INDONESIA’S ECONOMIC REVIEW 2013 AND OUTLOOK 2014

The Central Statistics Board [BPS] had exposed their latest data and analysis and from here projection could be made of Indonesia’s economic performance 2014. Indonesia’s GDP of 2013 grew by 5.78% against that of 2012. GDP is total value of goods and services produced by a nation over a certain period. Spending was made by the Government, private sector, and household.

Growth was posted at all economic sectors, with highest growth in the Transportation and Communication sectors, i.e. 10.9 percent and the lowest in Mining and Excavation 1.34%.

Meanwhile GDP minus oil-gas in 2013 grew by 6.25%. Indonesia’s GDP in 2013 based effective price came to Rp9,-84.0 trillion, whilst GDP on the basis of constant price [year 2000] came to Rp2,770.3 trillion.

On quarterly basis, Indonesia’s GDP in quarter IV – 2013 compared to quarter III-2013 [q-to-q] inched down by 1.42 percent but compared to quarter IV-2012 [y o y] grew by 5.72%.

Indonesia’s economic growth in 2013 in terms of expenditure was in export of goods and services amounting to 5.30% followed by household expenditure 5.28%, Government’s Consumption Expenditure which grew by 4.87%, and Gross Fixed capital [PMTB] component 4.71%. Meanwhile, import as reduction factor posted growth of 1.21%.

In 2013, GDP was spent on Household Consumption Expenditure 55.82 percent, Government Consumption 9.12%, Gross Fixed Capital or Physical Investment 31.66%, export 23.74% and import 25.74%

Pprice-based per capita GDP effective per 2013 came Rp36.5 million, and increase compared to per capita GDP in 2012 posted at Rp33.5 million. As noted 57.78% of GDP of quarter IV-2013 was contributed by Java in the following order by province: Jakarta, East Java and West Java.

By quantity, activities in secondary and tertiary level was still concentrated in Java, while activities of the primary sector was concentrated in outside Java.

Meanwhile Indonesia’s economy in quarter IV-2013 described GDP wise on the basis of constant price 200 went down by 1.42% against previous quarter [q to q]. The downturn followed three monthly pattern, i.e. contraction in quarter IV after posting increase in quarter III.

Contraction in quarter IV-2013 was because the agro sector was posting significant downturn i.e. electricity, gas and clean water due to seasonal cycle. Meanwhile others sectors through quarter IV-2013 were posting positive growth, i.e. electricity, gas and clean water growing by 4.45%, transportation and communication growing by 2.36%. the processing industry sector grew by 1.72%, mining and excavation sector grew by 1.72%, general service sector grew by 1.62%; Trading, Hotel, Restaurant growing by 1.44% and the Finance, Real Estate and Company Services grew by 0.50%.

The conclusion Indonesia’s economy in 2013 posted growth of 5.78%, meaning below the target of 6.3%. Somehow this attainment was notably high considering the deficit factor in current transaction. Still, this growth lacked of quality as it was not sustained by the tradable sector. The result was low employment. The tradable sector consisted of agriculture, mining and manufacturing industry.

To Bank Indonesia, the policy to anticipate tight money policy and to manage Rupiah value had shown their result in export  which grew by 7.4%, while the import sector inched down by 0.6%. The result was visible increasing surplus in trade balance of quarter IV 2013.

I was true that economic growth of 5.78% was notably high, even above prediction of some circles who predicted growth at only 5.6%. However, economic growth should not be judged quantitatively but also qualitatively. The reason was that economic growth did not create job opportunities and reduce poverty and in the end social gap widened.

It happened because growth was supported by non tradeables which on the average grew above GDP itself, while average growth of tradable  was below GDP growth. Evidently the economic growth of 5.78% was not followed by reduced poverty.

Poverty even tend to grow. In March 2013, poverty was posted at 11.37%, but in September 2013 poverty jumped up to 11.47%.

So this year’s economic strategy should be more high-growth orientated through monetary fiscal mixed strategy which tend to be loose although in some certain area tightening was still necessary  to minimize deficit in current transaction and suppress inflation so economic growth potential could be uplifted to 5.8% - 6.2% and inflation controlled to around 5.5%% - 6.0%.

