TO REVIEW MACRO ASSUMPTIONS OF 2014

The year 2013 had only gone half way. Nearly all assumptions and macro-indicators targeted, such as economic growth, inflation rate, and Rupiah value were all mispredicted. Annual inflation [y.o.y] was around 5.8% or higher than the targeted 4.9% until finally the Government recised the target to 7.2% in response to increased fuel price.

               

Rupiah exchange rate which was set at Rp9, 300 per USD was not realized since Rupiah actual value against USD over the first semester of this year was around Rp9, 750 per USD, Rupiah even sank deeper over the psychological level of Rp10, 000 per USD. The same was with economic attainment, which was 6.2% was still below the targeted 6.3%.

               

To meet target as set for 2013, hard work was inevitable for the Government, and aggressive, tactical maneuvers called for. There were open holes to be filled whereby assumptions could be met ot better still be surpassed. The afore mentioned macro indicators were not easy targets, moreover after the Government increase price of subsidized oil.

               

To jack up economic growth toward 6.3% was not an easy task. Export could not be relied on as world demand declined with economic slowdown in Europe and the USA and even China. At the first signal of economic betterment, the government was expected to be responsible to make aggressive moves in export to main trading counterparts like the USA, Japan, China and Singapore.

               

Budget utilization by the [provincial] Government remained to be low, which made the driving force to economic growth to lose steam. Growth projection for quarter two was even only 5.8%- 6.0% or lower than the budget realization which was 6.02%.

               

Commitment of the Finance Ministry to ease budget liquidation, without disregarding the rules of good Governance, was expected to accelerate economic growth of quarter three and four.

               

Direct investment, whether domestic [PMDN] or foreign [PMA] was expected to be maintained, at least the same level as 2012 at around Rp300 trillion. Investment target this year was set at around Rp300 trillion. Even if the target was not entirely met due to diminished foreign investment in Indonesia it could come to Rp325- Rp350 trillion. Understandable because direct investment since quarter 3 of last year was already signaling downturn.

               

Lastly, inflation. This was not less problematic. Many analyst and economic inflation rate after the fuel price increase would be around 7.5% - 8.4%. Meanwhile the Government and House had agreed on inflation assumption at 7.2%. In this case BI had moved faster by increasing fasbi rate by 25 basic point from 5.75% to 6% last June.

               

Most probably BI would again increase Fasbi rate and BI rate. This was only only on the monetary side. What side being awaited for was Government strategy in fiscal terms.

               

Not less important was to make sure that distribution of goods to run smoothly to suppress extra cost creating inflator effect. Demand must be well balanced with supply. Past experience at early this year showed weaknesses on the supply side or demand side where supply of goods, including essential need was insufficient.

               

The result was that price of goods like garlic, soy, rice, and white sugar were elevated before the Government even increased price of subsidized oil; including also horticulture products like fruits. While maintaining smooth distribution traffic, it would be worthwhile for the government to make sudden, unannounced inspection to traditional marketplaces to make sure there was no price increase on the loose. In case of goods scarcity, the government through Perum Bulog must swiftly stabilize price through timely extra supply and at right amount.

               

Thereby it was expected that the macro economy target of this year could be met. Perhaps the same could be expected in 2014. As known the Ministry of Finance Chatib Basri projected national economic growth in 2014 to be around 6.4% - 6.5%. This was disclosed in technical meeting with Commission XI of House in Jakarta last week [24/6].

               

The meeting dissected the basic policy for fiscal policy fos the APBN State Budget 2014. The government in the outline fiscal policy for RAPBN budget 2013 projected economic growth 2014 at around 6.4% - 6.9%. However in view of the latest economic climate, growth percentage was more probable to be at lower level. To be exact, the modest projection of 6.4% - 6.5% was more probable that higher level percentage.

               

What was meant by dynamic trend was tightened global financial liquidity. Such would have its impact on Indonesia’s economy such as mounting pressured on Rupiah. The propeller force of economic growth 2014 was still dominated by household consumption, which was among others due to activities related to the General Election of 2014.

               

In addition to that there were some programs aimed at increasing people’s purchasing power. For example the Hopeful Family Program, Rice for the Poor and increased pension plan for civil servants, the army, and police personnel. This would among others be driven by incentives like reduced income tax in some regions and incentives for the mining sector in the upstream industry.

               

BI was not less confident than the Government that economic growth of 2014 would be better compared to 2013. Hence BI projected economic development for 2014 at around 6.4%-6.8%. BI saw that economic growth was still much supported bu household consumption while there was also improvement in internal and external economic performance. Improvement of the world’s economy would be followed by increased commodity price. This would improve performance of Indonesia’s export which in the end would be one of the key contributors to national economic growth.

               

Finally the Government and Commission XI of House agreed to make assumptions of economic growth of 2014 at around 6.4%-6.9%: inflation 3.5% - 5.5% Rupiah exchange rate value Rp9, 600 – Rp9, 800 per USD. While assumption of world’s oil price and production of ready-for-sale oil-and gas would be dissected in Commission VII of House.

               

The assumed economic growth of Rp6.4% - Rp6.9% as agreed was understandable as it was quite reasonable and natural. If realization of economic growth this year was around 6.1% - 6.3%, it seemed reasonable that next year higher growth was predictable, at least with the USA, Japan, and China, moreover if all the propeller forces of economic growth [household consumption, direct investment, Government expenditure and export-import] were more dynamic compared to last year. Activities related the General Election would also contribute around 0.2% - 0.4% to economic growth.

               

One notable point was inflation which was projected at 3.5% + 1%. If inflation this year was only 7.5% as moderate assumption, meaning the Government must work hard to lower inflation next year. This was not an easy task, but not impossible, provided that the government strive for it seriously amidst election preparation. Assumption for Rupiah was quite reasonable because if realization of exchange rate this year was around Rp9, 750 per USD, next year it could be around Rp9, 600 – Rp9, 800 per USD.

               

Furthermore assumption of SBN interest of 3 months of 4.5% - 5.5% was rated as natural because inflation projection was only 3.5% - 5.5%. This assumption would also give a picture that the Fasbi and BI rate would gradually descend toward 3.5% - 4.0% and Fasbi interest 5.5% - 6.0% for BI rate. Broadly speaking it might be concluded that macro economic assumptions stipulated for next year was realistic enough to bring better optimism. (SS)  

Business News - July 03,2013