progress on indonesia economy

7/28/2019 Progress on Indonesia Economy

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Progress on IndonesiaEconomyin 5-year time frame (2007-2011)

by Sari Setiyowardhani (1106128433)


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STATEMENT OF AUTHORSHIP

I the undersigned hereby declare that the attached assignment is purely the result of my own

work. No work of others that I use without citing sources.

I understand that the task which I gather can be reproduced and or communicated for the

purpose of detecting the existence of plagiarism.

Name : Sari Setiyowardhani

NPM : 1106128433

Signature :


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Foreword

It is known to the world that Indonesias economy is one of the countries that actually have the

ability to grow well. After a decade of painful restructuring for banks and companies,Indonesian businesses are spending on new factories and on the country infrastructure. Annual

imports of things like machinery and mechanical equipment are growing at double-digit rates.

Indonesia's economic growth remained stable and was able to withstand the economic turmoil

that hit the United States (U.S.) in 2008, and Europe which was started from the Greece

economic downfall in the last quarter 2009. Even though there were several public fears on the

global recession, and Indonesias economy was down for some times, but the economy

managed to get up and survived the economic turmoil. Quoted by AntaraNews, the Executive

Director of Economic Research and Monetary Policy of Bank Indonesia, Perry Warjiyo said in

2012, Compared to other countries in the world, our economic growth rank in second, right

after China. Bank Indonesia officially cited that Indonesias economic growth in 2012 reached

6.3 percent, and Chinas growth was 7.8 percent.

Following the fact that Indonesia is believed to have a great growth in the economy, I would

like to discuss about Indonesias recent progress in economy using five-year time frame, starts

from 2007 through several economic indicator.

The first indicator is the Gross Domestic Product. As an aggregate measure of total economic

production for a country, GDP represents the market value of all goods and services produced

by the economy during the period measured, including personal consumption, government

purchases, private inventories, paid-in construction costs, and the foreign trade balance (add

export and deduct import). Presented quarterly, GDP is often presented on an annual percent

basis. Most of the individual data sets will also be given in real terms, meaning that the data is

adjusted for price changes, and is therefore net of inflation. Another good thing about GDP is

that it is comprehensive and detail. Reading and understanding a GDP report of a country gives

us the look on how the economic system in that country works. The second will be the capital

market. This will cover the facts on investment, government securities, bonds, and other

securities. The third will be the level of inflation rate through months on the five-year time

lapse (2007-2011). Some people may think that inflation is bad because as the prices rise,

peoples ability to purchase will falls. But actually, inflation is a sign that the economy of a

country is growing. When the level of inflation is expected, or anticipated, it has a positive

influence in driving the economy to go better. People are tend to work harder to get bigger

wage, and then they will save the money, and hold on investment. It would eventually increase

the national income.


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CHAPTER 1

Indonesia economy 2007

Marking 10 years after the huge crisis happened to Indonesia, Indonesia was finally managed to

increase the economy growth to surpassed 6 percent on the year 2007.

In the GDP of 2007 calculated by industrial origin, the increasing nominal numbers on each

sector were relatively small. Sector of transport and communication had the largest growth ratein the year of 2007. But, to the overall 6.3 percent growth of the economy, the contribution of

transportation and communication sector was only 1 percent out of 6.3 percent. While the

trade, hotel, and restaurant sector growth had the contribution of 1.4 percent out of 6.3

percent, despite the growth rate on the sector of trade, hotel, and restaurant was only 8.5

percent.


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Meanwhile, from the expenditure calculation, the highest contributor of the 2007 economic

growth in Indonesia was the export. This was a good thing since exports were increasing, even

though the imports were also increasing. There also was 5 percent growth in the private

consumption. This was a great increase since the 2006 GDP stated that the private consumption

growth were merely 3.2 percent. This was a good trend since it showed that the private

purchasing power was increased.

In the year of 2007, there was an increase in the matter of employment. Taken from the BPS,

number of people in the labor force stated in August 2007 was 109.9 million. It was increasedfor about 3.6 million compared to August 2006.


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The expanding labor force was then occupied by increased numbers of employed or working

people. In August 2007, the total employed population mounted by 4.5 million compared to

August 2006.

The inflation rates throughout the months on the year of 2007 were relatively stable at around5 to 6 percent on the first look.

On the second look, it was noticeable that after the month of July 2007, the levels were slightly

higher than it were before July 2007.

bps.go.id/eng/tab_s

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CHAPTER 2


The year 2008 was a tough time. It was the year where the economy of the one powerful

country United States of America hit by a recession. In America, the crisis started in the home

mortgage market, especially the market for so-called subprime mortgages, and was spreading

to prime mortgages, commercial real estate, corporate junk bonds, and other forms of debt.

Total losses of U.S. banks could reach as high as one-third of the total bank capital. The crisis

has led to a sharp reduction in bank lending, which eventually caused a severe recession in the

U.S. economy. And in the second semester of the year of 2008, the biggest investment banking

in the United States called Lehmann Brothers collapsed.

Even though the exposure of Indonesias banks and financial institutions to global assets were

limited, the impact of the economic recession still domestically felt. Since Indonesia was a

country with small open economy, this global economic turmoil led to several downturns in the

economy of Indonesia. There were two types of effects that were took place to the Indonesia

economic condition: direct effect, and indirect effect.

