Tuesday, 1 December 2015


Through Semester 1 of this year, some data of Indonesia’s macro economy called for special attention as they signaled regress. The first footnote was inflation rate which was below expectation and economic consensus.

The Lebaran days characterized by hometown rush (mudik) and backflow rush made inflation of 2015 only posted at 0.93% or below the usual above 1%. The following are components that caused inflation in June.

Firstly, airfare The Central Board of Statistics (BPS) noted that in Idul Fitri when hometown rush and backflow rush happened in the same month, i.e. in July had caused soaring price increase. During Idul Fitri in 2014 last Hometown Rush was in July and backflow was in August. The price increase was 24.24% contributing 0,2% to inflation.

Increase of airfare was in 52 IHK cities where Pontianak and Pangkalpinang posted highest increase 72% and 20%.

Secondly inter-city transportation tariff which increased by 11.8% and inflation share 0,1%. Just like airfare, increase of inter-city transportation tariff was due to Idul Fitri. Highest increase was in Cirebon 42%.

Thirdly fresh fish. Price of fish increased by 3.05% sharing 0,09% inflation. Foul weather had caused fish supply low.

Fourthly, price of chicken. Demand for chicken increased in Ramadhan and Idul Fitri causing price of chicken to increase, the highest being in Cilacap and Bukittinggi 22%.

Fifthly, red chilli. Price of red chilli increased by 14.3% as demand increased. The highest was in Sampit up by 72%.

Sixthly, price of rice. Supply of rice was diminishing as dry season came causing price of rice to increase by 0.68%. Rice shared 0.03% of inflation.

Seventhly, price of beef. Just like chicken, demand for beef increased. Price of beef came to 4.76% contributing 0,03% to inflation. Highest increase was in Depok 14%.

Eightly, Rawit chilli. Price of Rawit Chilli increased by 30,16% increased happened in 60 IHK cities the highest beng in Sumenep 90%.

Ninthly train ticket. Tariff of train ticket increased by 6,94%m the highest being in Cirebon 40%.

From the above picture it was apparent that inflation came from the supply side where producers of goods and services set premium price due to Idul Fitri. Unfortunately demand was not as strong as last year so July inflation was below 1%.

Hence it was presumable that purchasing power of some people dropped so they became more rational spending their money.

The second footnote was BPS view of inflation. They suggested that lowered core inflation which was below 5% was the right moment for Bank Indonesia to lower benchmark rate. BPS believed that lowered inflation in core component was portrait of economy in general. With inflation being below 5% it showed that Indonesia’s economy development was on the right track.

Lowered BI Rate would naturally help to enhance investment because credit interest also dropped.

Over the past 2 years BI persisted to maintain tight money policy to stabilize economy. BI maintained high interest level at 7.75% for nearly a year and only lowered it by February 2015 by 25 bps to become 7,5% until today.

It was true that the meeting of the Board of BI Governors on July 15 last and decided to maintain BI rate at 7,50% with Deposit Facility of 5.50% and Lending Facility at 8.00%. the decision was in line with the effort to maintain inflation at targeted 4%+1% in 2015 and 2016.

While maintaining Benchmark Rate BI was executing mixed policy consistently toward maintaining macro economic stability in tandem with smart macro prudential strategy.

Meanwhile BI kept fostering coordination with the Government in controlling inflation and enhance fiscal stimulus to jack up economic growth. BI also supported Government’s effort in speeding up budget realization including infra structure and accomplish structural policy.

BI saw that global economy seemed still biased down against past perceptions amidst a global market fill of uncertainty. The perception was related to US economy which was not as good as expected and China’s economy which was losing steam.

The third footnote: BPS also reported trade balance in June 2015 posted surplus of USD 477 million which was the difference Between export of USD 13.44 billion and import ISD 12.96 billion. Accumulatively in January-June 2015 trade balance posted surplus of USD 4,35 billion from export of USD 78.29 billion minus import of USD 73.93.

The surplus I trade balance bettered deficit in current transaction in Q II/2015 which was predicted to be better than the previous prediction of 2.5% against GDP and better than the same period of the previous year of 3,9% against GDP.

Noteworthy was the surplus because import value lessened. If the downturn was import of raw materials, auxillary materials and capital goods, it indicated that many companies postponed their importing as economy was not condusive to progress.

