iero no 2/year iii/june 2014
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INDONESIAN ECONOMICREVIEW AND OUTLOOK
Creating Economic Optimismfor New National Leadership
No 2/YEAR III/June 2014
Macroeconomic DashboardFaculty of Economics and BusinessUniversitas Gadjah Mada
Foreword
Letmehopeitisanenjoyablereading
Prof.Dr.SriAdiningsih,M.Sc
HeadofResearcher
MacroeconomicDashboard
Indonesiaisinthemidstofdemocraticprocessthatinvolves electing new national leadership. The newIndonesiangovernmentwillfacemanychallenges,theprospectsofwhichweredimedbyindicationofslowergrowthoftheeconomyinthequarterI-2014.Inlightof that, in this Quarter II-2014 edition, IndonesianEconomicReviewandOutlook(IERO)focusesonthetheme: “Creating Economic Optimism for NewNationalLeadership”.
IndonesianEconomicReviewandOutlook(IERO)isaquarterly scientific bulletin, presents and discusslatest developments in the Indonesian economy aswell as the prospects. IERO is published by the
Macroeconomic Dashboard, which is macroeconomic laboratory facility in theFaculty of Economics and Business and in collaboration with PT Bank Mandiri(Persero)Tbk.,since2012.
To predict prospects of Indonesian economy in future, the bulletin uses bothMacroeconomic Indicator Projection Consensus of economists, and Gadjah MadaLeading Economic Indicator (GAMA LEI), which is an instrument that originallyinitiatedbyMacroeconomicDashboardandisbeingimprovedineveryedition,
In this edition, the Macroeconomic Indicator Projection Consensus predictsimprovementsineconomicgrowth,inflation,andexchangerateinthequarterII-2014comparedwiththequarterI-2014.Meanwhile,GAMALEIpredictssignsofadeclineinIndonesianGrossDomesticProduct(GDP)economiccycle.Thisisthecasedespiteindications of growth that are discernible from the movement and pattern ofIndonesianeconomybasedonyear-on-yearandquarter-to-quartertrajectory.
Lastbutnotleast,itismyhopethattheanalysisthisbulletinpresentsoftenbecomesanimportantsourceofbenefitsandsecondopinionforpublicpolicydecisionmakers,businesspractitioners,researchers,academics,students,andmembersofthegeneralpublic.Wealsohopethatthemomentumwhichthe“democracyparty”hasgeneratedcan providemuch needed optimism and hope toward developing a stronger andsustainableIndonesianeconomy.
TABLE OF CONTENTS
EXECUTIVESUMMARY................................................................................................ 1
A. FISCALANDECONOMICDEVELOPMENTS
1. Thedeclineinnetexports,whichwasattributabletoslow
growthoftheeconomyanddrasticincreaseinthegovernment
expenditureingeneralandenergysubsidiesinparticular............. 4
2. Theriseofbudgetdeficitinthe2014ChangedStateBudget
Plan(RAPBNP),willbefinancedthroughtheissuingof
governmentsecurities,whichisexpectedtosupporteconomic
growth.................................................................................................................... 11
3. TheTradeBalancedeteriorationhasnotbeencounteredby
significantimprovementonthecurrentaccount................................ 17
4. Despiteregisteringimprovement,internationalreserves
positionisdevoidofquality......................................................................... 20
5. Achievementsinthelabormarketratenotyetcausefor
celebration............................................................................................................ 22
B. Achievementsinthelabormarketratenotyetcausefor
celebration
1. Pricelevelintheeconomyremainstableandunder
control.................................................................................................................... 25
2. FinancialMarketsarestillrelativelyBullish.......................................... 27
3. ThereisnosignificantchangeinMonetaryPolicy.............................. 28
C. GAMALEIANDCONSENSUSONECONOMICPROJECTIONS
1. GAMALeadingEconomicIndicator(GAMALEI)................................. 31
2. ConsensusonProjectionsofMacroeconomicIndicators................. 32
D. ASEAN:GlobalEconomicPressureandNationalInstability
ChallengingThePathwayforASEANEconomicCommunity
2015.............................................................................................................................. 34
E. CURRENTISSUE...................................................................................................... 39
F. ECONOMICOUTLOOK.......................................................................................... 42
Macroeconomic Dashboard Universitas Gadjah Mada iii
List of Terms
AEC ASEANEconomicCommunity APBN StateBudget(AnggaranPenerimaandanBelanjaNegara) ASEAN AssociationofSouthEastAsianNations BPS IndonesiaStatisticBureau bps BasisPoint CPI ConsumerPriceIndex DGB DirectorateGeneralofBudget(DJA) IDIC IndonesiaDepositInsuranceCorporation IDR IndonesianRupiah IDX JakartaCompositeIndex JPY JapaneseYen LHS LeftHandSide LPG LiquifiedPetroleumGas MoF MinistryofFinance m-t-m MonthtoMonth NSC Philippines'sNationalStatisticsCoordination PBI BankIndonesiaRegulation(PeraturanBankIndonesia) RAPBN RevisedStateBudgetPlan(RencanaAnggaran
PenerimaandanBelanjaNegaraPerubahan) RHS RightHandSide SBN GovernmentSecurities(SuratBerhargaNegara) SBSN SovereignShariaSecurities,GlobalSukuk(SuratBerharga
SyariahNegara) SUN GovernmentBond(SuratUtangNegara) TheFed TheFederalReserve TheStates UnitedStatesofAmerica USD U.S.Dollar y-o-y yearonyear y-t-d yeartodate
Indonesian Economic Review and Outlookiv
EXECUTIVE SUMMARY
IndonesianeconomicgrowthslowedduringquarterI-2014,atrendthatis
attributable to weakening performance of net exports. However,
unemploymentregisteredanimprovementasreflectedinanincreaseinthe
number of people employed in the informal sector as well as part-time
employees. Besides,workforce in agricultural sector,which is the largest
providerofemployment,registeredslightincreaseinFebruary2014.
Thegenerallevelofprices,whichinthepreviousquarterpiledpressureon
Indonesianeconomy,showedindicationsthatitwasunderrelativecontrol
during quarter II. Generally price stability has also been shored up by
harvestingseason,whichoccurredduringMarch-May2014.
Nonetheless, with respect to international trade, the performance of
Indonesianeconomyprojectedlessthanrosydevelopments.Theendofthe
protractedsurplusonthenon-oilandastradebalanceinApril2014,plunged
Indonesianeconomyintoadeficit.Inthemeantime,balanceofpaymentsin
quarter1-2014,continuedtopostasurplusalbeitslightlysmallercompared
withthatregisteredinthepreviousquarter.Thelowersurplusonbalanceof
payments posted in quarter I-2014, is attributable to the decline in the
surplusonfinancialandcapitalitemsonthecurrentaccount.
InordertosecureimplementationofStateBudget2014,thegovernmentisin
theprocessofsubmitting theRevisedStateBudgetPlan(RAPBNP)2014.
Basedonoutcomeofthe latestdeliberations intheparliamentbudgetary
commission,thegovernmentandtheparliamentreachedagreementonthe
levelofdeficitallowedin2014ofIDR241.49trillion,whichisequivalentto
2.4%ofGDP.Theriseinthebudgetdeficitisattributabletoasharpincrease
ingovernmentexpenditureandthedeclineinexpectedgovernmentrevenue
target. Thesharpincreaseislargelyasaresultofadrasticriseinenergy
subsidieswhichinturncameasaresultofrevisiononenergysubsidieswhich
wasnecessitatedbydepreciationofrupiahaswellasadeclineinliftinglevel
Macroeconomic Dashboard Universitas Gadjah Mada 1
ofcrudepetroleumoil.Inthemeantime,therewasadecreaseingovernment
revenue target which was a direct consequence of projections of lower
growthoftheeconomy.
InMarch2014,theincreaseinboththeprivateandpublicdebt,ledtoarisein
Indonesianexternaldebt.This iscauseforconcernasdepreciationofthe
rupiahifitcontinuesatitscurrentpaceposesthedangerofincreasingthe
burden on the economy. Indonesia's external debt has reachedworrying
proportionsasreflectedintheriseinthedebtserviceratio,whichregistered
asharpincreaseof52.7%inquarterIV-2013.
Meanwhile,foreignexchangereservespostedasignificantincreaseinMay
2014,whichhoweverdidnotprojectimprovementinquality.Theissuingof
government securities continues to play a big role in that regard.
Consequently, the increase in international reserves has not impacted
positivelyontheexchangerate,whichcontinuestodepreciate.Weakening
rupiahislargelyattributabletonegativemarketsentimentsthatarosefrom
anunexpectedworseningoftradedeficitoccurringatatimeofhighpolitical
uncertaintyintheleaduptoelectionofanewpresident.Besides,external
issuesthatincludetheimpactofthetaperingoffandFedFundRatepolicies
alsocontributedtoweakeningeconomicperformance.
Thatsaid,themonetaryauthoritycontinuestomaintainreferenceinterest
rate as an indication of restrictivemonetary policy. To that end, banking
industryincreasedinterestrate,bothondepositsandcredit,whichledtothe
reductionof liquidity.Consequently, Indonesiandeposit insuranceagency
(IDIC),alsohadtoraiseitsreferenceinterestrateimposedonguaranteedin
general.
AfteracloseobservationofdynamicsofIndonesianeconomy,GAMALeading
Economic Indicator predicts a decline in the Indonesian economy (GDP)
cycle.GAMALEImodelforQuarterI-2014showsachangeinthedirectionin
theeconomyfromanupwardtoadownwardtrend.Thatsaid,therearealso
signs that point toward GDP growth in the quarter II-2014, which is
discernibleforthedirectionandmovementoftheeconomyonayear-on-year
andquarter-to-quarterbasis.
Indonesian Economic Review and Outlook2
Macroeconomic Dashboard Universitas Gadjah Mada 3
Consideringdynamicsintheregionthataremovingtowardthecominginto
force of ASEAN Economic Community (AEC) 2015, paradoxically ASEAN
economiesarefacingpressurethatisemanatingfrominternalandexternal
sources.Internaleconomicinstabilityintheregionisalreadyhavingadverse
impactontheperformanceofeconomiesintheregion,asevidencedbyslow
growthpostedbyIndonesianeconomyand2.10%contractionofThailand
economyinquarterI-2014.Thisconditionisexacerbatedbyrisinginflation
intheregion.InMay2014,ASEANonaveragepostedinflationthathovered
around3.89%(y-o-y).Withregardsexternalsector,pressureontheeconomy
is attributable to tapering off policy in United States, unstable economic
growthinEuropeanUnion,andthecoolingoftheeconomyofChina,allof
whichhavecontributedtothepersistenttradedeficitanddepreciationof
localcurrency.
Lastly,inthisedition,IEROhighlightstheimportanceofeconomicoptimism
whichthenewnationalleadershipwillbequeathonassumingreinsofpower.
