ECONOMIC GROWTH AND PEOPLE’S WELFARE

Indonesia’s economic growth ranked second best in the world. Data showed that through Semester 1 2012 China’s economy grew by 8.7%, followed by Indonesia 6.4% and India 6.1%.

Turkey, whose growth was posted at 8.5% on the average, now grows only by 2 percent. Meanwhile Brazil which was one of the BRIC group [Brazil, Russia, India, China], a club of nations of high percentage growth, now only managed to grow below 2 percent. Indonesia’s fellow Asian nations, let’s say Thailand, only grew by 2 percent, Malaysia 4 percent, the Philippines and Singapore 2 percent respectively.

This year, Indonesia’s annual growth was predicted to be in the range of 6.3% - 6.5% and next year 2013 between 6.5% - 6.87%. Meanwhile the world’s Economic growth this was only posted at 3.3%, while next year it was projected to be at 3.8%.

Indonesia’s growth attainment above 6 percent was worthy of appreciation, especially when compared against world’s economic growth. Some how the attainment needed to be responded to the critical way.

Economists circles rated that Indonesia’ economic growth was “anomalous” because it was not followed by betterment of people’s welfare. In fact poverty figure keep falling each year, from 24%in 2009 to become 12.5 percent this year or 30 million people. And yet if only the standard of property, i.e. monthly expenditure were slightly raised, the number of poor people instantly swell.

The World Bank set a standard that people with income of below USD per day was classified as poor people. The fact was that income of USD2 per day was not enough to support oneself, not to mention to support a family.

It was not possible for a person with income of slightly above USD 2 per day, let’s say USD 3 per day to be able to support himself plus a wife and two children. So if the criterion of USD 2 was not regarded as poor, it would trigger a polemic. It was about time to review the margin and to adjust it to the objective condition of the people.

There were at least four factors which made a certain economic growth to be termed “anomalous”. Firstly Indonesia’s economy was propelled by overseas debt whose value continued to increase. Today the dept reached Rp 2.870 trillion with a tendency to increase each year. Like it not, debt had become the Government’s main source of income. The Government also proudly claimed that the debt-to-GDP ratio was still low, i.e. around 30% way below the permissible level of 60%.

By entertaining the belief that “debt-to GDP ratio is still low” the Government seemed to be lost in a life of self-indulgence and keep on borrowing money. In fact ratio was even greater if debt to domestic creditors were included in the calculation. Basically to borrow money was and with full responsibility because the final objective was to promote people’s welfare.

Secondly, economic growth was propelled by increased people’s consumption which stemmed from price increase and sustained by credit growth, in this case consumption. In fact the growth of consumptive credit at the national banking sector today was low, i.e. around 20 percent, compared to productive credit growth which was 25 percent.

However, unless controlled and halted, it was always possible that consumptive credit would soar up to exceed growth of productive credit. Under such circumstances, there would be economic overheating which might endanger national economic stability. It seemed right for Bank Indonesia to launch the policy of Loan-to-value [LTV] by way of increasing down payment for mortgage [KPR] and credit for automotive [KKB].

Thirdly, economic growth was driven by export of raw material for example minery products, oil and gas, and plantation yields and forestry products where there was no added value and employment. By selling primary commodities raw and unprocessed, with no added value at all, it would not only drain Indonesia’s natural wealth buyer countries would be having the pleasure of putting added value on them and enjoy the end result.

Fourthly, growth was supported by foreign investors which made Indonesia’s natural resources dominated by foreigners. The result was that people no longer could benefit from the natural resources through better living. Notably foreign investors were investing their business in minery sector while domestic investors were investing in non-minery sectors.

The above-mentioned growth factors called for Government’s serious attention to be followed up by sound action and corrective measures. Indeed all people would have their tangible impact in the form of people’s prosperity as indicated by lessened poverty and joblessness.

An inclusive economic growth, in the sense that it could open wider access to all components of the nation, needed to be realized.  In the spirit of healthy an open competition, where the state and the Government in the name of the people could take corrective measures while the people could make intervention on the policy being adopted.

To give protection for small and micro business by the Government became imperative because this segment included tens of millions of trades not to mention their families. Hence the qualitative aspect of people which were the core of growth process must not be overlooked as performance symbols for the sake of image building of the Government. 

Business News - September 21, 2012  

BUDGET SAVING STRATEGY

Sustainable fiscal or budget health to a country is a necessary condition, and therefore it must be attempted as optimally as possible. If not, its negative impact will spread everywhere.

The Indonesian government is currently facing a crucial problem, namely how sustainability of a healthy budget can be achieved and maintained year by year. Formerly, the government is planning to increase electricity tariff (TTL) by 15 percent in 2013.

When the plan was disclosed, it stimulated a polemic in the society. The business community has objection against TTL increase because it will have a direct effect on industry sustainability. For example, textile and textile product (TPT) entrepreneurs whose dependence on electricity consumption is quite high.

Therefore, there is another perception that government should better increase price of subsidized oil fuel (BBM) rather than increasing TTL by 15 percent in 2013. TPT entrepreneurs have asked the government to increase price of subsidized BBM as increase of electricity tariff will cause increase in production cost. So far, fiber spinning industry has been using a very high amount of electricity energy.

