Thursday, 10 December 2015


In the aftermath of crisis in the USA triggered by Subprime mortgage, the world’s eyes was set on China, whose economy was growing well. On the average China’s economy grew by around 10% through 2006 – 2010, the highest level in the world.

However in the last 4 years, China’s economic growth rate shrank to around 7% due to weakening economy of trade counterpart countries: Uni Europe and the USA. China’s export commodities could not be absorbed by buyer countries of the world. What made things worse, 70% public perception believed that China’s GDP was export dependent. In the end when demand dropped, China’s economy shrunk accordingly.

Analysts still remember 14 years ago the world was astounded by performance of the so-called BRIC countries: Brazil, Russia, India and China, four countries predicted to emerge as new economic power of the world.

Today world look at BRIC in great disappointment as their performance slumped except India who in 2014 made their marks but Brazil, Russia and China were losing steam.

And yet only years ago BRIC countries were widely acclaimed as economic machines of the world when the USA and Europe were losing their roles due to crisis. Now Brazil and Russia were facing recession due to low commodity prices while China was losing steam and was striving to regain strength.

Chances that US Benchmark rate would be raised higher darkened moneymarket of the emerging states. South Africa’s Rand, Indonesia’s Rupiah and Malaysia’s Ringgit slumped as the feared that the Fed in America would increase FFR next September.

The reversal process in the emerging markets showed that the big fortune from foreign capital in flow in the year 2000 – where index of the emerging markets MSCI between 2002 to 2010 multiplied by nearly fourfold, was only a “borrowed” fortune which must be returned to the owner. Apparently very few lower-middle income and upper-middle income states managed to step up to the level of high income state. Now the emerging states must fall back-to-square-one.

The drying up trend in the emerging markets (EM) was not ignorable. So far many currencies of the EM countries had dropped by value to that of 1999 and the fund from bonds in local denominations gathered the fund bonds in local denominations gathered over the last 5 years was drying up.

Meanwhile the gap in market performance between advanced countries and EM was getting broader than ever. Since 2009, MSCI index of the emerging market had dropped by 10%, while the emerging states had soared up by 50%. Based price-to-income ration, shares of the emerging markets advanced states discount i.e. 31% compared to advanced state since 2006.

Fortunately only very few strategists predicted there would be an explosion of crisis as in 1998 which paralyzed part of Asia of crisis of the early 1980 which tormented Latin American states. Still combination of the following factors: strengthening of USD, falling commodity factor prices, economic slowdown in China and increase if US Benchmark rate, obstacle growth of EM.

Over the past 15 years, the Fed’s low interest credit and blooming China’s economy combined into one to be an economic propeller machine and pushed flow of foreign investment to the emerging market. Now the double powered machine seemed to have engine trouble. US Benchmark rate would be increased and China’s economy was slowing down, resulting in troubled EM’s economy.

14 of 23 currencies of the emerging markets would be depreciated against USD till June 2016. Estimated company’s income by MSCI index fell to the lower level since late 2009. Crisis was clearly looming.

Economy of Uni Europe and China was slowing down, Japan’s economy was having rebound and they all had their negative impact on Indonesia’s economy, simply because China and Japan were Indonesia’s main trading counterparts. Evidently Indonesia’ economic slowdown was worsening, as seen in data of Q-2 2015.

The Central Board of Statistics (BPS) released Indonesia’s economic growth in the second half of this year only at 4.67% which was lower than Q-1 last year at 4.71%. Compared to last year (5.12%), this year’s performance was by far slower. Through Semester 1 of this year Indonesia’s economic growth was 4.7%.

Indonesia’s economic slowdown was on account of low investment growth, low Government’s consumption and low household consumption. Thankfully Indonesia was still far from recession. The low Q-1 – Q2 performance indicated that the Government’s policy had not been well executed.

Indeed there was increase of Government’s expenditure, but they were mostly routine expenditures. Expenditures which had multiplier effect like capital expenditure for infra structure had not been high and widely beneficial to economy. The effort to reserve t regress into progress had not been successful either because people’s purchasing power was still low.

Global economic slowdown was only secondary cause to Indonesia’s adverse condition, not primary cause. Contributors to Indonesia’s economy were mostly the private sector, not export-import.

About Indonesia’s economic growth in Semester 2, many people rated it would still be hard to pursue growth above 5% in this Semester 2 Government’s capital expenditure was to be jacked up. Besides, growth of household expenditure was still expected.

However BI expected would be betterment in Q-3 and Q-4 this year. Growth was expected to be jacked up by accelerated Government expenditure for infra-structure projects.

Meanwhile consumption was predicted to improve in line with expectations of increased income and Simultaneous Regional Ejection (PILKADA) in December 2015. Besides, the macro-prudential policy was expected to show its fruits in Semester 2, 2015.

Somehow challenges of Semester 2 would be heavier considering that pressures in the economic sector would heighten as the Fed planned to increase FFR in September. Growth Semester 2 could only be expected if Rupiah value could be upheld.

It was noteworthy that President Joko Widodo was expecting that the 4.7% economic growth in Semester I/2015 was the lowest point in economic slowdown cycle; thereafter only upturn was expected.

According to President Jokowi, the optimism was based on Government’s expenditure cycle which was slow in Semester 1 but starting to improve in Semester 2 especially in august and September.

However economic growth should not only rely on realization of Government’s expenditure but also expenditure of BUMN and private companies. Companies combined in BUMN had posted capital expenditure of Rp119,2 trillion in the first 6 months of 2015. The amount had not constituted half the target by year and.

The total capital expenditure (capex) constituted 37% of capex plan 2015 posted at Rp.320 trillion. The Government was optimistic the target for Capex realization would be met, since capex by most BUMN 2015 would be realized by Semester II 2015.

Realization of capex was mostly by supply of gas, steam and cold air 40,9% or Rp48.7 trillion and mining and excavation 20.8% or Rp.24,7 trillion. Realization of Capex by BUMN was mostly realized through BUMN strategic projects.

Total value of strategic projects on multi year (1-3 years) basis and worth above Rp.100 billion per project totaled Rp.318.5 trillion and Rp.5.1 billion – of 86 projects undertaken by 25 BUMN.

The projects were among others toll road building Rp.61.5 trillion, Steam Powered Generators (PLTU) Rp.46.3 trillion and USD 1.5 billion, harbor building Rp.9,5 trillion, oil and gas explorations Rp.9,8 trillion. The Ministry of BUMN must command BUMN companies to realize operational expenditures and accelerate finalkization of strategic projects.

From the above picture economic growth of Semester 2 could reach around 4.9% - 5.3% so in annual terms it would be around 4.8% - 5.05%; not bad compared to that of neighboring countries. (SS)

Business News - August 14, 2015

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