Movingforward,humanresourcedevelopmentshouldbethekeynational
developmentpriority. Inhispiece,M.EdhiePurnawan,Ph.Dproposesthe
development on the three types of forces/strengths: honesty,
innovation/imagination,andnetwork.Effortstofosterthedevelopmentof
qualityIndonesians,shouldcreateroomforoptimismforIndonesiainfacing
thefuture.
Executive Summary
Indonesian Economic Review and Outlook
1. The declining in net exports has caused the economic
slowdown and significant increase generally in the
governmentexpenditureandenergysubsidiesinparticular
Indonesian economy posted steep slowdown in quarter I-2014.
Indonesian economy posted growth of 5.21% (y-o-y), in quarter I-2014,
whichrepresentedadeclinecomparedwith5.72%(y-o-y)postedinquarter
IV-2013.Moreover,economicgrowthpostedinquarterI-2014,wasfarlower
than6.03%(y-o-y),whichwasregisteredinthesameperiodintheprevious
year.
SlowereconomicgrowthpostedinquarterI-2014islargelyasaresult
ofasignificantdeclineinnetexports.Thesignificantcontractioninnet
exports,adverselyaffectedeconomicgrowthinquarterI-2014.The-0.78%
4
A. FISCAL AND ECONOMIC DEVELOPMENTS
Figure1: Indonesian GDP growth at 2000 Constant Market Prices byIndustrialOrigin,2011–2013(y-o-y,in%)
EconomicgrowthslowedinquarterI-2014largelyasaresultofcontractionintheminingsector
Notes:
PrimarySectors:Agricultural,Livestock,ForestryandFisheries;MiningandQuarrying
IndustrialSectors:Manufacturing;Electricity,GasandWaterSupply;andConstruction
ServicesSector:Trade,HotelandRestaurants;TransportandCommunication;Finance,RealEstateandBusinessServices;andServices
Source:BPSandCEIC(2014)
Macroeconomic Dashboard Universitas Gadjah Mada
(y-o-y)contractionofexportspostedinquarterI-2014,waslargeenoughto
pushnetexportsintonegativeterritory,albeit-0.66%(y-o-y)contractionin
imports.Thedeclineinnetexportsisbyandlargerattributabletoadecrease
in exports of minerals such as coal and coal concentrates, which is a
reflectionoftheperformanceoftheminingsectorthatpostedcontractionof
-0.38%(y-o-y).Thepoorperformanceoftheminingsectoris largelyasa
directconsequenceofthecomingintoforceofMiningLawNo.4/2009on
exports of unprocessed minerals with effect from 12 January 2014.
Nonetheless,sluggishgrowthofIndonesianeconomyisalsoduetopersisting
uncertaintyintheglobaleconomy,asreflectedbydeclineofeconomicgrowth
oftheeconomyofChinafrom7.7%(y-o-y)inquarterIV-2013to7.4%(y-o-y)
inquarterI-2014,whichbyimplicationadverselyaffectedtheperformance
ofIndonesianeconomy.
Slowinggovernmentconsumptionalsocontributedtotheweakeningof
economic growth. Government consumption grew by 3.58% (y-o-y) in
quarterI-2014,whichwasfarlowerthan6.45%(y-o-y)registeredinquarter
IV-2013. Meanwhile, household consumption remained unchanged in
quarter I-2014 as it posted growth of 5.41% (y-o-y) which is not much
differentfrom5.44%(y-o-y)recordedinquarterIV-2013.Nonetheless,slow
growth of net exports, government consumption and household
consumptioninquarterI-2014,wasnotsharedbyinvestmentwhichposted
5.13%(y-o-y)in thesameperiod,higherthan4.375(y-o-y)recordedin
quarterIV-2013.
5
Fiscal and Economic Developments
Figure 2: Indonesia GDP Growth at 2000 Constant Market Prices byExpenditure,2011–2013(y-o-y,in%)
Netexportsperformanceandgovernmentconsumptiondeteriorated
Source:BPSandCEIC(2014)
Indonesian Economic Review and Outlook
Basedonmonth-to-monthtrajectory,Indonesia'stradebalancemoved
fromasurplusofUSD0.67billioninMarch2014intoadeficitofUSD
1.96billioninApril2014.Thedeclinewasduetoacombinationoffactors
that includedcontractionofexportsbyUSD0.9billionandanincreasein
importsofUSD1.73billioncomparedwiththelevelinthepreviousmonth.
Thetotalvalueofexportsdeclinedbecauseofacontractioninbothoilandgas
as well as non-oil and gas exports. Meanwhile, total value of imports
increased, driven largely by imports of non-oil and gas commodities. In
general,Indonesia postedadeficitofUSD0.89billionduring's tradebalance
January-April2014period.Thatsaid,thedeficitpostedduringJanuary-April
2014 period, is smaller than USD 1.94 billion recorded during the same
periodin2013.
ObservationoftheJanuary-April2014periodshowsthattheoilandgas
tradebalancecontinuedtobeindeficit. oilandgastradeThedeficitonthe
balanceduringJanuary-April2014,wasUSD4.2billion,whichwassmallerby
USD0.3billioncomparedwiththelevelrecordedduringJanuary-April2013
period. Thedecrease in thedeficit isasresultofa lower importsduring
January-April 2014 period thatwas smaller by USD 0.4 billion than that
registeredduringthesameperiodin2013.However,signsofimprovementin
thedeficitonthe .Thisisreflectedintheleveloftheoilandgastradebalance
6
Figure3:Indonesia'sTradeBalance,April2012-April2014(USDbillion)
Indonesia'stradebalancedeteriorated
Source:BPSandCEIC(2014)
Macroeconomic Dashboard Universitas Gadjah Mada
deficitinthe whichwasUSD1.06billioninApriloilandgastradebalance
2014, thatwasUSD0.29billionsmaller than the level recorded inMarch
2014. In termsofpercentage, thedeficiton theoilandgas tradebalance
showedadecreaseof21.6%.Theimprovementwasshoredupbydecreaseof
USD0.3billioninthevalueofoilandgasimports.Onamonth-to-monthbasis,
thedecline in imports of oil and gas inApril 2014,was attributable to a
decreaseinimportsofcrudeoilandoilproducts.Importsofcrudeoilposted
adecreaseof24.78%fromUSD1.42billiontoUSD1.07billion.Meanwhile,
importsofoilproductsrecordedadecreaseof0.5%fromUSD2.36billion.
Contrariwise,importsofgaspostedasteepincreaseof29.63%.
Apparentlytherelativelylongperiodofsurplus,whichwasrecordedon
theIndonesia'snonoilandgastradebalancethatistracedasfarbackas
July2013,cametoanendinApril2014astheaccountpostedadeficit.
Thedecline in theperformanceof thenon-oil andgas tradebalancewas
contrarytotheconditionthatobtainedinquarterI-2014,whichshoweda
positive trend. Since January until April 2014, the had atrade balance
surplusofUSD4.2billion,butinJune2014plungedintoadeficitofUSD0.9
billion. Overall, however, an on observing the trend on month-to-month
basis,itbecomesevidentthatthesurplusonnonoilandgastradebalance
experienced a decline of 144.58%. The steep decrease is largely due to
contractionofnon-oilandgasexportsbyUSD0.89billioninApril,whilenon-
oilandgasimportsincreasedsharplybyUSD2.03billioninMarch.
7
Figure4:Indonesia'sOilandGasTradeBalanceApril2012–April2014(USDbillion)
Thedeficitonoilandgastradebalancepostedaslightdecrease
Source:BPSandCEIC(2014)
Fiscal and Economic Developments
Indonesian Economic Review and Outlook
Contractionofnon-oilandgasexportsisbyandlarge,attributabletoa
declineintheexportsofanimalorvegetablefatsandoilscommodities.
Commodity exports decreased by 45.02% in April 2014 on a month-to-
monthbasis,followedbypearls,preciousandsemipreciousstone(23.15%),
vehicles other than railway(23.15%), mineral fuels and mineral oil
products(9.78%)andelectronicmachinery,soundrecorder,tv,etc(3.75%).
As regards the destination of Indonesian non-oil exports that posted a
decline, India recorded the largestpercentage (23.93%),China (16.47%),
Thailand(17.70%),andMalaysia(10.15%).Thegrowthofnon-oilandgas
imports is by and large driven by increase in imports of nuclear reactor,
boilers,mechanicalapplianceandmachineryandelectricequipment.Import
valueofthetwoitemsabovepostedanincreaseofUSD0.36billionandUSD
0.27 billion, respectively. Meanwhile, with respect to exports, footwear
postedthelargestincreaseof29.49%.
ReturningbacktostructureofGDP,primarysectorexperiencedpretty
significant economic contraction. During quarter I-2014, the primary
sector (which comprises Agricultural, Livestock, Forestry, and Fisheries
Sector MiningandQuarryingSector)registeredgrowthof1.97%aswellas
(y-o-y),whichislowerthan3.86%(y-o-y)registeredduringquarterIV-2013.
Theconditionwaslargelyattributableto0.38%(y-o-y)contractioninthe
Mining Sector. Meanwhile, the Manufacturing Sector and Services Sector,
whichgrewby5.46%(y-o-y)and6.39%(y-o-y)respectively, lowerposted
8
Figure5:Indonesia'sNonOilandGasTradeBalanceApril2012-April2014(USDbillion)
Balanceoftradeonnon-oilandgashasplungedbackintodeficit
Source:BPSandCEIC(2014)
Macroeconomic Dashboard Universitas Gadjah Mada
growththanthatregisteredinquarterIV-2013.Onthesamenote,basedon
dataobtained fromBPS, sectors thatpostedhighgrowthyearonyear in
quarter I-2014 in ascending order were Transport and Communication
Sector (10.23%), Construction Sector (6.54%), Electricity, Gas, andalso
WaterSupplySector(6.52%).
Developments of various macroeconomic indicators show marked
deviation from assumptions which were used in formulating State
Budget(APBN)2014.Thisisindeedisthemainreasonthatcompelledthe
governmenttosubmit tate udget 2014,asantheRevised S B Plan (RAPBNP)
attempt to ensure the implementation of . Without makingAPBN 2014
necessaryadjustments,therewasbigchancethatgovernmentexpenditure
couldhaveeasilyhavegonebeyondthemaximumbudgetarydeficitlimitof
3%ofGDP,whichisstipulatedunderthelaw.Moreover,itishighlylikelythat
economicgrowthandliftingofoilandgasforthefiscalyearwillbefarlower
predictions,whilegovernmentexpenditureisprojectedtoincreasesharply
as a direct consequence of rising energy subsidies and still unabated
depreciation of rupiah. That said, it isworth noting thatmacroeconomic
assumptionsfortheannualbudgetmerelyserveasguidanceinformulating
statebudget,ratherthanfixedtargetswhichthegovernmentmustachieve.