In addition to facing high electricity tariff, TPT industry also suffers from the consequence of the enforcement of Regulation of Finance Minister No. 253/2011. Performance of national TPT industry in 2013 will decline due to the crisis in the United States and Europe.  And, TPT sector is also facing Regulation of Finance Minister No. 253/2011 on Import Duty Draw Back on import duty that has been paid for import of goods and materials to be processed, assembled or installed on other goods to be exported.

In line with the above demand, TPT industry operators also firmly refuse TTL increase is very discriminative as users of electricity with a capacity of 900 watt or less are not imposed with price increase. TPT entrepreneurs will file a judicial review to the Constitutional Council regarding high tariff.

According to them, high electricity tariff will cause TPT export performance to decline. Increase in TTL makes Indonesian TPT industry to be more sluggish. This year, its export performance has declined by 6 percent, and next year it is predicted to be lower than the realization in 2012.

On the other hand, the government reasoned that allocation of subsidized BBM will continue to increase each year as number of vehicles increases continuously. This is because number of vehicles produced always increases. Old vehicles are still being used, and these vehicles use subsidized BBM.

For this year, the government has filled a request for addition of quota subsidized BBM at 4 million kilolitre (kl), and the previous quota is 40 million kl. While, assumption of quota for subsidized BBM in the State Budget Plan (RAPBN) of 2013 is set at 46.1 million kl.

Therefore, the plan on addition of quota of subsidized BBM submitted by the government to the House of Representatives is already suitable for the current condition. An addition of two million kilolitre a year seems quite realistic. Based on data of projection of Indonesian Automotive Industries Association (Gaikindo), there will be an additional 10 million units of motorcycles in 2013. While, number of cars will increase by one million units.

In relation to allocation of subsidized BBM in RAPBN 2013 at 46.1 million kl, the government admitted that quota for subsidized BBM has been reduced by saving conducted by the government. The government is in the opinion that if there is no saving, subsidized BBM needed in 2013 is estimated to reach 48 million kl. Therefore, BBM efficiency and saving is still carried out by the government. But, it is admitted that the attempt is not yet optimal.

Saving movement implemented by the government is by prohibiting government official vehicles and transport vehicles for mining and plantation from using subsidized BBM. There is also saving program in the State Electricity Company (PLN) which requires not to use BBM in electricity production.

And, the cause of the decline in subsidized BBM allocated in 2012 is because the government does not increase prices, while price of non- subsidized BBM continues to increase. Facts show that vehicle owner who previously used Pertamax (non- subsidized BBM), and as Pertamax? Is price increased, they shifted to premium gasoline (subsidized BBM). Consequently, number of users of subsidized BBM rises sharply.

There is many smuggling of subsidized BBM. The reason is the increasing difference between price of subsidized BBM and price of non- subsidized BBM. Many of BBM smugglers are increasingly fearless. The government should cooperate with the police in taking actions against the smugglers.

The House of Representatives also stated that increase of quota for subsidized BBM has been an issue that needs immediate attention. Moreover, based on data of PT Pertamina (Persero), as of August 30, 2012 total allocation of subsidized BBM reaches 29.32 million kl consisting of premium gasoline at 18.44 million kl, diesel fuel 10.06 million kl, and kerosene 700.00 kl.

From the above illustration, the government is really facing a dilemma. The budget saving alternative bring a consequence of declining political reputation. But, if the government is able to communicate it properly and smartly about the  background, intention, and objective of budget saving , whether by increasing TTL by 15 percent or by increasing price of subsidized BBM, the public can accept it.

The problem is that government seemed to worry that the unpopular policy will decrease governments ? S reputation. While, in fact, if the medium and long term goals of the saving can be communicated smartly, the government will receive appreciation in the future. The government assumed that the public will not agree with plan on increase of price of subsidized BBM. Therefore, the government chooses to increase TTL by 15 percent starting next year.

The policy on increase of TTL by 15 percent starting next year has been stipulated. If this has been decided, the government must be able to secure the policy so that its implementation can be monitored. Any weakness must immediately be corrected. Hopefully, there will be no mass riot so that policy can be implemented with discipline and full commitment. 

Business News - September 21, 2012

ASBISINDO URGE BI TO EASE REGULATIONS ON GOLD PAWNING

The Association of Indonesia Syariah Banks urged Bank Indonesia to ease regulations of gold pawning as restrictions applied by BI caused portofolio of gold pawning to drop drastically to only Rp 250 million at the highest.

Chairman of Asbisindo Yuslam Fauzi said that BI s regulation had made pawn business to loose steam which was previously being aggressively enhanced by banks “: In the past gold pawn was in full swing, but now it’s losing steam” he said in Jakarta on Monday [17/9].

Portofolio of gold pawn at the value blow Rp 250 million was admittedly showing increase whilst in portofolio gold at the value above Rp 250 million was showing significant downturn. “The high ones plunge drastically, it can come to billions of Rupiah. The small ones are not so notable” Yuslam remarked.

Furthermore Yuslam said that he was taking several measures or create the right business prospect whereby to uplift portofolio of gold pawn. According to Yuslam, supposedly regulations did not restrict but did not reduce risk management so inter-bank competition can go on. For that matter Yuslam said, BU would review the rules released. “Gold pawning is still in the process of trial and error, trying to find the right format” we concluded.

Business News - September 21, 2012