In tandem with the above, the tradable sector must be prioritized especially through fiscal policy based on APBN State Budget so a higher and better quality economic growth could be attained to generate wide multiplier effect. Economic growth achievement of 2013 should be a good asset to start with to embark on 2014 amidst stormy political atmosphere. (SS)

Business News - February 12, 2014        

TO PROMOTE INVESTMENT CREDIT FOR SUSTAINABLE GROWTH

Contribution of national industry to Indonesia’s GDP was constantly declining as there was no commitment among skateholders to promote this sector as priority sector. Unfortunately, from 2001 to quarter II of 2013 performance of national industry was not showing any significant progress.

The issue of industrial decline surfaced again lately just when national industry had to embark on a new era, i.e. the ASEAN Economic Community [AEC] 2015 which would be effective per January 1, 2016. In 2001, contribution of industry on national GDP was 29.1%; in 2005 it went down to 27.4%. In 2010 it slumped to 24.8% and in 2011 down again to 24.3% until finally in quarter III-2013 contribution of GDP on industry to GDP dropped to only 23.11%.

The main cause of slowdown in national industrial performance was : no joint commitment between the ministries and institution to promote national prioritized industry the integrated way. In other words, there was no comprehensive industrial downstreaming plan for various reasons lack of tax incentive, limited quality of Human Resources, high bank interest and workers demand for Minimum Provincial Wages.

In addition to the above, policies which was not supportive to reducing production cost was one of the reasons why national industry’s performance tend to stationary. This was not to mention bad harbor services, poorly maintained roads etc. In the end, slowdown in national industry growth had its effect on national import-export activities with counterpart countries.

Of 13 trading counterparts in the period of January – October 2013, Indonesia only posted surplus with 4 countries, namely Singapore, England, the USA and India. Deficit was posted with Malaysia, Thailand, Germany, France, China, Japan, Australia, South Korea and Taiwan. So the Government must promptly promote performance of national industry so the real sector could develop.

Toward MEA 2015 soon endeavors should be focused on strengthening competitiveness on the weak spots. In the end, degradation of national industry would have its effect on employment. The process of employment, especially in the premium sectors like agriculture was constantly declining and only accommodated 38 million workers in 2013 against 37 million workers in 2010.

Increase of Minimum Wages [UMP], oil fuel price [TDL] and LPG gas, posed ad hard blow to industry and caused mass dismissal of workers. So the Government must understand the need of national industry. In short, economic ministers must not make their own dispersed regulations. Integration and sound inter ministrial collaboration became indispensable. Attention should be focused on maximizing employment by mapping out important sectors in tandem with activation of labor intensive industry in the said sectors.

Sharing the above expectation, the Financial Service Authority [OJK] had instructed national banks to increase pipelining of investment credit. The priority was credit to the manufacturing sector, energy sector and infra structure sector. The three economic sectors must be spurred on to refresh and revitalize national industry to produce products of high added value.

In terms of credit, portion of the 3 segments were relatively small against total banking credit so there would be enough room to absorb credit. OJK’s data per November 2013 last posted credit energy only 2.44% of total banking credit amounting to Rp3,241.04 trillion while credit for infra structure in the manufacturing sector contributed 3.63% of total credit.

In terms of growth, credit for energy including electricity, gas and water was posted to grew by 17.91% [y o y] to become Rp79.21 trillion in November 2013. Furthermore credit for infra structure included in the manufacturing sector, grew by 19% [y o y] to become Rp117.80 trillion per November 2013.

The good news was that this week first and second tier banks would prioritized credit to the manufacturing and infra-structure sector. Meanwhile most Government owned banks stepped up their investments in the energy and electricity sector. For credit expansion, direct payment platform would be used as well as credit syndication or consortium. The platform to be used by each bank considered bank’s liquidity capacity. Generally for big scale payments worth trillions of Rupiah, syndication plan was often adopted to minimize risk so cases of non-performing loan would be under control.

OJK record had it total NPL value by last November was Rp606 billion or up by 95% against same period the previous year at Rp310 billion. The same was happening in the infra structure sector; NPL in this sector was Rp4.43 trillion up by 14% against same period the previous year at Rp3.87 trillion.

