DIRECT AND INDIRECT
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said Philip McNicholas, an economist with BNP Paribas. “The cumulative 150 basis points tightening since June has helped to restore monetary policy discipline and build credibility with foreign investors,”(simple presen)direct |
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David Sumual said Indonesia had the potential to become the seventh- or even fifth-largest economy in the world by 2020 despite its reliance on consumption.(Pass perfect) indirect |
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Hatta said “The challenge is in people-to-people, institutional and infrastructure connectivity. These three structures are what we have to work very hard on,” (present continous) direct
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Bank Mandiri chief economist Destry Damayanti said the government should focus on the manufacturing and farming sectors, where Indonesia had competitiveness, to absorb more workers, help increase per capita income and reduce the gap between the rich and the poor. (ask)(simple past) indirect |
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he said on Sunday. “We have to focus on several important policies, including fiscal and bureaucratic reforms in a short term,” (present perfect) direct |
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he said.“Indonesia has implemented a range of policies to tackle a mini balance of payments crisis. We think the worst is largely over and macro data will show signs of stabilization in the coming months,” he wrote in a report released on Friday.(simple past) direct |
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Agus said that in 2013, domestic economic growth was corrected and the impacts of global fluctuations could still be felt in 2014.(modal)indirect
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I would submit to you that one third of the performance of the economy has to do with perception.(simple future ) indirect |
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Hatta Rajasa said “I believe that under the chairmanship of Brunei Darussalam, we can achieve the goals. And we believe strongly that the 2015 community is on the way,” (simple present) direct |
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Kalla says. “The relative rankings of the three Asian economies — China, India and Indonesia — to the United States doubled while Brazil, Mexico and Russia increased by one-third or more,” |
Worst could be over for
Indonesia’s economy
Indonesia may have weathered its recent economic woes as bold measures implemented by monetary authorities during the last two months will likely put its economy back on track, say analysts.
Bank of America Merrill Lynch economist Hak Bin Chua estimated that Indonesia, among the hardest hit by the recent financial market turmoil, would soon see a significant improvement in its macroeconomic indicators.
The country’s inflation, which rose sharply in the last two months, was already close to its peak, while the trade deficit would likely make a sharp U-turn and become a surplus in the coming months, he said.
“Indonesia has implemented a range of policies to tackle a mini balance of payments crisis. We think the worst is largely over and macro data will show signs of stabilization in the coming months,” he wrote in a report released on Friday.
Indonesia has suffered at the hands of capital outflows in the region in the past weeks, amid fears the US central bank would scale down its stimulus package.
This year, the rupiah and Indonesian bond yields became the worst-performers in Asia, as the nation’s high inflation and widening current account deficit exacerbated negative sentiment among investors already spooked by the prospect of tighter US monetary policy.
The Indonesian stock market was also among the hardest hit in the recent turmoil.
The latest data shows Indonesia’s annual inflation surged to a four-year high of 8.8 percent in August, while the trade deficit widened to a historic-high of US$2.3 billion in July. The Central Statistics Agency (BPS) is scheduled to announce new inflation and trade deficit data next week.
In the second quarter, the current account deficit swelled to a record high of $9.8 billion, equivalent to 4.4 percent of gross domestic product (GDP), raising concerns among foreign investors about the sustainability of Indonesia’s economy.
Chua, however, predicted the current account deficit would narrow to 3.8 percent of GDP in the third quarter this year, thanks to lower imports due to slower economic growth, combined with the expected increase in exports stemming from the weak rupiah.
“The good news is that, before the end of this year and through the course of 2014, we are likely to see the trade and current account deficits narrow, as well as headline consumer price inflation fall,” Robert Prior-Wandesforde, an economist with Credit Suisse, wrote in a report released on Friday.
Meanwhile, observers have attributed the possible improvement in Indonesia’s external position to aggressive monetary tightening performed by Bank Indonesia (BI), which has raised its key interest rate by 1.50 percentage points to 7.25 percent since the middle of June.
