Tuesday, 1 July 2014


Whoever the President, the next Government must work hard to restore national economy. Under­standable because al year through indicators of eco­nomic. slowdown had been too visible to be denied. The indicators testified the trend, among them was the degree of budget absorption.

Over the past 4 months of 2014 realization of Government's spending in APBN State Budget was posted at Rp 432.68 trillion or 23.5%. By percentage not any better than the same period of previous year at 23.7%.

Less realization of expenditure was indicat­ed by less transfer of fund to the regions which was less by 4.9% this year. Furthermore, Central Gov­ernment's expenditure was higher by 1.8% com­pared to last year. Meanwhile realization of income and grant per April 30, 2014 was Rp 413.11 tril­lion or 24.8% of target. By percentage, an increase against same period of previous year at 23.5%. The increase was on account of realization of income­from-tax which increased by 1.2 % while non tax state income [PNBP].

By expenditure and tax income, APBN 2014 had posted deficit of Rp19.57 trillion lower than that of same period last year at Rp 38.99 trillion. Realiza­tion of financing per April 30 was Rp 120.23 trillion or 68.6% of target, higher than same period of previ­ous year at 49.1 %. This was due to Government's front loading policy. Financing from bond resources was exercised every budget year.

In the posture of APBN State Budget 2014, the breakdown of state budget income and expendi­ture was visible. State's revenues was supported by income from tax Rp 354.4 trillion [27.7%] consist­ing of domestic taxes [27.7%] and international trad­ing taxes Rp 14.9 trillion [27.6%]. Furthermore with added non-tax state's income [PNBP] Rp 58.4 trillion [15.2%].

Meanwhile state's expenditure of the Central Government was Rp 256.1 trillion [20.5%] consisting of wages Rp 72.1 trillion [27.8%], social aid Rp 20.1 trillion [21.9%] and others Rp0.7 trillion [1.7%]. Fur­thermore there was transfer to regions Rp 176.6 tril­lion [29.8%] consisting of Regional Balancing Fund Rp 147.1 trillion [30.1%]. Special Autonomy Fund and Adjustment Rp 29.5 trillion [28.2%].

With volume of income being less than ex­penditure, there was deficit of Rp 19.57 trillion. For that matter, deficit would be supported by domestic financing Rp 130.2 trillion [66.3%] and net overseas expenditure minus Rp 9.9 trillion [47.5%].

Swelling of energy subsidy burden was be­cause weakening of Rupiah made deficit in APBN State Budget to swell. Therefore unless macro as­sumption was revised, the Government was worried that deficit might soar up exceeding permitted level by the Law, i.e. 3% of gross domestic product.

Unless macro assumption was revised, defi­cit in APBN state budget 2014 might swell to Rp 472 trillion or 4.6% of GDP. One of the triggers was weakening of Rupiah. Every weakening of Rupiah of Rp 100 of exchange rate value, deficit burden would increase by Rp 3 trillion to Rp 4 trillion.

The subsidy fund was one of the funds that developed notably due to depreciation of Rupiah. Un­fortunately there was no breakdown of subsidy up-jump for energy due to missed assumption; but one thing was sure APBN-P 2014 State Budget for energy swelled from Rp 110.03 trillion to Rp 392.13 trillion.

As footnote in APBN 2014 the Government assumed Rupiah value at Rp 10,500 per USD. Mean­while in RAPBN-P 2014 State Budget the Government proposed assumption of Rupiah value at Rp 11,700 per USD. In Government's calculation, the change in acro assumption expanded deficit by Rp 48 trillion.

Previously in APBN 2014 the Government as­sessed deficit of State Budget at Rp 175.35 trillion or 1.69% of GDP; meanwhile in APBN-P 2014 bud­get deficit was still set at Rp 251.7 trillion or 2.5% of GDP. Unless deficit swelling was overcome, the effect would chain-strike to all economic aspects in Indonesia. The high budget deficit could slow down national economic growth.

Other side effect was that state's income would be reduced, especially income from the tax sector. If economic growth was set at 6% according to APBN 2014, income-from-tax had the potential to drop to Rp 110 trillion. For information, in RAPBN 2014 the Government set income-from-tax at Rp 1,110.19. But in RAPBN-P 2014 the Government revised of in­come from tax to become Rp 1,059,79 trillion.

