Coordinating Minister of economy Chaerul Tanjung stated that Indonesia’s economic growth by end of 2014 was most realistic at around 5.2% - 5.5%. Chaerul stated that global economy was still consolidating as developing countries including Indonesia were having economic slowdown.
Still, the government would strive to propel economic growth to a higher level accumulatively at Q I this year by 5.17% by promoting export performance and direct investment.
Naturally, household consumption which was not up to the maximum in Q II due to fasting month and Idul Fitri, would increase in Q III after restrictions in Q II; this was inclusive of 13th month salary paid in Q III.
BPS noted that Indonesia’s economy by Q II 2014 only grew by 5.12% y o y. accumulatively, Indonesia’s economic growth in QI-2013. The Government in APBNP 2014 assumption of economic growth of 5.5%, a downturn against previous assumption at 6%.
The process was growth below 6% for 5 quarters consecutively; and yet by economist assumption, 6% was minimum figure so economy could keep up with growth of labor force. Indonesia’s economic growth was beginning to be eroded since Q II last year as demand for Indonesia commodity in China, one the biggest buyer countries, dropped drastically.
To economic slowdown in Q I, there were allegations that it was on account of tight monetary policy executed by BI. Some monetary policies were put in effect, such as BI rate at 7.5% for months, restriction of Loan to Deposit Ratio [LDR] at national banks which may not exceed 92%, Loan to Value Consumer especially for KPR mortgage and the minimum Mandatory Giro [LDR] amounting to 8%.
The tight Monetary Policy seemed to be effective in controlling inflation. Evidently in Q I inflation was still around 2,9% toward the expected 4.5% + 1%.
However the effort to improve ratio of current transaction to GDP at 2.0% was not easy to attain since national fundamental economy was not condusive to it.
So the urgent thing was to improve national economic structure through structural reformation. This was exactly as recommended by the World Bank that to propel economy, Indonesia must reform the fundamental. Certainly BI could not work alone to do the task because it was in the domain of the Government.
It was advisable for the Government to pay attention to IMF who predicted that the growth level of Asian countries including Indonesia was predictably not more that 5% and in the next 5 years it was important for Indonesia to on the alert of global outburst.
Beside the external influencing factors, Indonesia was also struggling with internal problem like dependence on imported commodities and export of raw materials without added value [like iron ores]. What’s more, the heavy flow of import was not balanced by sizable export.
Still there was budget for energy subsidy without proper objective, growth concept without equal distribution which widened gap, all portrayed the present Indonesia’s economic structure. It was just like building a house on fragile foundation.
Just a little ripple in the ocean of global market could make Indonesia shake. The economic performance was negatively affected. Evidently Indonesia’s economy was kept hostage by serious problems, i.e. four deficits, i.e. deficit in trade balance, deficit in current transaction, deficit in trade balance of payment and deficit in primary balance of APBN State Budget
The four deficits had it effect on weakening of Rupiah value against some world’s leaing currencies especially USD which jacked up bank interest and halted economic growth. Meaning Indonesia’s economy in the past decade did not bring significant result although the average national economic growth was posted at 5.9%.
To consider her abundant natural resources, supposedly Indonesia could elevate economic development to 7% or more. Accordingly as economic growth was low the number of poor people in this country was still high, i.e. 28 million people or 11.2% of total population.
If the marginal group were added to that, the population of poor people in Indonesia broke through 100 million. By eased criteria open employment in Indonesia was7.2 million or 5.7% of total productive generation. Those who worked for only 8 hours a week were not categorized as jobless.
Even the working group were problem entangled. Around 71 million or 60% of people who worked were informal workers. They generally did not have enough skill and income, they were mostly vulnerable to economic turbulences.
Even the relatively low economic growth was rated as exclusive or being benefited by few people, i.e. those who had access to financial resources or working in capital or technology intensive business or rich natural resources. Most of the people working in the agricultural and trading sectors remained poor. The condition was reflected in Gini Coefficient which came to 0.42 in 2013, higher than that of 2004 at 0.37.
Therefore it was time for Indonesia to change its economic paradigm. It became imperative to build the industry sector, i.e. the Sectors of natural resources processing, electronics, automotive, capital goods and basic industry. Deficit in trade balance since 2012 was due to increased import of capital goods, machinery components sparepart and auxiliary goods or the manufacturing industry, which could be solved by building supporting infra structure industry at home. To anticipate growing domestic consumption it was necessary to increase local production capacity. The Government’s role was to draw the roadmap, regulate and give directions.
On the financing side, BI was expected to have the intention and will power to ease the monetary policy to induce incentive to economic growth process. Unfortunately by end of this year the hope was not easy to realize.
As known, BI persisted to adopt the policy of controlling inflation and narrowing deficit. Meaning although Indonesia’s economic expansion since Q II 2014 was posted as lowest since 2009, monetary easing policy could not be expected for the near future.
BI still believed that Indonesia’s economic slowdown process was still in parallel with BI’s effort to control inflation and deficit. It clearly means that BI would not relax tight money policy for the near future although economic growth record in Q II this year was at the lowest in the past 5 years.
As known, from June to December 2013 last BI had increased bank interest from 1.75% toward 7.5% and introduced various austerity steps in line with inflation and widening deficit, which triggered capital outflow.
Government officials and BI had repeatedly underscored that lowered growth percentage was part of the masterplan to stabilize economy. This was in line with their proclaimed jargon, “stability over growth”
Looks like Indonesia had to wait for the next government to assume office to realize relaxation of economic policy, especially on the monetary side to propel economic growth which was more dynamic, inclusive and sustainable. (SS)
Business New - August 13, 2014