In June 2015, Indonesia was still having deficit against 3 main trade partners, i.e. China, Japan and the USA i.e. USD 1.4 billion, USD 57.9 billion and USD 606.7 billion respectively. Meanwhile Trade Balance against ASEAN states posted surplus of USD 221.9 million, i.e. against Malaysia surplus USD 113.7 million, Singapore USD 104.5 million but against Thailand still deficit USD 340.3 million.

Besides ASEAN, Indonesia’s Trade balance in June also posted trade surplus against Europe amounting to USD 409.4 million with export amounting to USD 983.1 million. Indonesia’s trade balance posted deficit only against Germany at USD 4.3 million.

The fourth footnote: financial balance sheet; inflow of foreign capital was posting increase although the global financial market was still full of uncertainty. Inflow of foreign portfolio investment to Indonesia’s capital market was posted at USD 4.7 billion. Accordingly Indonesia’s forex by June 2015 was USD 108.0 billion or equal to 7.0 months import or 6.8 months import plus payment of government’s overseas debt and mow being above international CAR of 3 months of import.

However it should be borne in mind that incoming portfolio investment was sensitive to turbulence. Entry of foreign capital was more on account of their interest in Indonesia’s bonds which offered higher benefit than those of other Asian states.

Yield of Indonesia’s promissory notes of 10 year tenure offered yield of around 8.4% while other countries only offered 4% - 5% Naturally foreign investors would prefer to invest in Indonesia instead of other countries. High yields of Indonesia’s bonds was because inflation was still notably high around 7.26%; while inflation in other countries were around 3% - 5%.

The fifth footnote: Rupiah value remained to be depreciated mainly by external factors. In June 2015 Rupiah weakened on the average by 1.28% (m t m) to the level of Rp.13,311 per USD.

On the external side, sentiment on Rupiah was governed by the case of Greece fiscal recovery and the Fed’s decision at the FOMC meeting in June 2015. On the internal side, increasing demand for foreign currency for paying overseas debt through Q II/2015 contributed pressures on Rupiah.

The sixth footnote: projection of Indonesia’s economic growth this year was predicted to be low. BI was even pessimistic economic growth in the last quarter of this year. Growth on the second half of this year was only around 5% - 5.2%. previously monetary authority estimated Indonesia’s economic growth in last quarter of 2015 was around 5.3% - 5.4%.

This lowered projection growth was in line with estimate of economic growth of Q 2. In the beginning BI was optimistic economic growth was 4.9% but now it was only 4,7%, a figure which was just the same as Q 1/2015. In fact Indonesia’s economy was measured on the basis of GDP against price of Q II/2015 reaching Q 1 2015 at Rp.2.866.9 trillion and based on constant price 2010 at Rp.2.239.3 trillion.

Indonesia’s economy in Q II/2015 against Q II/2014 grew by 4.67% (y o y) less than growth of Q II/2014 which grew by 5.03% and Q I/2015 growing by 4,72%. On the production side, growth was propelled by nearly all lines of business where growth was attained by the Education sector which grew by 12.16%. in terms of expenditure it was supported by nearly all components with highest growth attained in the Household  Consumption Sector which grew by 4.975%.

Indonesia’s economy grew by 3,78% in Q II/2015 against previous quarter. On the production side, highest growth was in agriculture, Forestry, and Fishery 10,09% while on the expenditure side Government consumption was 32.17%.

Indonesia’s economic growth in Semester I- 2015 was 4.70%. On the production side, growth was driven by all sectors except mining and Excavation which posted downturn of 3.58%, while on the expenditure side it was driven by expenditure in Household Consumption which grew by 4,99%.

Structure wise, Indonesia’s economy spatially in Q II-2015 was dominated by the provinces group in Java and Sumatra. The Provinces group contributed most to GDP, i.e. 58.35% followed by Sumatra 22,31% and Kalimantan 8.22%.

All of the footnotes above, particularly number 6, should be the Government’s attention in this Semester 2 for improvement. Betterment of economic foundation would help to buoy up Rupiah, market trust and regain Government’s credibility.

The Government had done well in making policies and strategies, what the nation need today is skill, competence and professionalism in echelon 1, 2, and 3 to execute the strategy and masterplan afield for the benefit of all people. (SS)    

Business New - August 12, 2015

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