Risingburdenemanating fromsubsidieswillexacerbate thestateof
healthoftheStateBudget.Thevalueofsubsidieswhichisexpectedtohover
around IDR 444.9 trillion is equivalent to 33.3% of budget allocation in
9
Table1:ComparisonofMacroeconomicAssumptionsinRevisedStateBudgetPlan(RAPBNP)
GDPgrowthassumptionusedinRevisedStateBudgetPlan2014wasreviseddownwardsto5.5%
Note:
*asby11June2014,theparliamentapprovedtheentiretyofchangeseffectedonthemacroeconomicassumptionsusedinformulatingRevisedStateBudgetPlanwiththeexceptionoftherupiahexchangeratewhichwasrevisedtoIDR/USD11,600;asthispieceiswritten,deliberationsofRevisedStateBudgetPlan2014arestillongoing
Source:MinistryofFinance,FinancialNote,andRevisedStateBudgetPlan2014
Fiscal and Economic Developments
Indonesian Economic Review and Outlook
ChangedStateBudgetPlan2014.Suchastaggeringlevel,ifcombinedwith
personnelexpenditureis55.9%.Consequently,budgetallocationforcapital
expenditureisprojectedtoexperienceadecreaseofIDR32.9trillion.
Nearly88%ofexpenditureonsubsidiesisearmarkedforenergy.Such
staggering amount is the summation of an increase in government
expenditureonsubsidiesforfuelsand iquefiedpetroleumgas(LPG)l aswell
as Theproposedb electricity. udgetallocationsforfuelsubsidiesand3kgLPG
hasincreasedtoreachIDR284.99trillionor35.2%ofbudgetallocationsin
StateBudget 2014.Meanwhile,subsidiesonelectricityisexpectedtoreach
IDR107.15trillion.Thesurgeinexpenditureislargelyduetotherevision
thathadtobemadeintheassumptionsofrupiahexchangerateagainstUS
dollarandliftingofcrudepetroleumoil.In StateBudgetPlan Revised 2014,
theexchangeofrupiahagainstUSdollarwasrevisedupwardsfromIDR/USD
10,500toIDR/USD11,600andlifting ofcrudepetroleumdecreasedfrom
870,000barrelstojust818,000barrelsperday.Meanwhile,allocationsfor
non-energysubsidiesisprojectedtoincreasebyIDR1.1trillion.Theincrease
isaneteffectoftheincreaseinallocationsoftaxsubsidiesofIDR1.8trillion
anddownwardrevisionofsubsidiesonfoodbyIDR0.7trillion.
10
Table2:SummaryofCentralGovernmentExpenditure(IDRtrillion)
Allocationsplanforsubsidiessurgedby33,%;capitalexpendituresuffereda17.9%decline
Note:
* unaudited
** DeliberationsofRevisedStateBudgetPlan2014arestillunderwaybythetimethispiecewaswritten
Source:MinistryofFinance,FinancialNoteandRevisedStateBudgetPlan2014
Macroeconomic Dashboard Universitas Gadjah Mada
2. TheriseofbudgetdeficitintheStateBudgetandRevisedState
Budget Plan 2014 which financed by the issuing of
government securities is expected to boost the economic
growth
Duringdeliberationsthattranspiredon13June2014,theparliament
reached an agreement to set the budget deficit at 2.4% of GDP or
IDR241.49 trillion. The amount will constitute an increase of IDR66.1
trillionfromthedeficitthatwassetinStateBudget .Inotherwords,2014
suchadevelopmentisnotinlinewithgovernmenteffortsandplantoreduce
budgetdeficitinStateBudgetforthisfiscalyear.Itisworthnotingthatthe
actualbudgetdeficitin2013budgetwas2.2%ofGDPorIDR202.8trillion.
DeliberationsonRevisedStateBudgetPlanagreedtentativelytosetthe
levelofgovernmentrevenuesandexpendituresatIDR1,635.4trillion
andIDR1,876.8trillion,respectively.Thus,revenuetargetisexpectedto
sufferadeclineof1.9%oftotalStateBudget allocations,2014's oraccounted
for IDR 31.8 trillion. The decrease is attributable to expectations of a
11
Note:
* unaudited
** deliberationsodRevisedStateBudgetPlan2014isstillongoingwhenthispiecewaswritten
Source:MinistryofFinance,FinancialNoteandRevisedStateBudgetPlan2014
Table3:CompositionofExpenditureonSubsidies(IDRtrillion)
ProposedbudgetallocationforenergysubsidiesintheRevisedStateBudgetPlan2014constitute88.15%ofoverallexpenditureonsubsidies
Fiscal and Economic Developments
Indonesian Economic Review and Outlook
significant decline in revenues from taxes and non-tax sources. In the
meantime, government budget allocations are expected to register an
increaseof12.7%,whichisIDR 211trillion.Bythetimethiswritten,there
was not any official publications on the details of approved government
revenuesandexpenditures for StateBudgetPlan2014.However,Revised
basedongovernment'spropositiontheincreaseingovernmentexpenditure
due to significant increaseon energy subsidy allocation. That said,
governmentexpenditure isproposed to register adecreaseas a resultof
cutbacksonbudgetallocationsforministriesandgovernmentinstitutions
whichisprojectedtoreachIDR98.5trillionaswellasfinancialrebalancing
fundwhichisinlinewithexpecteddecreaseingovernmentrevenuesbyIDR
8.9trillion.
Meantime,thepercentageutilizationorabsorptionofStateBudgetas
perquarterI-2014islowerthanthatregisteredinthesameperiodin
the previous fiscal year. realization of state During quarter I-2013,
expenditure hadreached16.2%oftotalbudgetexpenditurein StateBudget
2013.Onthecontrary, expenditurebyMarch2014 wasrealizationofstate
still hovering around 15.6% of total budget expenditure in State Budget
2014.Nonetheless,innominalterms, expenditure realizationofstate in2014
ishigherthanthelevelattainedinthesameperiodfor .thepreviousyear
Ontheotherhand,realizationofstaterevenuesasperquarterI-2014,
wasalreadyhigherthanthelevelattainedin2013budgetduringthe
12
Table4:SummaryofRevisedStateBudgetPlan2014,StateBudget2014,andRealizationofStateBudget2013(IDRtrillion)
Duringdeliberationson13June2014,theparliamentagreedtoraisethebudgetdeficitto2.4%ofGDP
Note:
* unaudited
** By13June2014;deliberationsofRevisedStateBudgetPlan2014werestillunderwaywhenthispiecewenttopress
Source:MinistryofFinance,FinancialNote,andRevisedStateBudgetPlan2014
Macroeconomic Dashboard Universitas Gadjah Mada
sameperiod. thestateAsperquarterI-2014, revenueshadreached17.3%of
totalprojected revenues StateBudgetstate in 2014.Thisishighercompared
totherealizationofstaterevenuesinMarch2013whichpostedonly16.6%of
StateBudget2013.Tothatend,betterperformancewithrespectstorealized
budgetrevenuesatteststomarkedsuccessineffortstowardimproving and
optimizationofgovernmentrevenuesthisyear.Nonetheless,thegovernment
willhavetorevisedownwardsprojectedrevenuetargetinthe StateRevised
BudgetPlan2014.
Indonesia's external debt increased to USD 276.49 billion in March
2014. 's external ThelevelofIndonesia debtgrewby 9.2%(y-o-y)compared
to 'sexternalthesameperiodin2013.Tothatend,Indonesia debtinMarch
2014 Doubtless,theishigherthat8%(y-o-y)chartedintheprecedingmonth.
increase in debt will add more burden to the economy if theexternal
depreciationof rupiahcontinues.
The level of Indonesia's external debt in March 2014 comprised of
USD130.51billionintheexternaldebtofpublicsectorandUSD145.98
billioninprivatesectorexternaldebt.Itisapparentfromtheabovefigures
that7.2%and52.8%oftotal debtis debtexternal publicandprivateexternal
respectively.Thus,therisinglevelofprivatesector ,whichisexternaldebt
alreadylargerthan debt, seriousconcern.publicsectorexternal hastobea
Privatesector debtregisteredanincreaseof13.1%(y-o-y)inMarchexternal
2014comparedwith thegrowthof12.8%(y-o-y)posted in theprevious
month.Meanwhile,publicsector inMarch2014registeredanexternaldebt
increaseof5.1%(y-o-y),which ishigher than3.2%(y-o-y)posted in the
precedingmonth.
13
Table5:RealizationofStateRevenue&GrantandExpenditure,2013:Q1and2014:Q1
ThereisreductioninthepercentageofrealizationofstateexpenditureinState Budget 2014:Q1; meanwhile realization of state revenue in StateBudget2014:Q1showsamarkedincrease
Note:
* Valuesetintheparliamentduringtentativedeliberations;deliberationsoftheRevisedStateBudgetPlan2014werestillunderwaywhenthiseditionwenttopress
Source:MinistryofFinance,I-account(processed)
Fiscal and Economic Developments
Indonesian Economic Review and Outlook
There is need for the government to pay serious attention to rising
external debt as well as take strategic measures to prevent the
exacerbationof theproblem. 'sexternalThe levelof Indonesia debthas
reachedworryingproportions.Thisisdiscerniblefromanincreaseindebt
serviceratio inquarterIV-2013,whichreached52.7%.Suchalevelofdebt
serviceratio,underscorestheurgentneedfortheIndonesiangovernmentto
makeefforts tailored to addressing debtmanagement apriority.external
Otherwise, rising debt service ratio means that most of the country's
internationalreserveswillbespentonpaying debt,tothedetrimentexternal
of financingproductiveprograms.Rising levelof debt isalso theexternal
consequenceofBankIndonesiapolicyonBIratewhichcontinuestobe7.5%.
Suchlevelofreferenceinterestinducestheprivatesectortogooffshorefor
borrowingduetolowerrates.BankIndonesiapolicytoraiseBIrateisan
indicationthattheIndonesianeconomyisexperiencing .slowdown
Indonesiancontinuestobeanattractiveeconomyforforeigninvestors.
Tothatend,theinterestofforeigninvestorsisnotonlylimitedtothecapital
market,butalsoveryevidentinthedomesticbondsmarkets.InApril2014,
foreignownershipofgovernmentbondshadreachedIDR377trillion,which
represents41%ofthevolumeofbonds andanincreaseof23.7%outstanding
from IDR 304.72 trillion recorded during the same period last year.
Meanwhile, foreignownershipofequity inMarch2014was IDR1,645.52
trillion,which represents a decrease of 7.1% from IDR 1, 771.25 trillion
14
Figure6:Indonesia'sExternalDebt,September2011-March2014(USDbillion)
Indonesianexternaldebtshowedanincrease
Source:DJPUandCEIC(2014)
Macroeconomic Dashboard Universitas Gadjah Mada
recorded inMarch2013.Moreover, foreignownershipofBank Indonesia
Certificates inApril2014wasputat IDR9.9trillion,whichrepresentsan
increasefromIDR8.26trillionrecordedinApril2013.