The central bank will also gradually raise its secondary reserve requirement to 4 percent beginning in October, from 2.5 percent at present, to further curb inflation.
The bout of interest rate hikes “should help reduce the impact on the rupiah from a future tapering-related shock”, he added.
despite global turmoil
In the last decade, the global economy experienced turmoil and change.
Observing the developments of the domestic economy over the last decade has been interesting. Indonesia’s economic cycle was both not easily followed and predictable.
Establishing the current economic condition and future forecasts as a basis for setting policy and supporting decision making for companies and governments is a challenge.
Only viewing economic data published publicly by government agencies is not enough. To support business analysis, Bank Mandiri has developed an economic cycle model that generates an index to represent current economic conditions and future forecasts.
In Bank Mandiri’s economic cycle analysis model, the result generated the Mandiri Leading Economic Index (MLEI) which moved ahead of the reference series or gross domestic product (GDP) of Indonesia.
Indonesia’s economic growth in 2004 was still able to record 5 percent, supported by rising consumption and the export performance of goods and services in line with the improved volume of world trade. In 2005, Indonesia’s economic growth reached 5.7 percent.
Investments in the communication sector and advances in technology began to develop with the rise of entrepreneurs establishing small and medium enterprises (SMEs). Slowing investment recurred in 2006 due to damaged public facilities from natural disasters. Economic growth stood at 5.5 percent in 2006, lower than 5.7 percent in 2005.
In 2007, economic growth climbed to 6.3 percent. Growth impetus came from a decrease in the poverty rate to 16.6 percent from 17.8 percent and a decrease in the unemployment rate to 9.1 percent from 10.3 percent.
The trade sector progressed and shifted manufacturing industry growth during this period. In addition, public consumption and export performance encouraged economic growth in 2007.
Economic ups and downs seem to have become a regular thing for this country. In 2008, the Indonesian economy grew by 6 percent due to the slowdown in global economic activities that impacted on Indonesian trading.
Indonesia’s economic growth slowed again in 2009 to 4.6 percent. The fall in the majority of commodity prices of plantations, mining and industry led to lower productivity. The trade sector almost did not contribute at all to economic growth in 2009.
The period of 2010-2011 was a turning point in Indonesia’s economic growth. The trade sector returned to growth along with the manufacturing industry, followed by the growth of the agricultural and mining sectors.
Economic growth in 2010 and 2011 accounted for 6.2 percent and 6.5 percent, respectively. Despite slowing global economic growth, Indonesia’s economic growth remained strong.
In 2012, despite the global economic downturn suppressing the trade lines, by making use of public domestic consumption and high investment, economic growth continued to grow by 6.2 percent. The MLEI’s average value to reflect Indonesia’s economic growth in the last three years (2010-2012) was always above the level of 100, indicating an increase or expansion.
In February 2014, the Central Statistics Agency (BPS) released Indonesia’s economic growth in 2013 by 5.8 percent. The global economy, especially in developed countries, was slowing, followed by corrections to economic growth in emerging markets, including Indonesia.
In terms of domestic demand, investment growth, particularly non-construction investments, was also slowing.
The uncertainty of the global financial situation has increased sharply in line with negative sentiment to the reduction of the monetary stimulus in the US.
Economic growth in 2013 (5.8 percent) was lower than in 2012 (6.2 percent) according to MLEI indications; average value over the period 3Q12-2Q13 (which was the economic outlook in 2013) was 99.7, lower than the MLEI average value during 3Q11-2Q12 (which was the economic outlook in 2012) at 100.2.
According to MLEI, Indonesia’s economy is expected to grow moderately in 2014 due to the impact of the economic tightening policy.
The moderation in domestic demand is expected to continue, while export performance will improve with the continuing global economic recovery to drive improvements in Indonesia’s economic structure, with economic growth in 2014 expected to reach 5.6 percent.
The average value of the MLEI in 4Q13, which is a picture of economic conditions in 2Q14, was at the level of 99.2. The position, which is not too far from the index of 100, indicates stable economic growth and tends to be similar to current conditions.
