INDONESIA’S ECONOMIC PROSPECT AND OUTLOOK 2015

The Government would start to dissect the RAPBN-P State Budget Plan. As initial step, the Gov­ernment and Parliament IDPRI would discuss basic assumptions of macro economy 2014. Based on the pres-release of the Ministry of Finance, the follow­ing were the basic assumptions of macro economy 2014.

Firstly, economic growth. Economic growth in RAPBN-P 2014 was around 5.5%. Previously in APBN economic growth was projected at 6%. Pres­sures on economic growth had been going on since 2013 till Q-1 of 2014 which only grew by 5.21%. The condition caused economic growth by end of 2014 to be projected at only 5.5%. The change was reasonable as pressures on domestic economy was notably high.

Secondly, inflation. In the previous projec­tion inflation was 5.5% but it went down to 5.3% in RAPBN-P 2014. This projection was quite reason­able because monetary and fiscal tend to be tight and would continue till end of year.

Thirdly, Rupiah exchange rate value was at level Rp11,700 per USD. Previously in APBN 2014 state budget Rupiah was in the range of Rp10,500 per USD. In fact the rational and objective prognosis was in the range of Rp11,000. - Rp11 ,500 per USD through this year.

Fourthly, interest level of State Promissory Notes [SPN] of 3 month on the average. SPN of 3 month in RAPBN-P increased to 6%. It signaled that the Government wished to give incentive to investors so the plan to sell SPN could be responded positively by the market.

Fifthly, price of crude oil. Crude oil remained to be USD 105 per barrel. The price assumption was quite rational because historically that was the stan­dard close to reality. As geo politics pressures cooled down, price of oil was rated as no longer jumpy.

Sixthly, lifting of oil. Oil lifting was reduced to 818 thousand barrels per day, against the previ­ous 870 thousand bph. The Government was aware that the way it had been or always below target. So it seemed rational to lower oil lifting target in accor­dance with the objective capacity.

Seventhly, gas lifting. Lifting of gas was low­ered to 1,224 thousand barrels per day, against the previous 1,240 thousand barrel. The change of basic assumption was also reasonable because the way it had been production of gas had always been below target. Assumptions that tend to be low signaled that generally economic growth was being designed to slow down.

Presumably economic slowdown this year would still be felt next year. The next Government would have to face various fundamental problems in economy, so it would not be easy to spur on eco­nomic growth at above 6% as in 2011 - 2012,

All were visible in Government's data when presenting basic macro assumptions in RAPBN State Budget 2015. The Government only predicted economic growth at 5.5% - 6%. The Gov­ernment was pessimistic because domestic economy was not showing any sign of recovery and the culprit was allegedly deficit in international trading.

Dependency on imported goods such as im­ported content of products was not to be solved in the near future, which made current transaction to be in deficit moreover on the external side tight money policy in the USA drained forex resources in Indonesia.

Somehow Finance Minister Chatib Basri stat­ed that the Government would sustain people's pur­chasing power by way of keeping inflation from soar­ing too high, i.e. around 4%. Inflation was controlled by managing distribution to keep prices from going up. The Government would axe ministrial expenditure to maintain fiscal balance, so there would be no sig­nificant deficit between expenditure and income.

Total amount of fund saved by Presidential in­struction No. 4 2014 came to 100 trillion of the previ­ous total ministrial budget at Rp637.841 trillion. The Government step did not propel economic growth, but only struggle to play catch up with swelling oil subsidy. The step was merely to maintain economic stability. Indonesia's economic growth was merely relying on people's consumption.

While the Government seemed pessimistic about economic growth 2015, some economists were even more pessimistic. They predicted Indone­sia's economic growth next year only at around 5%. BI would still maintain tight money policy, i.e. main­taining BI rate high at 7.5% -8.0%.

Consequently companies were reluctant to expand business, while the public refrained from bor­rowing from banks for consumptive need since in­terest was high. Fear crept in that Indonesia's trade balance through 2014 would have wider deficit com­pared to 2013, as oil subsidy expanded to Rp74.3 trillion.

The volume of oil importing depended on how PT Pertamina [Perserol and the Ministry of En­ergy and Mineral Resources supply fuel for domes­tic need. For information, the Government in APBN-P State budget 2014 has stipulated maximum subsidy for oil at Rp185 trillion, an increase of Rp74.3 trillion against ceiling of APBN at Rp210.7 trillion.

The up jump of subsidy amount was because Rupiah value sank deep against early assumption at Rp10,500 per USD. Last year Indonesia's trade bal­ance from January to December 2013 accumulatively posting deficit of USD 4.063 billion. Through Janu­ary-December 2013, transaction in oil trading posted high deficit, i.e. USD 214.268 billion and crude oil posted deficit of USD 3.282 billion. All in all, total trading of oil gas posted deficit of USD 123.633 bil­lion.

From the above picture, the Government must pursue better economic performance this year, i.e. economic growth of around 5.2% - 5.5% as a good start for next year when the new Government would hold office. If the target for economic growth next year was around 5.5% it was quite reasonable because the new Government would still be in trans­mission or consolidation stage. (SS)

Business New - May 28, 2014