Thepresenceofforeigncapitalhasbeenthesourceofcontroversyona
number of occasions. During economic slowdown, both domestic and
foreigncapitalisrequiredtostaveoffanevendeeperdeclineineconomic
growth.However,presenceof foreign capital in theeconomyoften raises
fearsfromlocalactorswhoconsiderthemasthreatstotheexistenceoflocal
industries.Anotherfear,whichisincreasinglybecomingarealproblemisthe
fearthatforeigncapital,especiallythatofshorttermtenor,asmuchasitcan
easily andquickly enter an economy, it can as easily andquickly exit it,
sparking off liquidity shortages, slower investment, and economic
slowdown. To that end, the Indonesian government continues to take
measures that are aimed at strengthening the domestic capital market,
deepeningfinancialmarkets,whicheffortsareexpectedtoincreaseliquidity,
wideninvestorbase,anddiversificationofavailableinstruments.
Issuing government securities (SBN), is the option which the
Indonesiangovernmenthaschosentofinancedomesticexpenditure.
Total government securities outstanding inApril 2014was IDR 1,495.74
trillion, which represents an increase of IDR 327.83 trillion (y-o-y) (see
Figure12).InApril2014,fixedbond wasIDR828.32trillion,whichisanrate
15
Figure7:ForeignOwnershipofIndonesianSecurities,October2011-April2014(IDRTrillion)
ForeignownershipofIndonesiasecuritiesshowsanincrease
Source:DJPU,BI,andOJK(2014)
Fiscal and Economic Developments
Indonesian Economic Review and Outlook
increaseofIDR173.47trillion(y-o-y).Meanwhile,inApril2014,thelevelof
SovereignShariaSecurities SBSN( )wasIDR98.90trillion,whichrepresented
anincreaseofIDR23.04trillion (y-o-y).Thepositivetrendisanindication
that interest in is rising,which also signals good prospects for theSBSN
development of in the domestic economy. TheIslamic bond market
government has issued to reduce the budget deficit.SBSN state 2014's
Besides, the existence of is expected to attract foreign investors,SBSN
especiallythosewhohailfromtheMiddleEasttoinvestinIndonesia.Asby
April2014,thelevelofforeigncurrencydenominatedbondswasIDR405.96
trillion,which represented a decrease of IDR 2.95 trillion from the level
recorded inMarch2014,butrecordedan increaseof IDR112.53trillion
comparedtoApril2013(y-o-y).Thelevelofgovernment treasurybill(SPN)
postedaslightdecreaseofIDR500billoninMarch2014,tothelevelIDR39.8
trillion,andrepresentedanincreaseofIDR18.78trillion(y-o-y).
The need for improving government financial management is
absolutelyessentialforthenewgovernment.Thenewgovernmentwill
faceformidablechallenge. Nonetheless,itisfairtobeoptimisticconsidering
the fact that this is an issue thathasdominatedeconomicprograms that
variouscontestantsintheelectionshaveproposediftheyaregivenpublic
mandatetogovern.Thisisthemoresogiventhelargebudgetallocationspent
onconductingtheelectionswhichisbymanyaccountsisaimedatsearching
forandidentifyingqualitylegislativeandexecutiverepresentatives—grew
16
Figure8:CompositionofGovernmentSecurities,November2011-April2014
Governmentsecuritiesrecordedanincrease
Source:DJPUandCEIC(2014)
Macroeconomic Dashboard Universitas Gadjah Mada
by 9.5% in real terms . The government allocated IDR 20.5 trillion for¹
conducting2014elections,whichisobviouslyhigherthanIDR15.1trillionin
allocated for 2009 elections (DGB-MoF, 2014). The hope is that budget
allocationforthegeneralelectionscorrelatespositivelywiththequalityof
representatives,whothegeneralpublicelectastheirrepresentatives.
3. TheTradeBalancedeteriorationhasnotbeencounteredby
significantimprovementonthecurrentaccount
Compared with quarter I-2013, current account deficit shows some
slightimprovement. Duringquarter I-2014,thecurrentaccountposteda
deficitofUSD4.19billion.Meanwhile,duringquarterI-2013,thedeficiton
the current account was USD 6.01 billion. A similar positive trend is
discernibleonaquarter-to-quarterbasis,intheperformanceofthecurrent
account,whichalsorecordedslightimprovement.Thedeficitonthecurrent
accountpostedaslightdecreaseofUSD0.12billioncomparedwithUSD4.31
billion.Improvementintheperformanceofcurrentaccountisattributableto
thedecreaseinthedeficitonincomeaccountandservicestradebalance.
Thedeficitontheincomeaccountandservicestradebalancerecordeda
decreaseinquarterI-2014.DuringquarterIV-2013,thetwoaccountshad
deficits of USD 6.98 billion and USD 3.11 billion, respectively. In the
subsequentquarter,thedeficitonthetwoaccountdecreasedtoUSD6.49
billionandUSD2.21billion,respectively.Thedecreaseinthedeficitonthe
incomeaccountwasaresultofadeclineinthepaymentofintereston public
andprivate debtaswellasthedecreaseinprofitsforforeigndirectexternal
investmentcompanies.Meanwhile, thedecrease in thedeficitonservices
trade balancewasasaresultofadeclineofUSD0.23billioninthedeficiton
thetransportationsectorandanincreaseofUSD0.4billioninthesurplus
recordedonthetravelsector.
Thesurplusonthegoodstradebalanceandcurrenttransferdeclinedin
quarter I-2014. In comparative terms, the surplus on the two accounts
postedadecreaseof25.52%and 4.96%toreachUSD3.55billionandUSD
17
¹Innominaltermsgrowthas35.8%,whileInflationfrom2009untilMay2014was26.3%,whichtranslatesintorealgrowthof9.5%
Fiscal and Economic Developments
Indonesian Economic Review and Outlook
0.97billion,respectively.Thesurplusonthegoodstradebalancedecreased
asaresultofaUSD3.06billiondropinthevalueofnon-oilexports.Besides,
thedecreaseinthesurpluswasalsoattributabletoanincreaseinthedeficit
on Indonesia oil trade balance. Meanwhile, the slight decrease in the's
surplus on the current transfer account was as a result of a decline in
governmentrevenuesandworkerremittances.
ThesurplusonthecapitalandfinancialaccountdecreasedinquarterI-
2014.ThesurplusonthecapitalandfinancialaccountdecreasedUSD8.85
billioninquarterIV-2013toUSD7.83billioninquarterI-2014.Thedeclinein
thesurpluswasattributabletoadeficitontheotherinvestments.Theother
investments,whichinitiallyrecordedasurplusofUSD6.52billioninquarter
IV-2013,becameadeficitofUSD4.14billion. Thiswaslargelyduetothe
deficitrecordedonboththeassetsandliabilities.Assetspostedadeficitof
USD3.36billion,whileliabilitieshadacurrentaccountdeficitofUSD0.77
billion.Nonetheless,theperformanceofcapitalandfinancialaccountshows
animprovementonayearonyearbasis.DuringquarterI-2013,capitaland
financialaccountpostedadeficitofUSD0.55billion.
TherewasasurgeindirectandportfolioinvestmentduringquarterI-
2014.PortfolioinvestmentspostedthelargestsurplusfromUSD1.79billion
inquarterIV-2013toUSD8.97billioninquarterI-2014.Improvementinthe
performanceofportfolioinvestmentcameasaresultofanincreaseinforeign
capitalflowstoIndonesiathattookformsofvariousfinancialinstruments
18
Figure9:Indonesia'sCurrentAccount,2011:Q1-2014:Q1(USDbillion)
Thedeficitonthecurrentaccountpostedslightimprovement
Source:BankIndonesiaandCEIC(2014)
Macroeconomic Dashboard Universitas Gadjah Mada
issuedby theprivateandpublic sector.By thesame token, foreigndirect
investmentalsopostedanincrease,reachingthelevelof USD4.53billion,
which led toan improvement in thesurpluson foreigndirect investment
fromUSD0.53billiontoUSD2.99billion.
Theupwardtrendintheperformanceofthebalanceofpaymentsseems
tohavehaltedinquarterI-2014.Thisisreflectedinalowersurplusinthe
balanceofpaymentsthaninthepreviousquarter.DuringquarterIV-2013,
thesurplusonthebalanceofpaymentswasUSD4.41billion,butdroppedby
53.15%toUSD2.07billioninquarterI-2014.Thedecreaseinthesurpluson
thebalanceofpayments isattributable toadecline in thesurpluson the
capital and financial account which failed to make any gains from
improvementinthecurrent.However,inrelativeterms,theperformanceof
the balance of payments in quarter I-2014 shows some improvement
comparedwiththepositioninquarterI-2013.DuringquarterI-2013,the
balanceofpaymentsrecordedadeficitofUSD6.61billion,butbyquarterI-
2014,hadbouncedback intoasurplus.This impliesthatonyearonyear
basis,thebalanceofpaymentsregisteredanincreaseofUSD8.68billion.
19
Fiscal and Economic Developments
Figure10:CapitalandFinancialAccount,2011:Q1-2014:Q1(USDbillion)
Thesurplusonthecapitalandfinancialaccountdecreased
Source:BankIndonesiaandCEIC(2014)
Indonesian Economic Review and Outlook
4. Despite Registering Improvement, International Reserves
PositionisDevoidofQuality
ThelevelofinternationalreservesinMay2014reachedUSD107.048
billion,whichwasanincreaseofUSD1.485billioncomparedwiththe
positioninApril2014. Theinternationalreservepositioncanfinance 6.2
months of imports, which criteriamakes it fulfill international adequacy
standard (three months of imports). Subsequently, in April 2014,
international reserves reachedUSD105.56 billion,which represented an
increaseofUSD2.97billioncomparedwiththepositioninMarch2014.The
increaseinthelevelofinternationalreservescameasaconsequenceofan
increase in oil and gas exports during April–May 2014 period and
improvement in capital flow to Indonesia inMay2014. Bank Indonesia,
throughPBINo.14/25/PBI/2012onforeignexchangerevenuederivedfrom
exportsand debtrelatedwithdrawals seemedtohaveregisteredexternal
successinforcing exporterstodeposittheirrevenuesinforeignexchange
banks. Consequently, the policy has contributed to improving Indonesian
international reserve position. Meanwhile, in March 2014, international
reservepositiondecreasedbyUSD149millionwhichrepresentsadeclineof
0.145% compared with the level registered in the previous month. The
declineintheinternationalreservepositionisattributabletoeffortsbythe
government to repay USD 2 billion of its bond obligations that reached
maturity. To that end, Bank Indonesia, expects the international reserve
20
Figure11:BalanceofPayments,2011:Q1-2014:Q1(USDbillion)
AnupwardtrendinthesurplusonthebalanceofpaymentscametoahaltinquarterI-2014
Source:BankIndonesiaandCEIC(2014)
Macroeconomic Dashboard Universitas Gadjah Mada
positiontodeclineinquarterII-2014.Onaseasonalbasis,quarterIIisoften
characterized by maturity of securities that require payment of interest,
dividends,androyalties.