What about the impact of the 2014 election on the economy? Certainly, the public and investors await the naming of candidates in the presidential election.
Based on previous general elections in 1999, 2004 and 2009, economic conditions during these times had their own characteristics.
However, 2014 can be compared to 2009 due to the similarity in economic conditions. In both years, challenges came from external sources. In 2009, the government’s focus was to cushion the impact of the subprime-mortgage crisis in 2008, while in 2014 it attempted to keep economic growth from the risks of global financial market volatility.
Despite the fact it emerged from the global crisis in 2009, the economy grew by 4.6 percent by relying on domestic consumption, investment and the industrial sector. Assuming the election runs safely and smoothly, positive economic growth can be maintained this year.
Fluctuations in the Indonesian economy over the last decade have seen Indonesia rank as the fifth largest economic power in Asia and 16th in the world. Through a series of firm policy reforms and government performance improvements, significant progress was achieved by this nation after the Asian financial crisis in 1997-1998.
However, Indonesia must remain introspective since it is extremely vulnerable to external factors and its government is not prepared to deal with the impacts of natural disasters and conflicts between political elites.
External factors that should be anticipated by the government come in the form of international financial markets, the volatility of commodity prices and foreign demand.
Therefore, Indonesia must be able to maintain inflows into domestic financial markets and improve equitable development and competitiveness, which have an impact on improving people’s welfare in the economy.
The results of strong economic growth should be enjoyed by all levels of society.
RI 10th-largest economy:
WB
Indonesia is the world’s 10th-largest economy, climbing five places in six years, according to a recent World Bank (WB)-affiliated report.
In the report compiled by the 2011 International Comparison Program (ICP), which is overseen by a global office housed in the WB, the United States remained the world’s largest economy, followed by China, India, Japan, Germany, Russia, Brazil, France, the United Kingdom, Indonesia, Italy and Mexico.
The countries in the top flight of the 2011 ICP report differed only slightly from those in the 2005 report, in which Spain was among the top 12 world economies.
Based on the 2011 report’s summary and findings, Indonesia recorded US$2,058 billion in gross domestic product (GDP) expenditure and $8,539 in GDP expenditure per capita.
In the 2005 report, Indonesia recorded $707.9 billion in GDP expenditure and $3,234 in GDP expenditure per capita.
It is, however, difficult to compare results between the 2005 ICP and 2011 ICP reports because the number of economies included was very different, the 2011 report says.
The 2005 ICP report covered 146 economies, while the 2011 ICP round covered 199 economies.
“The relative rankings of the three Asian economies — China, India and Indonesia — to the United States doubled while Brazil, Mexico and Russia increased by one-third or more,” it says.
According to the report, the six biggest emerging economies now produce goods and services of equal value to the six biggest rich countries.
The five economies with the highest GDP per capita are Qatar, Macao, Luxembourg, Kuwait and Brunei. The first two economies have more than $100,000 per capita, the ICP report said.
ICP, according to the report, estimated purchasing power parities (PPPs) for use as currency converters to compare the size and price levels of economies around the world.
PPPs are price relatives that show the ratio of the prices in national currencies of the same good or service in different economies. For example, if the price of a hamburger in France is ¤4.80 ($6.65) and in the United States it is $4.00, the PPP for hamburgers between the two economies is $0.80 to the euro from the French perspective and ¤1.20 to the dollar from the US perspective. In other words, for every euro spent on hamburgers in France, $0.83 would have to be spent in the United States to obtain the same quantity and quality.
Before PPPs became widely available, exchange rates were used for international GDP comparisons. But exchange-rate converted GDPs can be highly misleading in indicating the relative sizes of economies and levels of material well-being, according to the report. Under such method, price levels are normally higher in high-income economies than they are in low-income economies.
Analysts have warned, however, not to rejoice too much, since the economy remains driven primarily by consumption.
Chief economist of Bank Central Asia (BCA) David Sumual said Indonesia had the potential to become the seventh- or even fifth-largest economy in the world by 2020 despite its reliance on consumption.
