TO REVIEW TRANSITIONAL ECONOMIC POLICY

The Government had set target for econom­ic growth at 5.5% - 6.3% taking into consideration global economy. Such was disclosed by the Ministry of Finance Chatib Basri. Minister Basri stated that the Government was considering global condition such as the plan to end Tappering Off by the Fed till end of 2014 and economic slowdown in China.

While assuming economic growth at 5.5% - 6.3%, the Government also set inflation target at 3% - 5%, 3 month SPN interest 5.5% - 6%, Rupiah exchange rate value Rpl 1,500 - Rp12,000 per USD, price of Indonesia's crude oil USD 100 105 per barrel, oil lifting 830 - 900 thousand barrels per day and gas lifting 1,225 - 1,250 thousand barrel per day equal to oil.

All of the above macro-economic assump­tions were rational and challenging : how the global environment would influence Indonesia's economy through 2015, especially when the Asean Economic Community [AEC] was effective by January 1, 2016. An integrated Asean market would offer great oppor­tunities for national economy, but on the other hand demanded stronger competitiveness in response to the challenge.

Besides, external pressures in national econ­omy would come from rebound of US economy, eco­nomic recovery in Europe and other industrial states which still influenced the global economy notably.

Asia was predictably still a dynamic region with China, India and other industrial states as pro­peller in their position of export destination or invet­ment locations.

For that matter, there were some global de­velopments which were noteworthy in 2014, i.e. crisis in Europe which was not fully restored so they were feared as not in a position to increase demand.

Furthermore prices of global commodities which were still on the downturn or fiat, with signals of ended "supercycle" which influenced export and investment in Indonesia as well as the QE plan in America till end of 2014.

The global development was inclusive of the possibility of tight money policy applied in the USA and in other industrial states which would increase cost to access international capital.

So it was advisable for the Government to take proper measures to anticipate external pres­sures, i.e. through strengthening people's purchasing power. Furthermore to step up effectiveness of sate expenditure from the budget itself or from the utiliza­tion of expenditure, i.e. to prioritize more on infra structure development. Also, state's revenue must be maximized and deficit by downsized.

By the said measures, as a whole the good momentum of development achieved in 2013 could be maintained in 2014 and be stepped up in 2015.

It was on those grounds that the Government schemed up the Government Workplan [RKP] 2015 based on the global condition and give enough room for the new Government to interprete the Vision or Misson. RKP was focused more on elementary ac­tivities to be done. For that matter, the process of formation was preceded by base line review to for­mulate the activities to be done.

Hence the programs set up could still be de­veloped according to the vision and mission of the new Government. Meaning the basic workplan for 2015 still allowed enough room for adjustments by the new Government as needed.

Execution of RKP 2015 would be the au­thority of the new Government and budget of 2015 would be less compared to 2014 to allow enough room for fiscal which would be allocated through APBN-P. As with strategic issues in the RKP 2015, 23 problems had been identified and classified into 3 categories, i.e. Political Law and Security, Economy, and People's Welfare.

In Politics, Law and Defense, the strategic is­sue included consolidation in democracy, reformation in burreaucracy, and stepping up of public institution, corruption prevention and eradication, and develop­ment acceleration of Minimum Essential Forces IMEF1 with empowerment in defense industry and stepping up of domestic law and order.

In economy, the strategic issue included food resilience, strengthening of energy resilience, water putiry, acceleration of maritime development, upgrading of bio life variety, upgrading of small-and-medium business and cooperatives and promotion of science and technology capacity and efficiency enhancement.

Not less important was the logistics and distribution system, strengthening of national connectivity [inter-regional development balancing, economic growth propeller, mass transport development, upgrading of basic infra structure, betterment of national electrification ratio, upgrading of acess to clean water and sanitation, and housing & settlement management.

In people's welfare, the strategic issue en­compassed health development including the Nation­al Social Security and lowering of mother and infant death rate, population control, reformation in educa­tion, synergy in poverty elimination, development of less developed provinces and restriction of disaster risk.

With classification of strategic problems, the next Government would have a guidline with which to step further. Even if any adjustment was necessary it would still be reasonable. One thing was sure the next Government would "inherit" a good compass in economy.