On the other hand, since January 2014, the issuing of government
securities (SBN) also contributed to the increase in the level of
international reserves. During quarter I–2014, SBN denominated in
foreigncurrencyincreasedbyUSD3.05billion.Theadditionmeantthatthe
governmentbond (SUN)denominated invarious currencies suchasUSD,
Japaneseyen,andEurostobecomeUSD30.19billion,JPY155billion,and
21
Fiscal and Economic Developments
Table 6: Governments Bonds Denominated in Foreign Currencies andBilateralLoans,2012–2014(inUSDbillionunlessstatedotherwise)
The government securities denominated in USD increased by USD 3.05billioninquarterI–2014;meanwhile,bilateralloanspostedanincreaseofUSD4.45billioninApril2014
Note:
* =JPYbillion
Source:DJPUandCEIC(analyzed,2014)
Figure12:IndonesianInternationalReserves(inUSDbillion)andDevelopmentsintheExchangeRate(IDR/USD),May2011–May2014LevelofinternationalreservesshowsanupwardtrendandreachedUSD107.048billion;thedepreciationofrupiahcontinues
Source:BankIndonesiaandCEIC(2014)
Indonesian Economic Review and Outlook
GlobalSukuk USD4.15billion.DuringquarterIV–2013,theleveloftobecome
SUN denominated in reached USD 27.14 billon,USD whereas SUN
denominatedinJapaneseYenreached SBSNreachedJPY155billion,and USD
4.15billion. Overall,foreignportfolioinvestment,intheformofequityand
SUN, posted a drastic increase of USD 8.51 billion in quarter I–2014,
comparedwithanincreaseofUSD1.63billioninquarterIV–2013.
Therise in international reserveshasnot led to theappreciationof
rupiah.RupiahexchangeratebylateMay2014wasIDR11,611perUSD,
whichrepresentedadepreciationof0.69%comparedwiththevalueinApril
2014(IDR11,532perUSD).Meanwhile,rupiahexchangerateinApril2014
depreciatedfurthercomparedwiththepreviousmonth.Thedepreciationof
Rupiahcameontheheelsofnegativemarketsentimentsthatarosefromthe
newsrelatingtotherelapseofthebalanceofpaymentsintoadeficit(balance
ofpaymentspositioninApril2014recordedadeficitof USD1.96billion)
whichiscoupledwiththeperiodicalpatternof debtrepaymentinexternal
quarterII.Besides,TheFedpolicyofgraduallyreducingquantitativeeasing
this year also has had significant impact on market practitioners. The
downwardtrendintherupiahisexpectedtocontinueasTheFedisexpected
toraiseFedFundratein2015.Specifically,however,dynamicsinIndonesian
politics thisyear, inwhichthecountrywillconductpresidentialelections
havealsohadadverseimpactontherupiahexchangerateinMay2014.The
year2014beingayearof'politics'isexpectedtobecharacterizedbyhigh
uncertainty,whichforinvestorsmeansthattheyhavetoseeksecurityfirstas
adoptawaitandseestrategy.
5. Achievements in the labor market rate not yet cause for
celebration
Indonesiaregisteredanopenunemploymentrateof5.7%inFebruary
2014,whichisthelowestinthreeyears.AccordingtoBPS,thenumberof
peopleclassifiedasunemployedinFebruary2014was7.15 million,which
wasadecreasecomparedwith7.41millionregisteredinSeptember2013.
Theachievementmadeinthelabormarketcameontheheelsofanincreasein
employmentintheinformalsectorandthoseworkingparttime. henumberT
ofemployeesintheinformalsectorincreasedby420,000 Februarybetween
2013 February2014,whichrepresentsanannualizedincreaseof0.60%and
(y-o-y).Besides that,BPSdataalsoshowed that thenumberofpart time
workersrosesharplyfrom22.93millioninFebruary2013to26.40millionin
22
Macroeconomic Dashboard Universitas Gadjah Mada
February 2014. Despite marked improvement in the realm of
unemployment,BPSnotedthatmostaddedemploymentinFebruary2014
(46.80%)wassuitableforpeoplewithprimaryeducationattainmentand
belowleavingonly7.49%ofnewemploymentforemployeeswithuniversity
education. Meanwhile,theparticipationrateoftheworkforceinFebruary
2014was69.17%,whichwashigherthan66.77%registeredinAugust2013.
With regards to the structure of employment in February 2014, the
contribution of agricultural sector registered a slight increase. That
said,thenumberofpeopleemployedintheagriculturalsectorinFebruary
2014representedadeclineforthelevelthatobtainedinthepreviousyear.
The numberofpeopleemployedintheagriculturalsectordecreased from
41.11 millioninFebruary2013to40.83millioninFebruary2014. However,
employment in the trade and social services sector increased. The above
developmentsattesttotheshiftinthestructureofemploymentinIndonesia
fromtheagriculturalsectortoothersectors,especiallytrade,servicesand
industry. Nonetheless, sectorAgriculture, Forestry, Hunting and Fishery
continuestobethemostimportantproviderofemploymentinIndonesia ,
contributingasmuchas34.55%tototalemploymentintheeconomy.Second
inline,basedoncontributiontoemploymentintheeconomyinFebruary
2014, was (21.84%), Trade Community, Social, and Personal Services
(15.64%)and (13.02%).ManufacturingIndustry
23
Table 13: Labor Force Participation and Open Unemployment inIndonesia,February2011–February2014(in%)
Unemploymentratesituationregisteredsomeimprovement
Source:BPSandCEIC(2014)
Fiscal and Economic Developments
Indonesian Economic Review and Outlook24
Table7:Populationof15YearsofAgeandAboveWhoWorkedbyMainIndustry,2012-2014(%)
Despite showing a downward trend, Agriculture, Forestry, Hunting, andFisherysectorcontinuestobethemainsourceofemploymentinIndonesia
Source:BPSandCEIC(2014)
Macroeconomic Dashboard Universitas Gadjah Mada 25
1. PriceLevelintheEconomyRemainStableandUnderControl
As the country entered harvesting season for food crops, inflation
trendeddownwardsinMarch2014.InMarch2014,inflationwas7.32%
(y-o-y),whichislowerthanthelevelregisteredinthepreviousmonth.Based
on the compositionof inflation inMarch2014 (y-o-y), core inflationwas
5.35%,inflationduetovolatilepriceswas5.55%andinflationofgovernment
administered prices was 16.84%. On month-to-month basis, inflation in
March2014was0.08%,declined inApril2014,a trendthatcontinuesas
reflectedbyadecreaseof7.25%(y-o-y)largelyduetotheeffectofharvesting
seasononcommodityprices.Onayear-on-year,coreinflationwas5.46%,
inflationofvolatileprice5.24%,andinflationofgovernmentadministered
was17%.Meanwhile,onamonth-to-monthtrajectory,April2014registered
adeflationof0.02%.
Despite the fact thatharvestingseason isstillunderway, inflation in
May2014trendedupwards.May2014registeredInflationof7.32%(y-o-
y), which is higher than 5.47% (y-o-y) registered in May 2013. In the
meantime,onamonth-to-monthbasis, inflation inMay2014was0.16%.
B. MONETARY AND FINANCE SITUATION
Figure14:Inflation,May2011–May2014(y-o-y,in%)
InflationinMay2014was7.32%(y-o-y)
Source:BPSandCEIC(2014)
Indonesian Economic Review and Outlook26
BasedonthecompositionofMay2014inflationonayear-on-yearbasis,core
inflationwas5.63%,volatileprice inflationwas6.17%,andadministered
pricewas16.23%.
Onamonth-to-monthbasis,April2014registeredadeflationof0.02%
(m-t-m),largelyduetothedeclineinexpenditureonFoodStuff . Food
Stuff FoodStuffexperiencedadeflationof1.09%(m-t-m).Someofthe that
registeredpricedeclinewerein6subcategorieswhichincludedcondiments
andspices(7.4%).ThecontributionFoodStuff's inflationaccounted for -
0.22%ofheadlineinflationinApril2014.PricesthatdeclinedinApril2014,
amongothersincludedchilipepper,rice,onions,spinach,and .waterspinach
Furthermore,inflationinApril2014wasdominatedbythegroupofHealth
commodity, accounted for , group of0.6% (m-t-m). Meanwhile based on
commodities,thei wasdominatedbynflationinMay2014(month-to-month)
Health commodity which increased by 0.41%, followed by inflation on
Prepared Food, Beverage, Cigarette, and Tobacco Housing, (0.35%), and
Table8:InflationofIndonesiabyGroupofCommodities,2011–2014(2012=100,m-t-m,in%)
Foodsinduceddeflation,inflationinMay2014was0.16%(m-t-m)
Note:(1)FoodStuff;(2)PreparedFood,Beverage,Cigarette,andTobacco;(3)Housing,Water,Electricity,GasandFuel;(4)Clothing;(5)Health;(6)Education,Recreation,andSports;(7)Transport,CommunicationandFinancialServices
Source:BPSandCEIC(2014)
Macroeconomic Dashboard Universitas Gadjah Mada
Water,Electricity,GasandFuel FoodStuff (0.23%).Meanwhile,pricesof
continuedtoregisterdeflationaswasthecaseinthepreviousmonth,largely
attributabletothedeclineofpricesofredpepper,chili,andriceduetothe
harvestingseasonthatisstillunderway.
Ingeneral,citiesinIndonesiaexperiencedinflationinMay2014.Outof
82cities,67ofthem,registeredinflation,withPematang Siantarbeingthe
citythatregisteredthehighestinflationof1.09%(m-t-m).Thenumberof
citiesthatregisteredinflationinMay2014ishigherthan43citiesand45
citiesthatregisteredinflationinApril2014andMarch2014,respectively.On
thecontrary,15citiesregistereddeflationinMay2014,withPangkalPinang
being thecity thatexperiencedthe largestdeflationof (1.27%m-t-m). In
April2014, PangkalPinangcityregisteredthehighestinflation(1.57%m-t-
m),whileJayapurarecordedthelowestinflationinthesameperiod(-1.79%
m-t-m).Meanwhile,inMarch2014,Meraukeregisteredthehighestinflation
(1.15%m-t-m),whileTualrecordedthelowestinflation(2.43%m-t-m).