“We have to focus on several important policies, including fiscal and bureaucratic reforms in a short term,” he said on Sunday.
He added that in the long term, the government should also fix a number of problems, such as income disparity and red tape in investment licensing processes, and be more open to foreign investment.
He said that fiscal reform, such as overcoming the problem of energy subsidies, and bureaucratic reform were the keys to reaching the goal.
“Indonesia’s economy is greatly influenced by fuel subsidy issues. If the government manages to overcome them, then the economic situation could become more stable.”
Atmajaya University economist Agustinus Prasetyantoko said Indonesia made it to the 10th position only because its economic growth peaked in 2011 at 6.5 percent.
Bank Mandiri chief economist Destry Damayanti said the government should focus on the manufacturing and farming sectors, where Indonesia had competitiveness, to absorb more workers, help increase per capita income and reduce the gap between the rich and the poor. (ask)
A political-economic view
of a Jokowi-Kalla Candidacy
Although Joko “Jokow“ Widodo generated a less spectacular effect for his Indonesian Democratic Party of Struggle (PDI-P) in the April 9 legislative election, he remains favorably positioned for the July 9 presidential election. We need just one word to explain this: “populism”.
But it needs more than one word to explain why “populism” is so marketable today. This is related to the “counter-elite” image projected by the Javanese traditional popular stories, especially in the wayang (shadow puppet) world, where the wong cilik (little people) also play a role.
Semar, for instance, is a respected person. Having three children (Petruk, Gareng and Bagong), Semar symbolizes not only the common people in the wayang social structure, but also a titisan (incarnation), an incarnation of a god.
In a normal political situation, Semar and his children often act as critics. But in a crisis, they take a leading role to bring the situation back to normality.
It is upon this publicly digested traditional cultural discourse where Jokowi’s meteoric political career resides, for his appearance hints at the elite’s failure to perform their duty. Jokowi’s populism therefore is the antithesis of the previous elitist tendency.
Rhetorically, his populism meets the partai wong cilik (the party of the little people), jargon of the PDI-P. Their symbiosis brings profound cultural and political effects that Jokowi’s political popularity is a pasemon (allusion) to the current Indonesia’s radical elitism.
However, this populism is problematic in terms of economic policies. His populism invariably leads him to pursue a people-based nationalistic economic policy. Though its details remain to be seen, it is quite likely that his aides will point to Keynesian economics as a basis of his economic policies, for it allows state intervention in the economy.
Will Jokowi be able to realize it? This is crucial, for what he will face will not only be the domestic capitalist oligarchs. He will also have to deal with the interlinked relationship between the global dynamic and domestic economic sustainability. A simple example is the unfavorable situation faced by Indonesian contractor companies in the 2015 ASEAN Economic Community (The Jakarta Post, March 17).
This ever-growing economic community will open huge opportunities in the construction sector for its Gross Domestic Product (GDP) is estimated to hit US$2.1 trillion. But, the domestic bank interest rate stands at 13.5 percent, Indonesia’s contractor companies cannot be optimistic. For this interest rate is too high compared with Malaysia, Thailand and Singapore, which range between 3 to 4 percent. This means Indonesia’s contractor companies would be less competitive.
Hypothetically, if this was faced during the Jokowi presidential period, his populist-nationalistic tendency would theoretically tend to lower the bank interest rate to strengthen national companies’ competitiveness.
However, this measure will strike unpredictable economic reality. In addition to the central bank’s independent status where its policies are free from any intervention, this tight monetary policy is driven by forces beyond political authority: Current account deficit, an unbalanced import-export ratio and capital outflows as the consequence of the tapering of the US Federal Reserve is quantitative easing policy since the end of 2013.
This leads to other negative results such as foreign reserve depletion, automatic domestic currency depreciation and a surge in inflation. This economic reality thus reduces the state autonomy in economic policy making. Both Jokowi’s populism and the PDI-P’s partai wong cilik jargon would be challenged by this structural condition.
