TO REVIEW TRANSITIONAL ECONOMIC POLICY

The Government had set target for econom­ic growth at 5.5% - 6.3% taking into consideration global economy. Such was disclosed by the Ministry of Finance Chatib Basri. Minister Basri stated that the Government was considering global condition such as the plan to end Tappering Off by the Fed till end of 2014 and economic slowdown in China.

While assuming economic growth at 5.5% - 6.3%, the Government also set inflation target at 3% - 5%, 3 month SPN interest 5.5% - 6%, Rupiah exchange rate value Rpl 1,500 - Rp12,000 per USD, price of Indonesia's crude oil USD 100 105 per barrel, oil lifting 830 - 900 thousand barrels per day and gas lifting 1,225 - 1,250 thousand barrel per day equal to oil.

All of the above macro-economic assump­tions were rational and challenging : how the global environment would influence Indonesia's economy through 2015, especially when the Asean Economic Community [AEC] was effective by January 1, 2016. An integrated Asean market would offer great oppor­tunities for national economy, but on the other hand demanded stronger competitiveness in response to the challenge.

Besides, external pressures in national econ­omy would come from rebound of US economy, eco­nomic recovery in Europe and other industrial states which still influenced the global economy notably.

Asia was predictably still a dynamic region with China, India and other industrial states as pro­peller in their position of export destination or invet­ment locations.

For that matter, there were some global de­velopments which were noteworthy in 2014, i.e. crisis in Europe which was not fully restored so they were feared as not in a position to increase demand.

Furthermore prices of global commodities which were still on the downturn or fiat, with signals of ended "supercycle" which influenced export and investment in Indonesia as well as the QE plan in America till end of 2014.

The global development was inclusive of the possibility of tight money policy applied in the USA and in other industrial states which would increase cost to access international capital.

So it was advisable for the Government to take proper measures to anticipate external pres­sures, i.e. through strengthening people's purchasing power. Furthermore to step up effectiveness of sate expenditure from the budget itself or from the utiliza­tion of expenditure, i.e. to prioritize more on infra structure development. Also, state's revenue must be maximized and deficit by downsized.

By the said measures, as a whole the good momentum of development achieved in 2013 could be maintained in 2014 and be stepped up in 2015.

It was on those grounds that the Government schemed up the Government Workplan [RKP] 2015 based on the global condition and give enough room for the new Government to interprete the Vision or Misson. RKP was focused more on elementary ac­tivities to be done. For that matter, the process of formation was preceded by base line review to for­mulate the activities to be done.

Hence the programs set up could still be de­veloped according to the vision and mission of the new Government. Meaning the basic workplan for 2015 still allowed enough room for adjustments by the new Government as needed.

Execution of RKP 2015 would be the au­thority of the new Government and budget of 2015 would be less compared to 2014 to allow enough room for fiscal which would be allocated through APBN-P. As with strategic issues in the RKP 2015, 23 problems had been identified and classified into 3 categories, i.e. Political Law and Security, Economy, and People's Welfare.

In Politics, Law and Defense, the strategic is­sue included consolidation in democracy, reformation in burreaucracy, and stepping up of public institution, corruption prevention and eradication, and develop­ment acceleration of Minimum Essential Forces IMEF1 with empowerment in defense industry and stepping up of domestic law and order.

In economy, the strategic issue included food resilience, strengthening of energy resilience, water putiry, acceleration of maritime development, upgrading of bio life variety, upgrading of small-and-medium business and cooperatives and promotion of science and technology capacity and efficiency enhancement.

Not less important was the logistics and distribution system, strengthening of national connectivity [inter-regional development balancing, economic growth propeller, mass transport development, upgrading of basic infra structure, betterment of national electrification ratio, upgrading of acess to clean water and sanitation, and housing & settlement management.

In people's welfare, the strategic issue en­compassed health development including the Nation­al Social Security and lowering of mother and infant death rate, population control, reformation in educa­tion, synergy in poverty elimination, development of less developed provinces and restriction of disaster risk.

With classification of strategic problems, the next Government would have a guidline with which to step further. Even if any adjustment was necessary it would still be reasonable. One thing was sure the next Government would "inherit" a good compass in economy.