2. FinancialMarketsareStillRelativelyBullish
TheperformanceofIndonesiaCompositeIndex(IDX)continuestoits
upwardtrendinMay2014.AtthecloseoftradingsessioninMay2014,IDX
was4,894,whichrepresentsanimprovementof1.11%comparedwiththe
levelregisteredinthepreviousmonth. Infact, inMay2014,IDXreached
5,031.Thevalueof5,000ontheIDXconstitutesthepsychologicallevelfor
investorsasitisregardedasabenchmarkfornewsharepriceswhichwill
impactmarketpractitioners.AttheclosureofthetradingsessioninApril
2014, IDX registered a value of 4,840, which an increase of 1.51% is
comparedwiththelevelrecordedinthepreviousmonth.Intensiveactivityof
IDX withinthegreenlevelisindicativeofrisinginvestorconfidenceinthe
currenteconomicconditionandeconomicprospectsofIndonesianeconomy
amidsttheyearofpolitics. Atamorefundamentallevel,theresurgenceof
investorconfidenceinIndonesianeconomyreflectsinvestorperceptionthat
Indonesian economic fundamentals have improved. In quarter I–2014
foreigninvestorscarriedoutnetbuyof IDR24.62trillion, whichishigher
thanthelevelmadeinquarterIV–2013ofIDR11.11trillion.
Inthebondsmarket,themovementofgovernmentbondyieldbythe
endofMay2014showedadownwardtrendshedding12bpsto8.21%.
Nonetheless,ashasbeenthecaseinpreviousmonths,themovementofthe
SUN SUNyieldfollowsmovementandfluctuationofinflation.Thus,the yield
27
Monetary and Finance Situation
Indonesian Economic Review and Outlook
hasshown sinceJanuary2014adownwardtrend ,changedcourseinMay
2014,largelyasaconsequenceofhigherinflationthatwasregisteredinMay
2014comparedwiththelevelinApril2014.Duringthepreviousmonths,
inflationslowedslightly,whichinturninducedadownwardtrendinSUN
yield.TheyieldonSUNinlateApril2014was8.09%,whichislowerthanthe
levelregisteredinMarch2014(8.21%).
3. ThereisNoSignificantChangeinMonetaryPolicy
The Indonesia Deposit Insurance Corporation (IDIC) has decided to
raiseitsguaranteedintresetrateby25basispoints(bps)to7.75%in
May2014.Theincreaseininterestrateconstitutesanattempttoensurethan
depositsofbankcustomersareguaranteed.Meanwhile,theupwardtrendin
bank interestratecontinues.Liquidity in Indonesianbanking indomestic
assetsistendingtowardsbecomingrestrictive.ThisisaconsequenceofBI
restrictivemonetarypolicywhichisreflectedinkeepingBIrateat7.5%.IDIC
p the 'solicy will be in effect until September 2014. Meanwhile IDIC
guaranteed forMarch-April2014remainedunchangedat7.5%.interestrate
Interestrateontimedepositscontinuestobehigh,higherthantherate
thatisapplicableonguaranteeddeposits.Interestrateontimedeposits
28
Figure15:TheMovementofIndonesiaCompositeIndex(IDX)and10YearsGovernmentBondYield,May2011–May2014(%)
IDXcontinuestheupwardtrend;meanwhile,SUNyieldwas8.21%inlateMay2014
Source:IDX,CEIC,andBloomberg(2014)
Macroeconomic Dashboard Universitas Gadjah Mada
foronemonthmaturitywas8.1%inApril2014.Thisisanindicationthat
Indonesian Banking sector is experiencing restrictive liquidity condition,
whichisattributabletoslowergrowthinbroadmoney(M2).Theslackening
ofM2isasaresultoflowrealizationofgovernmentexpenditureanddecline
increditgrowth.Ashasbecomethepractice,therealization/absorptionof
government expenditure is initially slow at the outset but picks up pace
toward the end of the fiscal year. By quarter I–2014, government
consumptiongrewbyamere3.6%(y-o-y),which is lower than the level
registeredinquarterIV–2013whichgrewby6.4%(y-o-y).Interestrateon
credithasrisensinceJanuary2014.Thisisshowedbythetrendininterest
rateoncreditwhich inFebruary2014roseto12.51%,and inMarchwas
12.53%,whileinApril2014itreached12.56%.
Restrictive monetary policy in May 2014 continues in line with the
inflationtargetingpolicyandeffortstoimprovebalanceofpayments
position.ThisisreflectedinoutcomesofBankIndonesiagovernorscouncil
meeting convened on May 12, 2014, which decided to leave BI rate
unchangedat7.5%.Thedecisionwastakenafterfactoringininflationthatis
under control, the downward trend shown by the deficit on the current
account,optimismthatisexudingfromfinancialmarketscondition,domestic
29
Figure16:DevelopmentsinIDIC'sGuaranteedInterestRateandTimeDeposits,2011–2014*(%)
TheIDIC'sguaranteedinterestrateincreasedby25bps,meanwhilethetimedeposits'interestratefor1monthisaboveBIrateandIDIC'sguaranteedinterestrate
Catatan:
* =April2014(timedeposit)andMay2014(guaranteedinterestrate)
Source:IndonesiaDepositInsuranceCorporation,BankIndonesiaandCEIC(2014)
Monetary and Finance Situation
Indonesian Economic Review and Outlook
demandwhichcontinuestooffsetcontraction,andeconomicprospectsof
Indonesianandglobaleconomythataregraduallyimproving. Nonetheless,
Indonesianeconomycontinuestofaceanumberofrisks,whichamongother
factors,include: uncertaintythatcontinuestocastalargeshadowonthe
economyemanatingfromtheimpactoftaperingoffpolicyandexpectedplan
toraiseFEDFundRatein2015;declineinthevalueexportsattributableto
theweakeningoftheeconomyofChinawhichoneofIndonesia'skeytrading
partners;anddomesticinflationwhichisexpectedtoriseduetopossibilityof
badweatherintheeventofElNinooccurrenceandgovernmentplantoraise
pricesofsomeservicesthatfallunderthecategoryof pricesadministered
(basicelectricityratesandLPG12kgprice).
30
Figure17:DevelopmentsinBIRate,May2011–May2014(%)
BankIndonesialeftBIrateunchangedat7.5%inMay2014
Source:BankIndonesiaandCEIC(2014)
Macroeconomic Dashboard Universitas Gadjah Mada
1. GAMALeadingEconomicIndicator(GAMALEI)
LeadingEconomicIndicatorisoneofearlywarningsystemmodelsthat
predictsthemovementanddirectionoftheeconomyinfuture.GAMA
Leading Economic Indicator (GAMA LEI) is a model developed by the
MacroeconomicDashboardattheFEBUGM.Turningpointsandmovements
intheGAMALEIgraphedisusedtopredictthedirectionoftheIndonesian
economy over some period in future. GAMA LEI analysis is based on
quantitative and qualitativemethods that generate and produce the best
prediction.
ThecompilationofGAMALEIusesvariousindicatorswhichhavebeen
subjectedtorobuststatisticaltests.Theperformanceofavariablesuchas
investment, automobiles sales, exports and international reserves are
analyzedfrombothmacroperspectivesuchasmarketcapitalizationandIDX
of the capital market which have significant influence on the economy.
Nonetheless, it is worth noting that somemacroeconomic indicators are
likelytochangeanytimeinfuture.
GAMALEI is able tomakean accuratepredictionof the cycle of the
Indonesianeconomysometimebackpriortotheevent.Theprediction
whichGAMALEImakeshasproveditsefficacyinpredictingthedirectionof
thecycleofIndonesianeconomy.Thedeclineintheperformanceofsomekey
economic indicators inIndonesianeconomyhave ledtotheweakeningof
economicgrowthin2014:Q1comparedwith2013:Q4.Inthisedition,GAMA
LEI predicts the fluctuation of the economy in 2014, which has been
designated as the year of politics, especially so in the lead up to the
forthcomingpresidentialelectionsinJuly.
ThevarietyofpatternsinIndonesianeconomicgrowthandprojection
of the cycle of the Indonesian economy in GAMA LEI model has the
ability to produce a comprehensive prediction. The prediction of the
businesscycleplacesalotofemphasisonthemovementoftheeconomic
cycleinthedirectiontowardeitherexpansionorcontractionforsometimein
future.GAMALEI2014:Q1cycleliesattheexpansionphase(fallsabove100),
31
C. GAMA LEI AND CONSENSUS ON
ECONOMIC PROJECTIONS
Indonesian Economic Review and Outlook
albeit signs of declining. As an example: Indonesian economic growth in
2014:Q1(year-on-year)increased,buttheGDPcyclegeneratedbythemodel
showsadownwardtrendthatisstillwithintheexpansionphase.
OutcomesofGAMALEIpredictioninthiseditionpointstoadownward
trend in the economic cycle of Indonesian GDP. GAMA LEI model in
2014:Q1showsdownwardtrendintheeconomy.Thedownwardmovement
of GAMA LEI generates prediction that shows a decline in the cycle of
IndonesiaGDPin2014:Q2.Therevelryandgarlandthatischaracterizingthe
year of politics, which will reach its crescendo in the lead up to the
presidentialelectionsinJuly,2014,shouldinstillhopeandoptimisminthe
Indonesianeconomy.Itisthehopethatthenextgovernmentwillhavethe
knack to take advantage of the current momentum to protect, or even
improve,theeconomicperformancein2014:Q1.
2. ConsensusonProjectionsofMacroeconomicIndicators
The outcome of consensus on three principal macroeconomic
indicators for Indonesian economy--economic growth, inflation, and
exchange rate--showed a trend toward improvement from 2014 to
2015.Theconsensuswasobtainedaftera survey thatwasconductedby
MacroeconomicDashboardteamwithrespondentswhoweredrawnfrom
lecturersandresearchersatFEBUGM.
32
Figure18:GAMALeadingEconomicIndicator
GAMALEIpredictsadownwardtrendinthecycleofIndonesianeconomy
Macroeconomic Dashboard Universitas Gadjah Mada
Ingeneral,realGDPgrowth(y-o-y)inquarterII-2014ispredictedto
increasecomparedwithrealGDPgrowthregisteredinquarterI-2014.
RealGDP(y-o-y)ispredictedtogrowby5.46%±0.37%inquarterII-2014
and5.47%±0.42%inquarterIII-2014. Onayearonyearbasis,realGDP
growthin2014and2015ispredictedtobe5.63%±0.48%and6.0%±0.6%.
Inflation in Indonesian in 2014-2015 is predicted to exceed seven
percent.In2014,outcomeofpredictionindicatedthatinflationinIndonesia
willbe7.88%±1.38%.In2015,inflationispredictedtodeclineto7.36%±
1.82%.Meanwhile,onaquarteronquarterbasis,inflationinIndonesiain
quarterII-2014andIII-2014ispredictedtohoveraround7.42%±1.56%and
7.90%±1.59%.