It is in this context, if chosen as Jokowi’s vice-presidential candidate, Jusuf Kalla could be a valuable partner for him. Kalla is not only a seasoned vice-president (2004-2009), but it was he, during his vice-presidential tenure, who took brave crucial and strategic economic policies.
In the case of Keynesian economics, it was Kalla who introduced the direct cash assistance (BLT) program to soften the people’s negative impact from the government’s fuel subsidy cutback in 2009.
And it was Kalla also who directed state-owned banks to form a budget consortium to finance the Java-Bali toll roads. It must be kept in mind that Kalla’s measure was taken at the time amid the lowest point of bank intermediacy function.
Kalla is thus not only in line with Keynesian economics, but also possesses “valor” in making use of state resources both for the sake of the people’s interest and the productive purposes.
It is still an enigma, surely, how Kalla will successfully deal with the House of Representatives (DPR) in launching economic reforms. For while notoriously known for being plagued by vested interest-based factionalism, the House has decisive power and the government invariably needs its approval of any economic policy.
I have no special answer to this intricate question. But referring back to what he did during his tenure, Kalla had not only repeatedly succeeded in taking sensitive economic decisions with less public uproar, but was agile enough in the diplomatic field.
It was Kalla who was able to end the 30-year-old Aceh conflict in 2005. Kalla perhaps is a prodigy of a talented public official for he has the ability to gear interchangeably between economic expertise and diplomatic skills.
Isn’t facing the DPR substantially a diplomatic battlefield?
In conclusion, the Jokowi-Kalla duet will respectively strengthen each other. As the most popular presidential candidate, Jokowi has potential to win enough votes. But, once chosen, he will soon face domestic capitalist oligarchs and the global inter-linkage-induced ups and downs of the national economy. This would likely reduce his popular-based political legitimacy.
As a businessman, Kalla is not only rich with experience in handling the economy, but also possesses a special ability needed to ward off the domestic capitalist oligarchs’ intervention as well as the House’s pressures.
He is too old to be Jokowi’s next competitor for the 2019 presidential election. Kalla’s main function would thus be confined only as Jokowi’s guide in facing the oligarchs of domestic capitalists and the puzzle of the global economy — providing valuable capital for Jokowi.
Reassessing ASEAN’s Economic
Community
Good news from recent meetings has given rise to the optimism of ASEAN member states in promoting economic progress. Within the coming two years, members are confident of achieving the ASEAN Economic Community (AEC).
Hatta Rajasa said “I believe that under the chairmanship of Brunei Darussalam, we can achieve the goals. And we believe strongly that the 2015 community is on the way,”
According to the press statement issued after the 9th AEC Council Meeting, ministers noted that 77.5 percent of measures under the AEC blueprint had already been implemented. ASEAN adopted the AEC blueprint at the 13th ASEAN Summit in 2007, which means that for over five years member states have devoted their commitment to the implementation of this grand regional community.
The AEC envisages the key characteristics of the community as a single market and production base, a highly competitive economic region, a region of equitable economic development and a region fully integrated into the global economy (ASEAN Secretariat, 2013).
These characteristics play roles as indicators of achievement to a successful AEC. The more ASEAN people enjoy GDP growth and progressive competitiveness, as well as a free flow of goods and services, the more the AEC will be at the hands of this body. In other words, Hatta’s optimism is triggered by these characteristics that likely touch the reality, thus it serves as an opportunity for ASEAN.
Despite being motivated by such opportunities, however, critics say that challenges to the realization of the key characteristics remain intact.
First, as a single market, ASEAN has applied a common ASEAN visa system that supports people-to-people contact and connectivity, yet Cambodia and Laos are not included. Moreover, small-medium scale companies are unfamiliar with the single market scheme under the AEC (The Jakarta Post, April 8, 2013).
Second, travel and tourism (T&T) has become a reliable sector to boost ASEAN’s economy and competitiveness due to its abundant tourism sites and various cultures. It accounts for 4.6 percent of ASEAN GDP and it employs 9.3 million people, which contribute up to 9 percent of GDP and employment worldwide.