So far Indonesia's economy had been show­ing signs of improvement and was predicted to be fast growing economy by next year with average eco­nomic growth of above 6%. By 2015 Indonesia's economy would grow by 5.8% - 6.1% with the po­tential to be fast-growing economy.

Indonesia's economy was predictably improv­ing due to four supporting factors:

Firstly, vast population with emergence of a new generation of productive workforce. Today Indo­nesia's population is the fourth largest in the world. Economy wise Indonesia was the biggest in South­east Asia, enjoying a demographic bonus with grow­ing middle class.

Secondly, abundant natural resources like coal, oil, gas and CPO.

Thirdly, macro economic performance which was stable and strong which was evident in increase of direct investment, controlled inflation and growing investment in infra structure.

Fourthly, prudent fiscal development, where Government budget was at the level below 3% to GDP and effective debt management.

That Indonesia's economy might grow by double digit, the key solution was to increase direct investment.

The way it had been, the main sustainer of Indonesia's economy was people's consumption [around 56% of total GDP] where the growth nor­mally rose steeply. Investment was in second place [around 33%] as economic sustainer.

If Indonesia aimed at high growth, the sus­tainer must be changed from investment to consump­tion. Indonesia could play catch up with growth tar­get if direct investment was enhanced; but on the other hand investment had its negative impact, i.e. im­port of capital goods would increase steeply causing Deficit in Current Transaction to widen.

To prevent the undesirable, the Government must strive to promote import substitutes. If import substitutes were developed in Indonesia, whatev­er the investment it would pose as no problem be­cause import was supressed. Something noteworthy in global economy was China's economy which was slowing down as China's was shifting focus on do­mestic consumption so there was chance for foreign investors to probe on Indonesia as investment loca­tion.

Most probably next year Indonesia's and China's economy would move in reverse direction, where Indonesia would focus more on investment, while China would focus on domestic consumption. Indonesia's appeal as investment location would nev­er fade as Indonesia had affluent middle class with growing consumption.

If investment turned low it was more caused by external factor which was seasonal. When the ex­ternal factor subsided, investment would predictably grow once more. Growth of domestic investment [PMDN] must also be stimulated in case foreign in­vestment [PMA] suddenly slumped due to external factor. If domestic investment had grown it could contribute well to economy.

As time went by, capital intensive invest­ment would increase steeply while labor intensive investment would slow down. That labor intensive industry might grow, the Government needed to pro­mote labor intensive industry with added value. An example was garment and textile which had to keep abreast with trends to be competitive.

Labor intensive industry with added value could resist amidst growing capital intenstive indus­try. The Government must promote labor intensive industry as labor aborption was highly reliant on it. Businessplayers understood that the labor sector was the most crucial problem faced by Indonesia today so reformation was needed to anticipate it.

Based on data of the Coordinating Board of Investment [BKPM], investment realization of quarter 1-2014 amounting to Rp 106.6 trillion only provided employment for 260,156 people. And yet in quarter 1-2013 there was investment realization of Hp 93 tril­lion with employment capacity of 361,924 people.

The data indicated that investment had shift­ed from labor intensive to technology intensive zone. If this tendency continued, the projection of every 1% economic growth could absorb 400,000 workers would never be attained.

In 2013 it was apparent that every 1% growth could only absorb 180,000 workers or only 45% of ideal projection. In other words from the labor angle, quality of investment in Indonesia tend to drop. Meaning, as long as Indonesia's economic structure had not drifted away from being exporter of natural resources, Indonesia might have to face serious un­employment disaster.

So a wayout was recommended to escape frome spin, among others to strengthen the small business [UMKM] sector which had been a able to employ more than 100 million workers with contribu­tion to GDP up to 57%.

The wayout was to upgrade the quality of In­donesian workforce working abroad. To send Indone­sian workers abroad was a noble mission. What was not noble was the inability to send workers of digni­fied profession. In that case the paradigm of sending TKI who were merely contributing forex reserves and to find short-cut solution to joblessness problem at home must be totally changed.

Those were some economic notations to bew pondered by the next ruling President. Success in un­dergoing transition period 2014 2015 should be a good start to execute the mission for 2014 - 2019. (SS)

Business New - May 9, 2014