Theexchangerateofrupiahispredictedtoappreciateandwilltrend
toward becoming more stable in 2014. This is despite the current
exchangeratethathoversaroundIDR/USD11,000.InquarterII-2014the
exchange rate of rupiah is predicted to hover around IDR/USD 11,563 ±
IDR/USD349. In the following quarter the exchange ratewill appreciate
slightlytothelevelIDR/USD11,553±IDR/USD390.Meanwhile,onayearon
yearbasis,theexchangerateofrupiahin2014ispredictedtobeIDR/USD
11,366±IDR/USD479andisprojectedtoappreciatein2015tothelevelof
IDR/USD11,072±IDR/USD316.
33
Table9:EstimatesofRealGDPgrowth(y-o-y,in%)
Source:Primarydata;processed(2014)
Table10:EstimatesofInflation(y-o-y,in%)
Source:Primarydata;processed(2014)
Table11:EstimatesofExchangerateofRupiah(IDR/USD)
Source:Primarydata;processed(2014)
Gama LEI and Consensus on Economic Projections
Indonesian Economic Review and Outlook
AstheincomingofASEANEconomicCommunity(AEC)2015,apressure
emanatingfromtheglobaleconomyisstillovershadowingeconomies
intheregion.SinceTheFedconsiderstheUSeconomyalreadygaintheir
momentumofstability,itthendecidedtoimplementthetaperingoffpolicy
which constitutes a restrictive monetary policy. Consequently, the policy
'driesup'capitalflowfromtheUStoASEANeconomies,whichinturnhasled
todeeperdepreciationof localcurrenciesthathasbeenexperiencedover
recently(IndonesianRupiahexchangerateisexpectedtohoveraroundanew
equilibriumlevel).Meanwhile,EuropeanUnionwhichhastoacertainextent
beenabletoovercometheworstpartofthecrisisisstillaccompaniedbythe
variation of economy performance among economies in the region.
Economic growth in European Union has yet in turn support domestic
consumer demand growth for global goods, including ASEAN products.
While China, as the prominent trading partner for ASEAN economies is
currently undergoing 'cooling' phase of growth, impacting on the
performanceofinternationaltradeofASEANeconomies.
National Instability is becoming formidable challenge in affecting
economicperformanceinASEANeconomies.Instabilitythathappenedin
ASEAN economies takes into various forms such as political challenges,
economicchallengesandsecuritychallenges.Theimpactofnaturaldisaster
thatstruckthePhilippinesin2013,theremovalofvarioussubsidyschemes
andadoptionofvarioussocialsecuritypoliciesinregioneconomies,political
transitions that is underway in Indonesia, political crisis that occur in
Thailand,implementationofsharialawinBruneiDarussalam,openmilitary
conflictsbetweenVietNamandChina,disputesoverIslandsinSouthChina
SeabetweenChinaandsixmembernationsofASEANandtheslowpaceof
infrastructuredevelopmentaresomeoftheexamples.Someoftheexamples
citedaboveattesttothefactthattheregion'suncertaintywillbeafuture
seriouschallengethatASEANeconomieswillfaceiftheyareseriouslyaiming
tomaintaintheeconomicmomentumthatiscurrentlyunderway.National
stabilityisanessentialaspectforASEANeconomiestokeepglobalinvestor
interest in investing into the national manufacturing sector. Nurturing
political stability, economic stability and global public confidence is an
importantpaperworksforASEANeconomiesamidstvariouschallengesthat
arerootedintheincreasinglyintensivenationalinstability.
34
D. ASEAN:
Global Economic Pressure and National Instability
Challenging The Pathway for ASEAN Economic
Community 2015
Macroeconomic Dashboard Universitas Gadjah Mada
Maintainingcompetitivenessamidstglobaluncertaintyanddomestic
instabilityiscrucialfortheregiontowardAEC2015.Competitivenessis
vitaltoensurethateconomiesintheregionhaverequisitereadinesstoenter
AEC 2015. Amidst various challenges, both external and internal, the
government must have the ability to enhance and even building their
economiescompetitivenesssothatwhentheAEC2015takeintoforce,every
parts of the society have the ability and capacity to reap the attendant
benefits.
ASEANeconomieshaveyetregisteroptimaleconomicgrowth.During
quarterI-2014,ASEANeconomiesregisteredslowergrowththanexpected.
Thisisduetothefactthatthelevelofeconomicgrowthrecordedisfarbelow
itspotential.IndonesiaasthelargesteconomyinASEANregionregistered
slower economic growth. Thailand as the second largest economy in the
regionistheonlyeconomiesinASEANthatregisteredeconomiccontraction
forquarterI-2014(-2.10%),largelybecauseofpoliticaldynamicsthathave
beenroilingthecountry.SingaporeandVietNam,despiteregisteringsound
economic growth, are still having growth below their target. In general,
MalaysiaandPhilippinescontinues tobe thekeydriversofeconomies in
ASEAN.
Indonesiaas“engine”ofeconomiesinASEANregionregisteredslower
economicgrowth.InquarterI-2014,Indonesiaregisteredeconomicgrowth
of 5.21% (y-o-y) or 5.56%without take into account PetroleumandGas
sector. Nonetheless, economic growth in Indonesia in quarter IV-2013
35
ASEAN
Table12:GDPGrowthinASEANEconomies,ConstantPrice,1998–Q12014(y-o-y,%)
Growthrecordedinthelowerlevelthanwhatithasachievedinpreviousyears
Note:averagegrowthfor1998-1999,2000-20007,and2008-2009periods
DataforQ1-2014:BruneiDarussalam,Cambodia,LaosandMyanmarwerenotavailable
Source:IMFandCEIC(2014)
Indonesian Economic Review and Outlook
(5.72%),fellshortofthegovernmenttarget(5.8%).Slowereconomicgrowth
based on y-o-y is largely attributable to the adverse impact of the
implementationofthenewLawonMineralswhichaffectedmineraltrades
withkeypartnerssuchasUnitedStatesandJapan.Infact,theadverseimpact
ofexportscouldnotbeoffsettedbythedemocracyeuphoria,i.e.legislative
electionsinApril2014.Nonethelessstrongdomesticconsumerconsumption
which is shored up by rising middle income class has so far shielded
Indonesianeconomyfromexperiencingevendeepercontraction.
Philippinescontinuestoregisterthehighesteconomicgrowthinthe
region.Despitehavingtodealwiththeeffectsofadevastatingearthquake
andHaiyansupertyphoonin2013,whichhaveunderminedtheperformance
ofPhilippineseconomyfromattainingitspotential,Philippineswasableto
register economic growth of 5.7% (y-o-y) in quarter I-2014. Economic
growthwhichPhilippinesregisteredinquarterI-2014,rankedtheeconomy
asthethirdfastestgrowinginAsia,behindChinaandMalaysia,whichposted
economic growth of 7.4% and 6.2%, respectively. The success of the
Philippinesinmaintainingthemomentumoftheeconomyintheaftermathof
thedisaster,thatspeciallydevastatedalotintotheirinfrastructureandtheir
prominentcoconutindustry,layinitsabilitytoemphasizethedevelopment
on their services sector. According to Philippines National Statistics
Coordination (NSC), the growth of the services sector in quarter I-2014
succeededtorecordedgrowthof3.8%,whichwashigherthangrowthrates
inindustryandagricultureconsecutivelyof1.8%and0.1%.
36
Table13:ConsumerPriceIndex(CPI)ASEANEconomies,2000-2014*(y-o-y,%)
Theriseinpricesofkeypublicgoodsandobstructiononregionallogisticswasthemajorfactorsbehindpersistinghighinflationintheregion
Note:
* =DataforBruneiDarussalam,Cambodia,Laos,andMyanmar,areasApril2014(y-o-y).DataforIndonesia,Malaysia,Philippines,Singapore,Thailand,andVietNamareasMay2014(y-o-y)
Source:Bloomberg(2014)
Macroeconomic Dashboard Universitas Gadjah Mada
Reduction of various subsidy schemes has led into high inflation
pressureintheregion.Theadverseimpactofthereductioningovernment
subsidiesonenergyfuels in Indonesiaandalsoenergyfuelsandsugar in
Malaysiain2013,contributedtohighinflationthatthetwonationsatthe
beginningof2014.Apparentlythecutbackonsubsidieshasnotsucceededto
prevent the growth of domestic consumer consumption which in turn
leadingtohighinflationinanumberofcountriesinASEANeconomies.
Politicalinstabilityalsocontributetothesoaringofgeneralpricesin
theregion.ThepoliticalcrisisinThailand,compoundedbyrisingpolitical
tensioninSouthChinaSeaarealsocontributingtothegeneralincreasein
prices of goods. Thailand,which is one of the transit countries formany
productsfromChinaintheregion,isfacingdistributionproblems,whichare
attributabletotheneedtoavoidtransportationviaSouthChinaSeaaswellas
internalpoliticalstalematethathasbedeviledthenationoverthelastfew
months.Theabovesituationhascreatedobstaclesintheregionallogistics
whichinturnhasstokedgeneralrisingpricesofgoods.
Investmentinformsofsharesisstillsourceofattractionforinvestorsto
ASEAN.Unlikeothermacroeconomicindicators,theperformanceofcapital
marketsinASEANeconomies,continuestobebuoyant.InquarterI-2014,
capital markets indices in three ASEAN nations registered double digit
growth:Indonesia(14.5%),Philippines(12.87%)andVietNam(11.37%),
evenThailandwhichiscurrentlyfacingapoliticalcrisiswasabletoregister
9.10%growth.CapitalmarketportfolioinASEANmembereconomies,which
withtheexceptionofIndo-Chinacountries,whichisdominatedbyprivate
sector enterprises indirectly indicates that in general global investors
37
ASEAN
Table14:CapitalMarketsIndexinASEANEconomies,2009-2014(y-o-y,%)
ASEANeconomies continues tobea favoritedestination for capitalmarketinflow
Note:Datafor2Januaryand30May2014areonyeartodatebasis
Source:Bloomberg(2014)
Indonesian Economic Review and Outlook
perceiveonASEANisstillasahighlypromisingregionforprivatebusiness.
AsquarterI-2014,thepaceofappreciationofcurrenciesintheregion
hasbeenbelowexpectations. Thepaceof currency appreciation in the
regionhasnotbeenabletooffsetthesteepdepreciationthataffectedthe
values of currencies during the whole year of 2013. Even further for
currenciesofCambodia,LaosandVietNamthevaluecontinuetodeteriorate.
Thissituationisanindicationthatinvestorsperceiveeconomicprospectsin
ASEAN economies are not yet as promising as necessary to provide the
requiredreturnoninvestmentinforeignexchangemarketintheregion.