Nevertheless, the competitiveness index gap among ASEAN members is huge. According to the Global Competitiveness Index (GCI), Singapore is the highest (2 out of 144 countries) among ASEAN countries and Cambodia is the lowest at 85. Indonesia’s rank is 50.
Third, it should be noted that the awareness of minimizing the development gap among ASEAN members started in 2000, whereby the Initiative for ASEAN Integration (IAI) was established to accelerate the growth of newer members, including Cambodia, Laos, Myanmar and Vietnam (CLMV).
However, a report from the World Bank in 2011 revealed that ASEAN still had a development gap in which Singapore had the highest GDP per capita (US$46,241), while Cambodia was the lowest ($897). Indonesia’s GDP per capita was at $3,495.
Fourth, proceeding the enthusiasm of the liberal market system, ASEAN successfully formed a Regional Comprehensive Economic Partnership (RCEP) in November 2011 along with Australia, China, India, Korea, Japan and New Zealand, which implies ASEAN’s first step to an integrated global economy (ASEAN Secretariat, 2013). Nonetheless, the challenges to this issue lie in ASEAN’s capacity to maintain its centrality among other global actors.
Recently, ASEAN’s cohesiveness has been threatened by the South China Sea dispute, which involves China, Malaysia, Vietnam, the Philippines and Taiwan. If the dispute continues, it will be hard for the body to operate on the global stage along with its economic cooperation.
Furthermore, ASEAN ministers also noticed that the challenge to implementing the four key characteristics lies in the connectivity problem.
“The challenge is in people-to-people, institutional and infrastructure connectivity. These three structures are what we have to work very hard on,” said Hatta.
As such, ASEAN is committed to enhancing these three kinds of connectivity through the establishment of a Master Plan on ASEAN Connectivity (MPAC). “The implementation of MPAC hopefully will strengthen ASEAN competitiveness as a production base with an abundant potential market,” said Indonesian Ambassador to ASEAN Ngurah Swajaya in the ASEAN Connectivity Coordinating Committee (ACCC) Meeting on April 3-4.
The alternatives to building strong connectivity require a proper approach. It implies that infrastructure, institutional and people-to-people connectivity enhancement should be well-planned, transparent and strategic.
Otherwise, it might pose other challenges, such as funding and technical problem, which might hinder the progress and suspend the realization of AEC.
It is true that ASEAN has undertaken measures to fulfill its commitment. However, challenges remain to achieving the ultimate goal in 2015. Therefore, the 22nd ASEAN Summit, which will be held on April 24-25, should address measures to achieve the AEC, as well as precise and effective alternatives to counter challenges.
Stable economy key to successful
redenomination: BI
Bank Indonesia (BI) Governor Agus Martowardojo has said a stable economy is the key to the successful implementation of the redenomination that will replace Rp 1,000 of the old currency with the new Rp 1.
“We want to make sure that the redenomination will be successful, but one of the keys is that it takes place when the country’s economy is stable and in good condition,” he said in Jakarta on Thursday, as quoted by Antara news agency.
Agus said that in 2013, domestic economic growth was corrected and the impacts of global fluctuations could still be felt in 2014.
“The US Federal Reserve’s monetary stimulus has been reduced while domestically, the inflation rate in 2013 has increased, exceeding the targets expected,” said Agus.
Moreover, he said, Indonesia’s current account was predicted to remain at a deficit of 3.5 percent until the end of 2013 and the weakening of rupiah exchange rate was still a challenge for the country’s economy this year.
“To ensure the redenomination’s targets can be achieved, it would be better that we don’t push ourselves to implement this in a less than proper situation,” said Agus.
Similarly, Deputy BI Governor Ronald Waas said one of requirements for the implementation of the redenomination was the stable economy and political situation.
“The current economic situation is less conducive to implementing the redenomination,” said Ronald, while mentioning the redenomination plan would still continue.
“The President’s directives must go on. The House of Representatives has established a special committee while public discussions have taken place,” he added. (ebf)
suryanaug 