The condition was different from consumption credit. Let’s say NPL in automotives was Rp859 billion, shrinking by 22% against the previous Rp1.1 trillion by end of November 2012. Bank’s passion for the consumption credit sector was also seen through bank interest. The average interest of investment credit rose from 11.25% to 11.74%. Strangely consumption credit interest thinned out from 13.53% to 13.12% per November 2013. With BI’s monetary policy which tend to be tight in the consumption sector, it seemed reasonable that consumption credit tend to slowdown.

For that matter, allocation for expansion to productive sector must be given to make sure that Indonesia would not lose the momentum of bettered global economic condition. The opportunity to promote export and draw capital inflow was opening wider. Now was the moment for banks to jack up credit for the industrial sector whereby to meet the growth target of around 5.5% - 6.0% this year. (SS)

Business News - February 7, 2014          

TO PROMOTE INVESTMENT AND TO PUT BRAKES ON IMPORT OF RAW MATERIALS

Realization of investment projects in quarter IN [October-December] 2013 was posted at Rp 105.3 trillion; for the second time since quarter III/2013 investment realization broke through Rp 100 trillion. Such was the latest data of the Coordinating Board of Investment [BKPM].

Compared to attainment of the same period of 2012, there had been increasing investment realization of Quarter I to IV were accumulated, total investment realization 26.4% of Rp83.3 trillion. If investment realization project [January-December] was Rp398.6 trillion consisting of realization of investment of quarter I Rp93 trillion, quarter II Rp99 trillion, quarter III Rp100.5 trillion and quarter IV Rp105.3 trillion. The investment realization attainment exceeded BKPM investment target of 2013 amounting to Rp390.3 trillion.

In quarter IV 2013 realization of Domestic Investment [PMDN] came to Rp34 trillion and realization of Foreign Investment [PMA] amounting to Rp71 trillion while total realization of PMDN Investment came to Rp128 trillion and realization of PMA amounting to Rp270.4 trillion.

By year on year, growth of Domestic Investment [PMDN 2013] was highest growth since 2010with increased price of 39%. Improvement of business through one-stop service and fostered coordination with the provincial Government proved BKPM’s seriousness to perform which showed result in PMDN growth.

Based on area-based investment distribution in quarter IV 2013 or through January-December 2013, investment in Java was greater than outside Java. Investment yields in Java in quarter IV was posted at Rp61.7 trillion and investment realization outside Java was Rp43 trillion while in period of January-December 2013 investment realization in Java was Rp230 trillion and outside Java Rp168 trillion.

Investment realization over the period of January-December 2013 based on 5 biggest business sector was electricity, gas and water posted at Rp25.8 trillion, mining Rp18.8 trillion, F & B Rp15.1 trillion; transportation, warehousing and telecommunication Rp13.2 trillion; basic chemical industry, chemical goods and pharmaceutical Rp8.9 trillion. PMDN realization based on project location the biggest in East Java Rp34.8 trillion, East Kalimantan Rp15.8 trillion and Central Java Rp12.6 trillion.

PMA realization based on 5 leading sectors were mining USD 4.8 billion, transportation and transportation vehicles USD 3.7 billion; basic metal industry, metal goods and electronics USD 3.3 billion. Distribution of PMA realization based on location were: the biggest West Java [USD 7.1 million], Banten [USD 3.7 billion] and East Java [USD 3.4 billion].

It might be concluded that investment realization  in 2013 could repeat in 2014 where BKPM must pursue investment target of Rp450 trillion. For that matter the policy to be adopted was acceleration of public service and permit application service for electricity installation, telephone, water, IMB Building Permit, taxpaying, and issuance of SIUP permit.

For investments in certain sectors, it was advisable for BKPM to make studies whereby to make tax holiday. It was advisable if the coming investors were directed and prioritized to the economic sector which had enough support of raw materials and auxiliary materials at home which meant import was not necessary. It became indispensable to build industry of raw materials and auxiliary materials at home.

Previously the Government stressed that foreign investment entering Indonesia must not be the type of industry which increased import of raw materials and auxiliary materials because such would widen deficit in trading account and current account. The Government should be wiser in selecting foreign investors.

Almost certainly the Government would tolerate import of capital goods because it would enhance productivity to domestic industry. To anticipate increase of import, the Government had exercised tight screening on coming investors. Those who were already operating were obliged to start downstreaming, especially in the mineral and mining industry. Foreign investors must meet two requirements, i.e. to minimize import of raw materials and auxiliary materials in line with national industrial downstreaming plan.

