Monday, 14 April 2014


This year was a last year of service for the United Indonesia cabinet Part II under President Susilo Bambang Yudhoyono. On the average, in the last 5 years, the second period of President SBY's office, Indonesia's economic growth was posted at 5.9%. Not bad attainment although in fact still had high­er potentials. Indeed not small were the hindrances which made economic growth not as high as expect­ed.

Now toward execution of Legislative Elec­tion on April 9, 2014 and Presidential election on July 9 2014, silver linings were seen as the people pin hope on the next Government that they might per­form better than the previous Governments. The next Government would certainly learn from the mistakes and attainments of the past Governments. This would be a good asset to start with to run the Government for the office period of 2014 - 2019. The high ex­pectation was quality of economic growth.

The starting point of the economic growth prognose for the next 5 years was this year 2014. The growth process was predicted to slowdown in 2014 and could change with the additional Govern­ment's macro policy. This was disclosed in the latest three monthly report by Bank Indonesia.

The Government of RI had taken some measures to strengthen stability of short term macro economy, especially through adjustment in monetary policy and Rupiah exchange rate value. However to promote trading and to stimulate long term growth, what was needed was broader structural reformation.

Indonesia had passed critical years with falling export demand and commodity prices beside restless capital market and difficulty in obtaining ex­ternal capital, but the monetary policy had restored economic structure. This was the statement made by World Bank's Representative for Indonesia Rodrigo Chaves.

Indonesia would be benefited if the Govern­ment focused effort on long term investment as more investment was needed. Monetary policy must not be a single minded concept.

The World Bank predicted Indonesia's GDP growth would drop from 5.6% in 2013 to 5.3% in 2014. One of the causes of low prediction was downturn in investment which only grew by 4.5% in 3rd quarter of 2013 especially for heavy equipment and machinery industry.

The World Bank's projection was still marked with some high risks causing sluggish growth. The Tappering Off plan by the Fed in America was pre­dicted to generate unrest in the world's market which kept Indonesia further away from foreign capital in­flow. Growth of domestic consumption which had been storming was predicted to weaken. Projection of finance was also seen as vulnerable due to oil subsidy.

Deficit in current transaction was predicted to shrink from USD 31 billion [3.5% of GDPI in 2013 to USD 23 billion in 2014 [2.6%of GDP] due to low import growth and export growing moderately. In re­sponding to deficit in current account, what needed to be done was not to reduce import but to increase export and to secure availability of external fund, especially Foreign Direct Investment.

Corrective measures to business climate was important to drum up investors. To simplify trading and logistics rules might help to promote export. As with election, it could be the point of awakening for Indonesia to grow in line with the potentials. While not under estimating the achievements made so far, Indonesia had missed many golden momentum along the way.

Indonesia never grew by two digits in history. And yet with all the potentials Indonesia should have been able to make her marks. This was a statement made by the President of Boston Institute for Devel­oping Economies Gustav Papanek, professor of Econ­omy [Emeritus] of the University of Boston USA, who presented his survey outcome run with researcher of Creco Research Institute Raden Pardede and Profes­sor Suahasil Nazarra, of the Faculty of Economy of the University of Indonesia.

His presentation was entitled, "A Choice for the Next 5 Years" : 5 percent of growth and 0.8 mil­lion job opportunities per year or 10% growth plus 3 million Employment Opportunities per Year." The sur­vey outcome mentioned that Indonesia had great op­portunities in the next 5 years to step up people's income especially the 40% poor people and poverty-prone people. Indonesia also stood a chance to create job opportunities for 3 million citizens per year. In the past few years, employment tend to shrink below 1 million people per year.

The opportunity, according to Papanek could only ber seized from an average of 6% economic growth for 3 years to 10% per year with labor-intensive processing industry as base. This signaled the need for integrated strategy by the Governing regiri of 2014 - 2019.

Within this context, the elected President 2014 would be the determinant factor. Moreover,  Indonesia's chances to forge ahead or stagnate in the next 5 years would be determined by performance the next 5 years. Papanek stated that with the vast number of workers, Indonesia stood a chance total over part of the production of China's intensive labs industry output. China is the King. But lately, China' competitive edge slumped due to increased wage and aging workers.

With proper strategy, Indonesia could take over 10% of China's labor industry production output by 2019. That would be equal to 3 times of today'; national export. The Central Board of Statistics [BPS disclosed that total non oil-gas export in 2013 can to USD 149,92 billion.

In 1986 - 1992 the labor intensive manufacturing in Indonesia grew by 34% which was above China, India, and Bangla Desh, but since 1993 t 2002, Indonesia was left behind. In 2013, Indonesia even posted negative growth. Papanek was optimistic that labor intensive industry of the manufacturing sector could grow by 19%; the industry would at sorb 9 million workers.

Meanwhile the incentive to promote expo as supporter to industry growth would strength national competitive edge in domestic industry. The positive impact was substitutes for imported products would develop to create 2 million workers direr and indirect.

Survey unveiled that a 10% economic growth per year would double income in 7 years. 3 million workers would be absorbed in new occupations per year. This would consist of 2 million regular work­ers of the new generation of workers and 1 million workers who were promoted from low productivity and low income jobs. However such needed not to turn into reality if Indonesia remained moderate. Op­portunities would be missed," said Papanek who was a consultant in BPPN in 1987 - 1989.

If Indonesia grew by 6% per year on the av­erage the way it happened in recent years, income growth would only be 5% or even less. Meanwhile employment would only accommodate 1 million work­ers per year so there would be 2 million jobless people and 2 million emerging new workforce per year.

To attain 10% economic growth, Indonesia must strengthen competitiveness and axe high cost in many areas; among others by lowering labor cost effectively so workers wages would increase. The solution was right combination between stipulation of labor cost, Rupiah exchange rate value, and stabilized cost of living of workers.

In addition to that there must be enough room for fiscal allocated for social welfare program, rural labor-intensive projects, food price stabilization and infra structure building. At present the fiscal space was small. To expand it, the Government must re­duce subsidy for energy and increase tax ratio. So far energy subsidy drained 25% of Central Government's spending. Meanwhile tax ratio had been stagnant for years at 12% of GDP.

Indonesia'a manufacturing industry sector must grow to attract workforce. The Government must adopt the strategy of active employment as strategy to reduce unemployment massively. The Government must strive to adopt a policy to se­cure 40% of poverty-prone people who were excatly above the 11% poor group.

The classical problem which held back eco­nomic growth from attaining 2 digit growth was poor infra structure, illegal collections, complicated burreau­cracy and legal uncertainty. The Government's act to adopt a popular policy of increasing minimum wages 2012- 2014 beyond companies capacity had made many labor intensive projects to stop operating, cre­ating new unemployment.

On the monetary side, the maintained BI rate at 7.5% in the past 4 months made Rupiah interest more attractive than non Rupiah interest. It was pre­dicted to bring positive impact up to Semester I 2014 when Rupiah moved at the range of Rp11,300 per USD and could even reach Rp11,000 by end of year if the Election outcome met public expectation. The point was that it would stabilize at Rp11,000 per USD assuming that the Election would run peacefully. And naturally also the kind of President who met mar­ket's expectation. (SS)

Business New - March 21, 2014

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