher growth rate fiscal reformation was needed to increase state’s income and expenditure. Other policies were needed to bring law bring law and order in competition, trading, and private investment.
Descending sales data of motorcycle and other vehicles showed that consumer expenditure also showed down in Q-2. Thank god private consumption was still able to contribute 55% to total GDP expenditure.
Weakened consumer’s demand caused import to drop by 14.4% (y o y) in Q-1. Export volume commodity or manufacturing Also went down by 13% due to less demand from China and Southeast Asian states,
The World Bank’s report also touched on the potential of Indonesia’s geo thermal energy and the need for a better energy strategy to make the best of geo thermal resources. The report also touched on School Operational Aid Program (BOS) which had extended operational fund to 220,000 elementary Schools and Secondary High Schools which started 10 years ago.
From the World Banks report, the conclusion was as follows: Firstly, Indonesia’s growth projections at 4.7% for 2015 was down against the previous projections at 5.2% because growth or real output slowed down to 4.7% y o y in Q-1 of 2015 the slowest growth rate since 2009.
Secondly, real investment which declined aln low public consumption lately had lowered Indonesia’s GDP growth.
Thirdly public consumption only grew by 4.7% in Q 1 against average growth of 5.3% last year. Public consumption constituted 55% of total GDP and high impact on growth rate.
Fourthly, slow growth had reduced employment opportunities, with employment growth rate barely enough for controlling labor force; however Indonesia was in excellent position to respond to challenges.
Fifthly Indonesia could still increase narrow down deficit in expenditure but still within the limit of fiscal of 3% of GDP whereby to enable to increase financing for infra structure projects. Growth that remained to move slow, in parallel with lowered world’s oil prices contributed to narrow down current deficit to become 1.8% of GDP in Q 1.
The Government should answer the World Bank’s recommendations by enhancing infra structure building which would simultaneously open job opportunities.
In parallel with that BI was expected to run macro prudential policy including Loan to Value for property and automotive credit. The change of policy from LDR with ceiling of 92% to LFR with ceiling of 94% would inject extra stimulus to the banking sector.
The monetary easing policy was needed as credit growth was slowing down. Businesspeople complained about high bank interest due to inflation (now 7.3%) triggered by oil price last March.
If BI were more accommodative it would mean positive signal to investors in time when investment climate was high in Semester 2 of this year although not as high as projected.
In short, monetary and fiscal policy must be in synergy and be pro-business so it would allow more room for businesspeople to make maneuvers. (SS)
Business News - July 22, 2015