So far Indonesia's economy had been show­ing signs of improvement and was predicted to be fast growing economy by next year with average eco­nomic growth of above 6%. By 2015 Indonesia's economy would grow by 5.8% - 6.1% with the po­tential to be fast-growing economy.

Indonesia's economy was predictably improv­ing due to four supporting factors:

Firstly, vast population with emergence of a new generation of productive workforce. Today Indo­nesia's population is the fourth largest in the world. Economy wise Indonesia was the biggest in South­east Asia, enjoying a demographic bonus with grow­ing middle class.

Secondly, abundant natural resources like coal, oil, gas and CPO.

Thirdly, macro economic performance which was stable and strong which was evident in increase of direct investment, controlled inflation and growing investment in infra structure.

Fourthly, prudent fiscal development, where Government budget was at the level below 3% to GDP and effective debt management.

That Indonesia's economy might grow by double digit, the key solution was to increase direct investment.

The way it had been, the main sustainer of Indonesia's economy was people's consumption [around 56% of total GDP] where the growth nor­mally rose steeply. Investment was in second place [around 33%] as economic sustainer.

If Indonesia aimed at high growth, the sus­tainer must be changed from investment to consump­tion. Indonesia could play catch up with growth tar­get if direct investment was enhanced; but on the other hand investment had its negative impact, i.e. im­port of capital goods would increase steeply causing Deficit in Current Transaction to widen.

To prevent the undesirable, the Government must strive to promote import substitutes. If import substitutes were developed in Indonesia, whatev­er the investment it would pose as no problem be­cause import was supressed. Something noteworthy in global economy was China's economy which was slowing down as China's was shifting focus on do­mestic consumption so there was chance for foreign investors to probe on Indonesia as investment loca­tion.

Most probably next year Indonesia's and China's economy would move in reverse direction, where Indonesia would focus more on investment, while China would focus on domestic consumption. Indonesia's appeal as investment location would nev­er fade as Indonesia had affluent middle class with growing consumption.

If investment turned low it was more caused by external factor which was seasonal. When the ex­ternal factor subsided, investment would predictably grow once more. Growth of domestic investment [PMDN] must also be stimulated in case foreign in­vestment [PMA] suddenly slumped due to external factor. If domestic investment had grown it could contribute well to economy.

As time went by, capital intensive invest­ment would increase steeply while labor intensive investment would slow down. That labor intensive industry might grow, the Government needed to pro­mote labor intensive industry with added value. An example was garment and textile which had to keep abreast with trends to be competitive.

Labor intensive industry with added value could resist amidst growing capital intenstive indus­try. The Government must promote labor intensive industry as labor aborption was highly reliant on it. Businessplayers understood that the labor sector was the most crucial problem faced by Indonesia today so reformation was needed to anticipate it.

Based on data of the Coordinating Board of Investment [BKPM], investment realization of quarter 1-2014 amounting to Rp 106.6 trillion only provided employment for 260,156 people. And yet in quarter 1-2013 there was investment realization of Hp 93 tril­lion with employment capacity of 361,924 people.

The data indicated that investment had shift­ed from labor intensive to technology intensive zone. If this tendency continued, the projection of every 1% economic growth could absorb 400,000 workers would never be attained.

In 2013 it was apparent that every 1% growth could only absorb 180,000 workers or only 45% of ideal projection. In other words from the labor angle, quality of investment in Indonesia tend to drop. Meaning, as long as Indonesia's economic structure had not drifted away from being exporter of natural resources, Indonesia might have to face serious un­employment disaster.

So a wayout was recommended to escape frome spin, among others to strengthen the small business [UMKM] sector which had been a able to employ more than 100 million workers with contribu­tion to GDP up to 57%.

The wayout was to upgrade the quality of In­donesian workforce working abroad. To send Indone­sian workers abroad was a noble mission. What was not noble was the inability to send workers of digni­fied profession. In that case the paradigm of sending TKI who were merely contributing forex reserves and to find short-cut solution to joblessness problem at home must be totally changed.

