The World Bank rated that it would be hard for Indonesia’s economy to compete against neighboring countries because Indonesia was still relying on commodities while the export condition of competitor countries were getting better.
World Bank’s Vice President for the East Asia region and the Pacific Axel van Trotsenburg said that economy of other countries were in fact end of other countries were in fact better in spite of some minor irregularities till end of year. But the impact of economic recovery was different, depending on the investment climate and export condition of each country.
China, Malaysia, Vietnam and Cambodia were in excellent position to increase export which reflected their sound integration into regional and global network, which had propelled global trading in the past 20 years.
This report served as revision to the World Bank’s prediction about Malaysia’s economy in 2014 which came to 5.7%, up from 4.9% in April which was due to Malaysia’s high export in the first half of this year. Cambodia’s economy was predicted to grow by 7.2% in 2014, driven by growing export of garments.
In case of Thailand, if political turbulence did not happen, they could benefit from global economic recovery considering their sound integration to global economy. But Indonesia, who was still relying on export of commodities, the growth rate decreased from 5.2% this year against 5.8% in 2013. This was due to slump of commodity prices, less Government expenditure and slow credit expansion.
As a whole, developing countries in East Asia and Pacific countries were economic slow down this year. However, the countries were believed to able to restore their respective economies unlike Indonesia.
Indonesia was predicted to be able to post economic growth of 5.2% this year compared to 2013 at 5.8%. Economic recovery happened if Indonesia applied the reformation hindrances, strengthening export competitiveness and scheming up state budget wisely.
The World Bank predicted that developing countries in East Asia and next year would grow by 6.9% on the average. In case of China, economic growth slowed down to become 7.4% this year and in 2015 was expected to become 7.2%. The Philippines was predicted to grow by 6.4% this year and 6.7% in 2015.
Myanmar’s economy would grow by 8.5% this year and next year due to reformation of the bureaucracy, new strategy and recovered international relationship.
The advisable way for countries of the region in handling the risk was to overcome vulnerability due to wrong fiscal policy being adopted to step up export competitiveness. The next recommended way was to make structural reformation to strengthen export competitiveness.
One of the weakest point of Indonesia’s economy was export which tend to be stagnant. Ministry of Trade Muhammad Lutfi admitted that Indonesia needed to revise export target 2014 due to slump of commodity princes in the past 2 weeks like coal price which dropped by nearly 7 percent and CPO by 25 percent. Most probably the Ministry must revise export target of 2014.
The Government had reset export target of 2014 at USD 190 billion. Assuming the revision was around 5 percent, to set export target at USD 180.5 bullion. Accumulatively Indonesia’s export for the period of January-August 2014 came to USD 117 billion or down by 1,52% against same period of 2013.
Hench, deficit in trade balance for the same period came to USD 1.41. Although non oil-gas trade balance was able to score surplus of 7.18 billion it was still held down by deficit in oil gas trading of USD 8.59.
All in all, Indonesia’s economy was predicted to slowdown due to poor export performance in 2014 before being projected to go up again in 2015 in line with reformation agenda by the next Government. This was clearly apparent in the latest Asian Development Bank [ADB] report.
In their published Annual Report Asian Development Outlook 2014, [ADO 2014] ADB corrected Indonesia’s GDP growth 2014 to 5.3% against the previous 5.7% in April.
ADB also predicted economic growth of 5.8% in 2015, down against that of April at 6.0%. The tight monetary condition and prohibition of raw mineral ores contributed to reduction of export and axed Indonesia’s growth precentage this year.
However expectations of reformation for future economic policy would improve investment climate, bureaucracy and speed up infra structure building whereby to step up growth prospect.
GDP growth slowed down to 5.2% in the first half of 2014 was the lowest growth rate since 2009. Such happened as BI increased benchmark rate last year to restrict domestic demand and to control inflation and Deficit in Current Transaction. The slowdown turned out to be worst than expected especially with declining export.
Export of goods dropped by 2.3% in the first half of year based on USD calculation, due to low demand and low selling price of export commodities like coal and rubber. Import of goods dropped by 4.4% with deepest downturn in raw materials and capital goods.
Trade surplus during first half of the year increased nearly three fold compared to previous year to become 3.1% of GDP.
Private consumption which was 56% of GDP grew strongly by 5.6% in first half of year and was greatest contributor to GDPP growth in terms of demand. Consumption also soared up as related to General Election. Eased inflation and good harvest built consumers’ confidence and farmers’ income, but tight credit regulation supressed sales of durable goods like automotives.
Foreign investment was relatively strong with USD 10.5 billion while portofolio investment which entered increased steeply to USD 16.8 billion for half of year. Foreign investors were buying more Government bonds up to USD 7.3 billion from January to August.
Increased capital inflow was more than enough for covering deficit in current transaction to maintain balance of payment at surplus position. Rupiah value strengthened by 4.1% against USD in the first 8 month of 2014 after being depreciated by 19.5% in 2013.
Growth forecast of 2014 – 2015 assumed that the new Government who would start to work on October 21 2014 would implement master policy which was already disclosed during last election campaign betterment of investment climate, reformation of the bureaucracy and acceleration of infra structure building.
0.5% additional growth precentage which was project for 2015, was based on bettered economy in leading industrial countries which was expected to jack up export and investment. Growth of private consumption was predictably still strong. Low inflation was supportive to consumption this year and the Government might adopt the cash transfer technology to compensate on the low income group trouble by oil price increase in 2015.
Private investment was predicted to improve through trial period, supported by success in conducting election process and expectations that the new Government would systematically reform strategies. Growth of investment loan would remain high at 30.0% although monetary policy was tightened.
Inflation was predicted to be 4.2% on the average during second half of the year and most probably to reach 5.8% all year through, higher than predicted on April last due to increase of electricity tariff and increase of food price due to long drought of 2014. Inflation was projected to increase for the time being to arrive at 6.9% on the average in 2015 assuming that the Government increased price of subsidized oil by 30% - 50%. (SS)
Business News - October 15, 2014