In line with Government’s plan to minimize deficit in current transaction [DTP], import of non oil-gas products which tend to be unproductive or consumptive must be stopped by way of increasing import tax. However import of raw materials and auxiliary materials which were vital to national industry would be exempted from the rule; this was related to employment opportunities procurement.

Direct employment in quarter IV/2013 numbered 430,107 people, where absorption by PMA was 270,792 people of which the highest absorption was by PMA 270,792 people or 62.9% or total workforce while PMDN absorption was 159.315 people. To accumulate the number employment from quarter I to IV last year, the total number of workers absorbed was 1.8 million people. By quarterly, employment absorption was fluctuating. The breakdown: by quarter I the number of workers employed numbered 361,924 people, in quarter II 626,376 people, in quarter III 411,543 people and in quarter IV 430,107 people.

One of the causes was that development differed from one quarter to another, for instance: factory construction began in quarter I, employment absorption happened in quarter II. The important thing was that unemployment could be reduced. (SS)  

Business News - February 5, 2014   

GOVERNMENT SUPPORTS GLASS ENTERPRENEURS IN APPLYING SNI

Flat and Safety Glass Association (AKLP) supported government’s effort in implementing the Indonesian National Standard (SNI) for flat glass for mirrors. SNI application is mandatory to create a healthy and fair competition, especially before the commencement of the ASEAN Economic Community (AEC) 2015.

For information, Regulation of Minister of Industry that imposes mandatory application of SNI is Regulation of the Minister of Industry No. 34/M-IND/PER/4/2007 on the Application of SNI for Maotor Vehicle Safety Glass and Regulation of Minister of Industry No. 44/M-IND/PER/4/2011 on Amendment to Regulation of Minister of Industry No. 4/M-IND/PER/1/2010 on Mandatory Application of SNI for Flat Glass. While, mandatory SNI for flat glass for mirrors are in the process of notification to the World Trade Organization (WTO).

Chairman III of AKLP, Yustinus Gunawan, in Jakarta on Monday (January 27) said that SNI application for flat glass industry is important to protect consumers and maintain competitiveness of local products. He said that the implementation of SNI is important to ensure that the products circulating in the country are qualified and of certain quality. Moreover, he added that SNI-certified product is a product that is safe for use by consumers.

He explained that in facing the ASEAN Economic Community (AEC) 2015, the government will require 77 SNI in food, electronic, automotive, rubber and wood sectors. He hopes that the Ministry of Industry will continue to consistently apply SNI as a non-tariff barrier (NTB) instrument. Nowadays it has enacted 87 mandatory SNI for various industrial products. By strengthening SNI, the industry will comply with it so that the domestic industry products will have strong competitiveness in the face of AEC 2015.

However, Yustinus said that the domestic glass industry experienced barriers, especially in relation to energy, particularly certainty of gas supply and price for the industry. As a result, the glass industry experienced obstacles to do business expansion. According to him, if energy problem is not immediately resolved, then the industry will be less competitive compared to Malaysia. Because, in Malaysia, gas prices are subsidized by the government.

Yustinus further mentioned that until the end of 2013 the glass industry growth could reach 1.2 million tons. And in 2012, the national glass production reached 1.125 million tons. In general, according to him, over the years, glass production in the country is absorbed more by property and automotive sectors. In 2014, glass demand by the automotive sector is to grow about 8%, while demand by the property sector grows approximately 12.5%. However, the glass industry export performance this year decreased by 5.5% - 6.5%. But, because domestic demand is still maintained, then the growth is still above the average economic growth.

Meanwhile, Aria Bima, Deputy Chairman of Commission VI of the House of Representatives from the Indonesian Democratic Party of Struggle (PDI-P) said that Indonesia should be prepared to face the ASEAN free market 2015. He hopes that the ASEAN free trade does not make Indonesia increasingly dominated by imports. The government, he said, should optimize consumer protection agency. Free trade must be regulated so that Indonesia can adapt. He hopes that the National Standardization Agency (BSN) can reproduce SNI in products which are eligible to compete in the ASEAN free market. With SNI label, he said, Indonesia could implement BARRIER to the influx of foreign goods into the Indonesian market. (E)

Business News - January 29, 2014