Monday, 19 May 2014


Better risk management could promise oppor­tunities or even prevent crisis and protect the peo­ple from the wolf at the door. With proper crisis it was not impossible that economic resiliency could be strengthened.

Those were the message between the lines in the World Development Report 2014 entitled "Risk and Opportunity : to Manage Crisis for Devel­opment", on Thursday last week [24/4] in Jakarta. In that report it was disclosed that turbulence like disease, foul weather and economic crisis might push a family downhill to below margin level and never to bounch back again.

Risk Management the effective way might save lives, prevent economic slump, avoid develop­ment setback and unveil opportunities. President of World Bank Group Jim Young Kim stated that instead of refusing change to avoid risk it was necessary for individuals and institutions to grab opportunities and to face risks that came with change, including the ef­fort to manage risk the proactive way, systematically and integratedly. The World Bank encourage change positively in risk management.

The new approach could be applied by individuals or institutions whereby not to "struggle to overcome crisis" but to be pro active and systematic risk manager. This approach would build resilience, safeguard development attainments and put effort on minimizing extreme poverty.

In the report it was also stated that anticipa­tive measures could motivate individuals to be more resolute in facing risk. For example, by adopting insur­ance, farmer's could invest in buying fertilizers, seeds and other materials instead of keeping the money "under the matress" to anticipate drought. Readiness to deal with risk could even minimize unexpected ex­penditures.

The World Bank predicted natural disasters and continuing economic crisis which would increase poverty. To avoid that risk, the World Bank recom­mended Risk Management with full Government's responsibility. Such was to prevent economic slump, setback in national development and to urge the Gov­ernment to grab existing opportunities. So Govern­ment's collaboration would be necessary to minimize poverty in developed and developing countries includ­ing Indonesia.

Indonesia was hampered by around 300 di­sasters each year, ether caused by human error or nature's irregularity. Indonesia which was hampered by world's financial crisis in 1998 and economic crisis 2008 - 2009, was poverty prone. Moreover today the World Bank estimated around 40% of Indonesia's population belonged to the poor category. Any crisis that occurred tend to affect the margin al people.

After the occurrence, today the Government had been trying hard to disentangle the spin of the moneymarkert. A difficult condition which had been lurking since mid 2013. Evidently there had been some Risk Management formula successfully execut­ed by the Government.

On the other hand, the Government of RI was still confident that economic growth of 2015 would be elevated to above 6%, having gone through sta­bilization period over 2013-2014. The external con­dition would be advantageous to Indonesia in 2014 as world' s economic growth was predictably bet­ter. This was the view of Finance Minister Chatib Basri before investors on the occasion on Deutsche Bank Annual Market Conference 2014 in Jakarta last Wednesday [23/4].

America's economy which tend to improve also had its positive impact on Indonesia's economy especially in the trading sector. Other factors which contributed to growth process was among others growing domestic consumption related to General Election activities [which was estimated to contribute 0.2% to GDP], eased inflation and improving global economy.

Besides, Indonesia was being advantaged by growing middle class which uplifted people's purchasing power. Apparently the future business line most advantageous to Indonesia resulting from growing middle class was health, education and en­tertainment. Singapore as neighboring country were aware and had been seeing the opportunity long be­forehand.

With ever growing and improving economy, Indonesia was seen as promising investment destina­tion. Therefore the Government must persistently try to issue fiscal policies which was able to support sus­tainable economic growth. A 6.1% economic growth next year would be uplifted by Government consump­tion amidst eased monetary policy.

It was predicted that Government' consump­tion would soar up after increasing to 4.87% in 2013, the highest in the past 3 years [2011-2013]. Defi­cit in Current Transaction which was projected to the level of 2.5% - 3% against GDP last year would cause monetary policy to be eased in the following year. Hence economic growth 2015 could be elevat­ed, driven by investment and household consumption which was under moderation.

As known, BI since June 2013 had been adopting tight monetary policy by increasing bench­mark rate up to 175 basic points to 7.5%. According­ly growth slowed down to 5.78%. If deficit in current account was reduced, the Ministry of Finance would have enough room to maneuver so Government's expenditure would increase. On the monetary side, there would probably be easing of policy so direct investment would increase.

Economic growth of above 6% would prob­ably happen as long as the monetary authorities change their tight policy. Indonesia's economy had been dependent on short term and tight monetary policy to downsize deficit and control inflation at the same time. The consequences was that tight money policy tend to lead to moderation in economic growth.

Many circles warned the Government not to overdo tight monetary policy, or else economic slow­down would be continuous and Indonesia would be on the brink or recession. Lessons must be learned from 1997-1998. So it was about time that the mon­etary policy be led back to targeting inflation regieme instead of current deficit regime adopted today. So far 6% economic growth had not caused overheating and inflation.

In BI's record, economic growth of quarter 1/2014 was projected at 5.77%, driven by export re­covery and slight upturn in household consumption due to election. However the economic growth was not as good as last year at 6.02% due to slow in­vestment growth. Bettered external demand which balanced domestic moderation were the propellers of economic growth. So the 5.77% economic growth was still rated as on the right track against the previ­ous BI projection at 5.5% - 5.9%.

Meanwhile realization of investment through quarter 1-2014 posted increase of 14.6% against same period the year before from Rp93 trillion by end of March 2013 to become Rp106.6 trillion. Unfor­tunately increased investment, domestic or foreign, was not in parallel with employment. Allegedly the investments were more of capital intensive type in­stead of labor intensive.

Today investors were more interested in skilled and competitive workers so labor intensive industry tend to be deserted. Investors were no lon­ger interested in cheap labor. First consideration was productivity, not wages. The Government must strive to strengthen competitiveness through worker's skill and productivity. The same capital ratio could create equally high employment opportunity.

In the record of the Coordinating Board of In­vestment IBKPM1 employment in quarter 1-2014 was posted at 260,156 workers, consisting of Domestic Investment IPMDNI 67,697 people and Foreign In­vestment IPMA1 192.459 people. In quarter 1-2013, BKPM posted employment of 361,924 people. Mean­while in the same period of 2012 BPKM posted em­ployment [PMA1 of 192,459 people.

Meanwhile limited production capacity at home made domestic demand rely on imported prod­ucts. This structural imbalance accounted for econo­my being prone to overheating as growth was forced upward to above 6%. Further effect was that deficit would widen and inflation would soar up. On con­dition that structural problem at home was well un­der control, BI felt sure that growth could soar up to above 6.5% in 2018 with inflation 3.5% + 1%.

Indonesia's economic growth once reached 6.5% in 2011, the highest since economic recession of 1998. Unfortunately, the elevation was on account of booming in primary commodity prices and global liquidity after the stimulus package policy run in the USA; but as the easy money policy in America would soon end this year, strengthening of structural re­formation at home became important. (SS)

Business New - April 30, 2014

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