Currency exchange rate and economic growth were components which were significant impact on budget. Meanwhile so far energy subsidy was a post of highest impact on exchange rate value. Like it or not, the Government must reduce subsidy budget so state budget would have enough room to energize. Unless reduced, there would be no room for jacking up growth.

Global economic slowdown and the magni­tude of budget deficit which was tackled by was of budget axing, would predictably had its impact on economic growth this year. BI predicted economic growth this year would only reach 5.15%.

As known, the effect of budget axing would make state budget to shrink. Without budget axing, economic growth could be in the range of 5.35%. Somehow this economic growth of 5.15% was still in line Indonesia's economic growth target set by BI at 5.1% - 5.5 %.

This year the Government planned to axe budget of around Rp100 trillion. This budget axing was legalized in Presidential Instruction [Inpres] No. 4/2001. Previously Ministerial budget was allocated at Rp 637.841 trillion.

Although predictably slowing down, the Government was still optimistic to attain economic growth as stipulated in RAPBN-P State Budget 2014. The assumption of 5.5% economic growth was inclu­sive of Ministerial austerity plan.

Like it or not, fact showed that Indonesia's economic growth was slowing down. Until Q-1 2014 Indonesia's annual growth was only 5.21%. It was still positive, but it was the lowest growth in the past 5 years. For comparison, over the same period of 2013 last Indonesia's economic growth was still 6.03%.

The trend of economic slowdown did not only sweep Indonesia, many other countries in the world was having the same faith. The USA, China, Thai­land, Vietnam, the Philippines were having econom­ic slowdown. America' economy, for example only posted growth of 0.1% in Q 1 2014 which was the worst growth record since 2011.

However, slowdown in Indonesia's economic growth was noteworthy. The undesirable condition was due to many factors.

Firstly, this was normally a cycle process: especially in infra-structure, manufacturing and con­struction, usually Government's spending in that sec­tor turned maximum toward year end.

Secondly, this was the Government's delib­erate act to put brakes on export to minimize deficit in current transaction. The result was that exporters who relied on export like manufacturing and mining, must bear the consequences. Many economists rate that the slowdown was by design on Government's part, but it they were overdoing it.

Thirdly, increase in Provincial Minimum Wages [UMP] contributed to slowdown process. Data of the Ministry of Manpower and Transmigration had it that the average of UMP increase this year was 14.68%. All in all burden of the businessworld increased which down pressed production capacity. Economic slow­down was also reflected in the performance of com­pany's business.

Financial report of public companies in Q 1 2014 more or less showed trend of downturn against same period of the previous year. At lease such was visible in emitents' revenue. The average in­come growth of companies per Q 1 2014 was only 14.28%. And yet over same period through 2013, the average income growth of all emitents only came to 24.06%.Somehow not all industrial sectors were post­ing downturn of growth. Of 9 industrial sectors at BEI, 3 industrial sectors were growing in terms of income.

Fourthly, slowdown in economic growth was the side effect of 'Legislative and Presidential election. Investors would wish to see what was the policy of the next Government would be.

The trend of economic slowdown had for long been predicted by the World Bank. According the World Bank, developing countries were facing disappointing growth rate this year, the World Bank saw that various global economic trends would make some developing country grow slowly.

The World Bank lowered growth estimate of developing countries. Previously in January growth of developing countries was estimated at 5.3%, now lowered to 4.8%. Foul weather in America, crisis in Ukraine, economic slowdown in China, political un­rest in some middle income states and slow process of structural reformation contributed to slow process of economic recovery in advanced states as a whole.

So it was important for developing countries to move fast and invest more in structural reforma­tion at home to drive economic growth to ideal level to end poverty. There were signals of strengthening coming on toward 2015 and 2016 with growth of 5.4% and 5.5% respectively this year, however it still depends on how successful recovery effort in China would be.

The trend of economic slowdown forced stakeholders in Indonesia to revise growth projection from 5.6% to 5.3% this year. Not ignorable was per­formance in external linkages like export, import and investment.

In spite of economic slowdown, there was still optimism that economy would grow better in the second half of this year. The reason was that in the second half of 2014 there would be bettered investment in line with capital inflow from investors. As known, investors were today still in wait-and-see stance in regard to political situation in Indonesia.

In the event that the Presidential Election run safely, chances are more investors would come to Indonesia. The result was that in Q- III 2014 and Q IV Indonesia's economy might grow by 5.4% and 5.5% respectively. (SS)

Business News - June 13, 2014

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