Those were some economic notations to bew pondered by the next ruling President. Success in un­dergoing transition period 2014 2015 should be a good start to execute the mission for 2014 - 2019. (SS)

Business New - May 9, 2014

TO READ INDONESIA’S ECONOMIC ROADMAP 2015 – 2019

Government's succession to take place in October this year for the period of 2014 - 2019 generated new uncertainty among businessplayers. In 2014 - the last year of the present Government, perhaps the certainty level was secured. The only thing was upon arriving at year end of 2014 until 201 9 next there would be growing uncertainty about Government's policy. And almost certainly the next administration [2014 – 2019] would be a coalition Government of political parties of the General Election 2014.

So not to mention five years ahead, even for the short term the Government had to face three hard challenges at the same time. Firstly to ensure sup­ply of basic necessities for the Ramadhan fasting month and Idul Fitri holy festivity 1435 H on 28-29 July 2014.

Secondly, the challenge to maintain political stability security, peace and order toward Presidential Election on July 9, 2014. In the event no candidate scored more than 50% votes, there would be second round election scheduled for September 9, 2014.

Thirdly, the challenge to strengthen funda­mental economy, maneuvering for unpredictable glob­al changes. Time wise, the characteristics of the first challenge was yearly cycle, the second challenge five yearly cycle and the third challenge permanent and substantial.

Hence the economic policy for the next 5 years was part of the second challenge. One thing was sure the three challenges needed to be managed well as energy was drained for electoral activities.

To overcome the 3 challenges would be a good start for undertaking great task of the future. As in the years before, efforts would be maximized to ensure supply of essential need, money liquidity and mobility of Man toward Ramadhan and ldul Fitri.

Monitoring of national supply and store-checking must be enhanced in traditional markets to check prices of essential need like rice, sugar, frying oil, flour, chilli, garlics, chicken and eggs to anticipate inexplainable price up jump. On the road, The Ministry of Public Works would check, repair and build roads to smoothen traffic of goods and hometown rush for Lebaran.

Meanwhile the Ministry of Transportation co­ordinate with transport operators on land, sea and air to control ticket prices. Fortunately in Java 333 kilo­meters of the Jakarta-Surabaya double railway track was already operational this year. This would reduce traffic density on the road by 30% as they were transferred to railway. In terms of frequency, the dou­ble track railway would increase train departures from 84 to 200 per day.

Operations of newly completed airports like Kuaianamu, Ngurah Rai, Sepinggan, and Halim Per­danakusuma would smoothen passengers flow for hometown rush [mudik] for Lebaran. The commit­ment to enhance passengers and goods mobility in the future would be realized through building of dou­ble track railway on Southern Java to be operational by 2017.

Meanwhile development and expansion of six airports had been innaugurated like the Muara Bun-go airport Jambi, Pekan Serai Lampung Barat airport Lampung, Pagar Alam airport South Sumatra and Raja Haji Fisabillah Tanjung Pinang airport, and the new Sultan Syarif Kasim II international airport Pakanbaru. Meanwhile the Trans Sumatra toll road project, the Suinda Straits bridge and trans Sulawesi railway were also be prepared.

With the many infra structure development, many circles were optimistic that in thy next 5 years inter insular conectivity would be enhanced. About security, law and order during the Presidential elec­tion to be held on July 9 2014, all parties were ex­pected to contribute to National stabilization effort. Lose or win was natural and no one should take to violence.

Based on Electory Law no 42 year 2008 on President -Vice President election, the candidate pair could be proposed by party of coalition of parties hav­ing seats in House at least 20% of total number of valid votes at least 25%. Apart from the inter- party coalition negotiation process, it was of utmost impor­tance to publicise the national economic development platform 2014 - 2019 to the public by the candi­dates.

There were at least 2 important things why the platformn was important.

Firstly, as binding of political commitment for the next 5 years by the proposing parties. If the candicates win in the election, coalition in Parliament would be needed to ensure effective Government, considering that all the workplan would have their ef­fect on APBN budgeting related to public interest.

