Tuesday 2 July 2013

INDONESIA’S ECONOMY STILL UNDER EXTERNAL PRESSURE


Each time toward year end, people’s activities business people tens to mount. In the modern sector, those who were in the moneymarket and capital market struggle head over heels to reap as much profit as possible whereby to attain the maximum.

The success of cooperative societies in making big profit normally had the implication of employees being better paid or enjoying big bonus. Hence they could celebrate new year’s eve the merry way and welcome 2013 with great zest.

The same was also happening in the real sector. Business activities which were related to fulfillment of public consumption tend to mount up. Modern shopping centers were offering various products with competitive price and quality. Price war by way of discount war was inevitable especially in old stock of goods.

Therefore it came as no surprise that people’s shopping and consumption were the biggest contributor to Indonesia’s economic growth beside investment. Such should be most gratifying because what was happening in Europe and America was slowdown in the consumption sector.

Amidst global recession today, Indonesia’s economy this year was projected to grow at 6.3%. Therefore, toward year end it was only natural that neighboring countries like Malaysia, Singapore and Vietnam were aggressively launching campaigns to promote their malls shopping centers.

Indonesia was now like a beautiful girl glanced by many men due to her appeal, i.e. the high economic growth potential, and emerging middle class. Today the number of Indonesia middle class was not less than 40 million people with average expenditure of USD 20 and up per day.

In terms of tourist destination, Singapore had the Orchard Road as shopping center, while Malaysia had the Bukit Bintang and the Kuala Lumpur City Center (KLCC). Unfortunately, Jakarta’s malls were sporadically located and not being integrated with business centers and icon of the city. The two neighboring countries were more aware of the habit and behavior of the rich, i.e. shopping and dining than Indonesia. For that matter, hotels and tourist centers should be linked with malls or shopping streets.

Indonesia still had Bali as national tourism icon. This one island was a strong magnet which draw local as well as foreign tourists. During holidays, Bali was the main preference of local tourists and favorable option for foreign tourists thanks to the panoramic view and rich cultural heritage.

Such was a brief illustration how the economic state of a nation which grew positively contributed to the growth of tourism. Amidst slowdown of global economy, Indonesia up to quarter three 2012 had succeeded in attaining the second biggest economic growth in Asia. In spite of judgment by many circles that Indonesia’s growth was unsound and vulnerable, the fact was undeniable that a potential generation had emerged to play the role as economic propeller.

In the future, what needed to be reformed by the Government was to promote the tradable sector rather than the non-tradable sector by was of injecting reward to the tradable sector that they might grow. It must be understood that growth based on, and enjoyed by, the non tradable sector with relatively low absorption of labor, was not recommendable and not advantageous.

Not less important was Gross Domestic Product (GDP) which today was concentrated in Java (57%) and Sumatera (23%) only must be better distributed to the Eastern part of Indonesia. Accordingly, building of inferior basic infra structure and energy supply outside Java must be enhanced.

Another black spot was Indonesia’s downgraded ranking in economic competitiveness from 50th to 46th of 144 countries which called for attention. If the main cause was slump in the main variable of appraisal like corruption and bribery, the these two variable must be eliminated. Also unethical acts in the business world like violence and crime, and the cost incurred, must be eliminated. By such effort, Indonesia’s economy would not be built on fragile foundations.

The Following are 10 Indicators of Indonesia’s Unsound Economy by INDEF Version. There were a number of structural problems which would become part of the Government’s prioritized agenda, i.e. high but corroded economic growth; low economic competitiveness worsening trade deficit fiscal stimulus hindrance by subsidy; debt yielding bureaucracy; good banking performance but with low contribution to the real sector; open unemployment lessened but increasing informal sector; people’s stagnated welfare; imbalance in inter-regional economic development; the agricultural sector being edged aside; high dependency on supply of renewable energy.

Provided that these classical problem could be overcome one by one, surely the economic prospect of next year might continue achievements of 2012. Moreover to consider optimism that breezed out recently that the world’s economy in 2013 would be prospective compared to this year, in spite of overshadowing uncertainty.

Business people rated that the uncertainty was due to many factors, such as debt crisis in developed countries especially Europe, political tension in the Middle East, North Africa, the Korean Penissula, and Sino-Japanese tension. In addition to that also anomalous climate and potential natural disaster at global level and skyrocketing oil price in case of conflict in Iran.

The situation had the potential to trigger protective acts among many countries and unhealthy measures to protect their domestic market. The result was mounting competition among nations to rule trading and investments, which means that domestic economy needed to be strengthened.

As known, world’s economic growth in 2012 was posted at 3.5% slower than that of 2011 which reached 3.9%. With uncertain global economic condition, the effect of Indonesia’s economy was inevitable. As a whole, up to 2012 Indonesia’s economic growth was predicted to be 6.3% or lower than that of 2011 at 6.5%.

Business players evaluated economic condition of 2012 with focus on strategic issues and crucial issues like national competitiveness, oil subsidy, infra-structure and logistics, investment climate, condition of micro, small and medium business (UMKM), investment climate, and domestic market stormed by foreign franchise. The conclusion was Indonesia’s competitiveness being low and infra structure being low by quantity.

Projection of economic growth 2013 which was around 6.3% - 6.7% was not too far different from projections of the National Economic Committee (KEN) at around 6.1% - 6.6% in spite of global economic slowdown by year end. The target would be met if the global economic condition was getting better than estimated, but the growth rate would most likely be at the lower range if Europe could not manage to get their head above water by 2013.

Indonesia’s economic growth would next year be supported by consumption and investment. Household expenditure would contribute around 2.6% - 2.9% of 2013 growth while investment contributed around 2.7% - 2.8% while export-to-growth ratio would be only around 0.2%. Meaning, Indonesia’s economic growth in 2013 would rely on domestic strength.

Meanwhile national economic growth in 2012 was estimated at 6.3%. This figure was the basement level of KEN’s estimation set forth by end of 2011, i.e. 6.3% - 6.7%. Today Indonesia’s economy was in the growth-process of the business cycle. Historic data showed that normally Indonesia’s economy grew in a seven-year cycle. Indonesia entered a growth phase in March 2009. So there was big opportunity till 2016.

One note worthy thing was that the business world was sort of skeptical about projection of Indonesia’s economy next year. They predicted with pessimism that Indonesia’s economy in 2013 would only be in the range of 5.5% - 6%. The reasoning was weakness in infrastructure, bureaucracy, space (Land) planning, and legal certainty. This was not mention illegal import which constituted 30% of total import to cause injury on domestic industry.

One thing was certain that by next year there would be three labor intensive industries which would be the locomotive of Indonesia’s economy i.e. the manufacturing, trading and service sectors and transportation/telecommunication sectors. There three sectors were the labor industry sectors to grow in 2013. However external pressures would still be overshadowing Indonesia’s economy because of the long and winding process of debt crisis solution in Europe and the fiscal cliff problem in the USA which was still stumbling for way-out.

If the Fiscal Cliff remained unsolved till end of year, chances were America would fall over the recession cliff; such was indeed extremely unpleasant and most undesired. The hope was that the fiscal cliff problem which entangled Barrack Obama’s administration would be solved before deadline so America could take off in their economic process by next year.

Business News - December 19, 2012 

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