The tapering off policy by the US and trade deficits which some
economiesintheregionhaveexperienced,havehadnegativeimpacton
exchangeratesofcurrenciesintheregion.Thetaperingoffpolicywhichis
beingimplementedbyTheFedintheUS,hasincreasedpositivesentiments
toward holding United States Dollars, which as a result has undermined
valuesofcurrenciesintheASEANeconomies.Theplantoraiseinterestratein
thebankingsectorintheUS,whichisanelementinthetaperingoffpolicy,has
inducedvariousinvestorstotransfertheirinvestmentportfoliosoutfrom
developing economies. The situation has been exacerbated by persisting
weakness in internationaltrade.Consequently,manyeconomies inregion
continue to suffer from rising trade deficits. Thus, various issues and
condition affecting the global economy lately, have contributedmuch too
underminingvalueofcurrenciesofASEANeconomies.
38
Table15:ExchangeRateofASEANCurrenciesAgainstUSD,2009-2014(y-o-y,%)
Appreciationofcurrenciesintheregionhasnotbeenasfastasexpected
Note:
Datafor30May2014isYeartoDategrowth
Thesign(+)depictsappreciationofcurrency,while(-)depictsdepreciationofcurrency
* =in2012Myanmarexperiencedrevaluationofhercurrency
Source:Bloomberg(2014)
Macroeconomic Dashboard Universitas Gadjah Mada
Whatfollowsismyperspectiveandpointofviewpertainingtothetitleofthis
piece. Theauthorwillasmuchaspossibleavoidcitationsthatabstractthis
writingfromideasthatareespousedbytheauthoranddesistfrompadding
thatmayobfuscatetheoriginalidea.
Developing the Indonesian economy that exudes optimism, lies in
concentration efforts ondeveloping its human resources. I dividehuman
resources into twoaspects. , ,whichemphasizesFirst hardworkingethos
effortstomaintaineconomicstability.Byworkinghard,anindividualisable
toobtainsufficientincometofulfillneedsandrequirements,whichinturn
augurswellforeconomicstabilityattheaggregatelevel. ,developingSecondly
humanresourcesbyoptimizingrightsideofthebrain.Thisrequiresdoing
work with . Personalinnovation, creativity and productivity leap
developmentcapacity,ingeneral,hasreachedjust25%.Thisleaves75%of
personaldevelopmentcapacity,whichisstillinunderutilized,hencecanbe
tapped to enhance national productivity. This is why we have to take
measuresasmuchaswecantoincreasevalueaddedfromhumanresources
inorderfortheeconomytoattaingrowthratesthatareaboveaverage.
Whyshouldthefocusbeonthisaspectofhumanresources?Thisisbecauseit
isthisresourcewhichconstitutesthecenterofgravityandlynchpinofthe
nationaleconomy.Endowedwithhardworkinghumanresources,thereis
enhancedcapacity tomanageother factorsofproductionsuchas capital,
land, and technology in such a manner that increases value added.
Contrariwise,underconditionofweakhumanresources,valueaddedfrom
thethreefactorsofproductioncanbeasfast.
Developingaleapinvalueaddedinhumanresourcesalsomeansdeveloping
acompetitiveeconomy. Thiscanbeinitiatedbydevelopingthreetypesof
39
E. Current Issue
InspiringEconomicOptimismtotheUpcomingNationalLeader
MuhammadEdhiePURNAWAN,PhD²
²TheauthoristheDeputyDean,FEBUGM(FacultyofEconomicsandBusiness,UniversitasGadjahMada)forResearch,Collaboration,AlumniandSocialConcerns
Indonesian Economic Review and Outlook
strengths. The first strength is . The second strength ishonesty
innovation/imagination networks, and the third strength is . Equipped
withthethreestrengths,Indonesiawillbeabletoachieveacompetitive,high
growth,andconfidentnationinfacingadvancednations.Theelucidationof
thethreestrengthsfollowsbelow.
First,thestrengthinhonesty.Thisstrengthisthefoundationofdevelopingall
kinds of human resources. Developing honesty strength will put the
foundationoftheeconomyonasoundfooting,whichwillnotbevulnerableto
earthquakeshocks,stormgusts,andothernaturaldisasters. Thus,without
honesty strength as its foundation, the structure of the economy, though
seeminglysplendidandinvincible,willbesusceptibletocollapsewithease.
Tothatend,thereshouldneverbeanargumentthatespousesthenotionthat
honestycanbedelayedforhonestyisthemotherofallgooddeeds.
Secondly, innovation/imagination strength. Just imagine two phenomena
below.ThefirstistheeventofSouthKorea'sphenomenon.Basedonannalsof
history,thiscountryhasbeenabletoachievehugeleapinvalueaddedthanks
to emphasis the country has made on innovations in semiconductor
technology.Thefoundingfathersofthiscountryformulatedagranddesign
for the semiconductor as the cornerstone of its industrial development.
Today,webearwitnesstotherealitythatsemiconductorinnovationshave
madeachievedrapidadvancementbecomingtheenginethatsupportsthe
gargantuantelecommunicationssuchasSamsungandLGandspectacular
automotiveindustrysuchasHyundai,DaewooandKia.Themajorsecretthat
explainsthesuccesstheyhaveachievedliestheirabilitytoacculturatehuge
leapsin innovationstrengths.ThesecondistheSteveJobs'technopreneur
phenomenon.EquippedwithUSD10ascostofproduction,aniPhoneissold
atUSD400inUS.Whatthismeansisthat,innovationmakespossiblealeapin
imaginationthatcreatesUSD390invalueadded,andnotsweatingprofusely.
Thistypeofintelligencecanneverbeemulatedbyjustcollectingknowledge,
ratherfosteredthroughthedevelopmentofimaginativecapabilities.Anold
adageofEinsteinsaidthat“imaginationismoreimportantthanknowledge.
For knowledge is limited to all we now know and understand, while
imaginationembracestheentireworld,andallthereeverwillbetoknowand
understand.”
Uponachievinghonestyandcementingthatwithinnovationinmakinguseof
imaginationcapabilities,thethirdstrengthisnetwork.Networkstrengthis
verycrucialtoeconomicdevelopment.Equippedwiththisstrength,anation
40
Macroeconomic Dashboard Universitas Gadjah Mada
isnotonlyknownorfamous,butalsobecomesagoodfriendformany.To
becomeagoodfriend,callsforgoodinterpersonalskills.Inculcatingpattern
ofthinkingthatappreciatesothersisthekeypreconditionfordevelopinga
widenetwork.Historyhasovercenturiesprovedthatgoodrelationsamong
humankindhavetheabilitytopropelanindividualandinstitutiontohigher
levelsofadvancement.Tothatend,goodnetworkingisanabsolutecondition
formakingahugeleapineconomicvaluedadded.Andalwaysremember:
there will never be a bird that flies for a long distance across national
boundariesbyonlyrelyingonitswingsalone,withoutitsfriends.
***
Based on my observation of the two presidential candidates in the
forthcomingpresidentialelections(Prabowovs Jokowi),mysuggestion is
thatthetwoshouldfocusandenthusiasmoneffortstoincreasehumanvalue
added injected into the Indonesian economy.Theway forward canbegin
through crafting a basic paradigm and concept, which can serve as
foundation formakinghuge leap in value added, afterwhichprocess the
search for techniques and mechanisms to implementing thereof, and
eventually contribute to accelerating the engine of Indonesian economy.
Absenceofparadigmandconceptandvisualizationofhowtoachievevalue
added isrooted inthepaucityofcapablehumanresources inthisnation.
Nationalleadersshouldnotonlybecome thefatherofcentralgravity, but
mustalsohavemajorideasthatcanpropeltheeconomyforwardthrough
majorleapsthatcreatessolutionstoproblemsthathaveforlonghampered
sustainableincreaseinvalueaddedbyhumanresources.Inlightofthat,the
key toall gatesofdevelopment lie in thecountry'shumanresourcesand
effortsthatcanfosteramajorleapinvalueaddedforIndonesianeconomy.
Final note: Please fasten your safety belt. We are going to accelerate the
Indonesianeconomicgrowth>>>full-speed!
InsyaAllah.
41
Current Issue
Indonesian Economic Review and Outlook42
Bythetimethispiececametopress,Indonesianeconomywasstillfollowing
anupwardtrend,albeitwithsomeindicatorswereposingworryingsigns.
Indicators on Indonesia competitiveness continue to be low which as
reflected by the depreciation of rupiah, which has not stimulated
improvementinexportstoanysignificantdegree.Consequently,thevalueof
imports has surged, which has not been offset by significant increase in
exports,ledtoadeclineinnetexports.Besides,BankIndonesiahassofarnot
implemented any drastic monetary policy that would have helped in
improvingtheperformanceoftheeconomy.Thisisbecauseanymonetary
policiesthataredirectedtowardimprovingthepositiononthetradeaccount,
current account, and balance of payments, must also be supported by
governmentpolicies.
Meanwhile, other indicators showrising financialburdenongovernment
financesduetotheprojectionoflowerrevenuesthantargetandrisingfuel
subsidies. As per the latest deliberations on 13 June 2014 between the
budgetingcommissionoftheparliamentandthegovernment,adecisionwas
reachedtoraisethebudgetdeficitto2.4%ofGDP,whichisexpectedtobe
financedbyissuingSBN(governmentsecurities)ofIDR72trillion.Whatis
interestingisthatdespitethefactthattheburdenforfuelsubsidiesisstill
largeduetorisingcostofimportedfuels,budgetallocationforsubsidiesis
reducedintheRevisedBudgetPlan2014fromIDR285trilliontoIDR246.49
trillion.Consequently,thenewgovernmentwillhavetobequeathacarryover
astaggeringburdenofsubsidiesofIDR46.26trillion.
GAMALEI has been able to 'capture' developments of various economic
indicators in Indonesian economy topredict a decline in the cycle of the
country'sGDP in thenear future.Nonetheless, it isworthnoting that the
declineineconomiccycleisnotasaresultofslowereconomicgrowthperse.
Thisisbecauseeconomiccycleexcludesfactorsthatarevolatile.Tothatend,
theconsensusreachedonthedirectionoftheeconomypointstocontinuing
economicgrowth(y-o-y)inquarterII-2014,withsignsofaccelerationinthe
future.
F. Economic Outlook
Macroeconomic Dashboard Universitas Gadjah Mada 43
That said, the projection of the decline inGDP cycle should be cause for
concern,henceanissuethatwillcallforseriousattentionforpolicymakers.
Policymakersshouldnotbeconfinedtoconsideringtechnicalaspects,but
equally important,needalsotobeopenandunequivocal inordertoearn
public trust. Last but not least, the relative success in conducting the
legislativeelectionshaspreventedtheIndonesianeconomyfromplunging
into instability. Such a condition should be maintained as the country
prepares for presidential elections on July 9, 2014. The importance of
economic stability canbeoveremphasized given the fact that it is not by
ensuring that economic growth continues unhampered that public
expectationsofhigh,andfairandsustainablesocialwelfarecanbeachieved.
Economic Outlook
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