Secondly, economic policy based on vision, mission, strategy and objective of national develop­ment would determine the course of National Mid Term Development IRPJM1 2015 2019. The eco­nomic platform must be based on National RPJP plan regulated in Law no 17 12007 on National Long Term Development Plan 2015 - 2025.

In regard to the transition period which guar­anteed continuity of national development, in Article 5 Law no 17 2007 it was stated: "The President in power, in his last year of administration is obliged to scheme up Government's plan [RKPI for the first year of the next President's administration" However, the next elected President still had the authority to im­prove the RJP Plan and APBN budget 2015 in accor­dance with Law no 17 year 2003 on state's finance.

This Presidential economic policy would soon be the guideline for setting up of RPJMN 2015 -2019. The RPJMN contained national development strat­egy, general policy, ministrial/institutional program and trans institutional programs, regional and trans-regional and macro economic framework which en­compassed overal economic condition including fiscal directions in the workplan containing regulation plan and indicative financing.

Next, RPJMN would be specified in Annual RKP containing priority, program, budgeting and regu­lation platform So important was the policy platform of economic development to national economy 2015 - 2019 so it was necessary to give enough room for improvement.

Beside the figure factor and personality of each [President-Vice President) pair, the Masterplan Agenda for Indonesia's economy for the next 5 years would be evaluated by all society elements. In view of the political atmosphere over the past year, many people were optimistic that the Presidential election would run well.

By the time Indonesia was facing two domes­tic challenges at the same time, the world's economy was still full of uncertainty. Latest release of the Gov­ernment of China mentioned that economic growth of quarter 1/2014 was only 7.4%. Weakening trend in economy was also happening to other countries like Russia, India, Brazil, and Mexico while a numbert of countries in Europe and the USA were showing re­verse process.

From the financial viewpoint, the Fed's pol­icy was related to some issues like Tappering Off; and increase of the Fed's bank interest must be monitored so the risk of capital outflow could be well anticipated. Being part of the global economic system, Indonesia was challenged to strengthen fun­damental economy.

National economic resilience could only be stepped up by increasing forex reserves and manage overseas debt, tame inflation, narrow down deficit, manage trade balance, increase investments and create employment, strengthen people's purchasing power, build infra structure and expand industrializa­tion and downstream industry.

So far Indonesia was rated as having success­fully escaped from global crisis like oil price upjump in 2005 and 2008, subprime mortgage crisis, Europe's debt crisis, and Tappering Off Quantitative Easing III in the USA through Semester II 2013. To keep na­tional economy grew positively, evenly, and resis­tently, cautiousness and responsive action became indispensable.

In a stormy political year, national decision makers especially in economy must keep their effort focused and foster inter-ministrial and other bodies Coordination. Support from provincial Governments was most important and needed whereby to enhance effectiveness and harmony of policy. Transition of leadership must be well maintained; more important was to accomplish the agenda of development in In­donesia.

As footnote, the next Government would have to clash head on with hard agenda :

Firstly, the Fed's plan to end monetary stimu­lus followed by increase of bank interest in the USA which had the risk of pushing capital outflow from the emerging countries.

Secondly, readiness to join the Asean Econ­omy Community [AEC] effective as per January 1, 2016.

Thirdly, economic risk due to crisis and politi­cal tension in Ukraina, South China Sea, Korea, and regions potential of increasing world's oil price.

Fourthly, extreme climate which had the po­tential to cause harvest failure all over the world. This year the El Nino effect was predictably moderate, but still readiness was needed to shield off disaster as it was related to inflation [to be controlled at 4.5% + 1%].

Fifthly, other matters which had the potential to boost inflation, reduce national export, downsize investment and international trading, and destabi­lize national monetary market. Besides the economic policy platform of each Presidential candidate needed to refer to a great vision to build a glorious national economy.

Some of the essential things therein were : healthy fiscal management, employment facilitation, increasing state's revenues from tax and non-tax re­sources, to minimize poverty, to build infra structure for strengthening national industry, application of science and technology, food and energy resilience, and promoting health services. By knowing the strat­egy platform of each candidate, businessplayers could scheme up their own strategy at least for 2014- 2019. (SS)

Business New - May 7, 2014