First, the direct effect. The direct effect of the global economic recession was the downfall of

payment balance. Due to the recession, the purchase power of public America decreased. The

decreasing power of purchase affected the decreasing number of imported products from

Indonesia. From here, exported products from Indonesia also decreased.

In the capital market, Indonesia experienced intense pressure from the spread of the global

economic recession. The value of stock issuances increased significantly at the beginning of the

year, but then falls at the end of the year. Similar thing happened to the government bonds

market. The government bonds market experienced pressures which then increased the yield.

Eventually, the target for government bonds issuances was not accomplished. But this did not

affect the APBN due to the low realization of government expenditure.

The stock market performed well in the first semester of 2008, but then it went down on the

second semester of 2008. External fluctuations in the financial markets triggered the slide inComposite Index. In the beginning of the year of 2008, Composite Index was 2,830. And at the

end of the year of 2008, the Composite Index was 1,355. The stock trade and the Composite

Index (IHSG) experienced a strong pressure which then caused the IDX to suspend all the trade

on October 2008. Also on October 2008, Indonesian Capital Market and Financial Institution

Supervisory Agency issued new regulations regarding buyback. The government tried to

encourage BUMN to buyback through profit provision.


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This fast pace of the downfall was encouraged by not only the structure of the domestic

financial market that has been integrated with global financial market, but also the high

number of foreign investors invested in the stock market of Indonesia. The loss in the global

financial market caused them to experienced low level of liquidity which then caused them to

deleverage their investments in the financial market of Indonesia.

At the end of 2008, IDX issued another policy that mandated the reporting of stock transactions

and the closing of cash market transactions to reduce huge price disparities with the regular

market. To restore investor confidence, IDX requested a number of issuers to publicly expose

fair information regarding the conditions of the issuer.

Comparison on total

number of SBI and SBI

owned by foreigners.


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Second, the indirect effect. The indirect effects from the global economic crisis to the economy

of Indonesia was the decreasing percentage of economic growth level (as stated by the GDP),

where when 2007 was 6.3 percent, and in 2008 was 6.1 percent.

Another thing that affected by the crisis was the inflation rate. In 2007, we see that the inflation

rate maintained at below 8 percent throughout the whole year with 6.95 percent as the

highest. While in 2008, the inflation rate exceeded up to 12.14 percent in the month of July of

2008.


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This increasing inflation level was triggered by the increasing of the price of world commodities,

especially oil and foods. The increasing in price of oil and foods affected the price in Indonesia

that was determined by the government (administered price) along with the government policy

of increasing the price of subsidized fuel oil. After the month of September of 2008, the

inflation level was started to decline. This was caused by the decreasing price of worldcommodities, foods, and energy. Another thing that caused the inflation started to decline was

by the government policy of decreasing the price of solar fuel and premium fuel on December

2008, and the productions of domestic foods were relatively great. Through all the inflation in

the start of the second semester of 2008, deflation of 0.04 percent was actually occurred at the

beginning of the month of December 2008. This deflation was caused by the decreasing of price

level on the sector of transportation, consumptions, and financial services. The successful

efforts to gradually decrease the level of inflation were inseparable from the efforts of

government authorities to mitigate the expected acceleration of inflation which was

significantly increased after the increase in price of oil and fuel.


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CHAPTER 3


Global economic was trying to recover from the earlier recession. The good thing was the

recovery was moving at a fast pace. Along with the global economy recovery and improvement,

Indonesia, following the global, was also recovering from the previous downfall. Various

policies were created by the government and Bank Indonesia. Some policies were aimed at

restoring confidence among economic agents both in the financial and non-financial sectors,

overcoming the liquidity tightness in the banking system and strengthening economic growth

momentum. Other policies were also implemented to maintained financial system resilience

and monetary stability, in order to support sustainable economic growth.

Some challenges for the Indonesia economy in the year of 2009 was the continuing pressure of

global economics recession in the year of 2008. The effects were quite big on the beginning of

the year 2009, where the impact of 2008 global economic recession still shadowing the

economy of Indonesia. As a result, pressures continued on monetary and financial system

stability in the first quarter of 2009, and economic growth remained in downward trend due to

a deep contraction in exports of goods and services. In the year of 2008, the economic growth

level was in 6.1 percent, while in 2009 the economic growth level was 4.5 percent in this year.


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During the year of 2009, every sector in the economy grew. The highest growth happened in

the transport and communication sector.

The inflation level in Indonesia on the year of 2009 was the lowest Indonesia ever noted. In the

year 2009, the lowest inflation level was 2.41 percent occurred in the month of November

2009.

This number of inflation level was half of what the government had predicted before which was

around 5 percent, due to the global economic crisis in the 2008. This low inflation rate was

caused by the occurrence of deflation for the goods and services which the prices were

controlled by the government, such as fuel and electricity. And the deflation was already

occurred at the beginning of December 2008 as mentioned on the previous section.

In the capital market, the potential improvement showed up during the second quarter of the

year 2009. The improvement was in line with renewed short-term capital inflows fuelled by

more buoyant perceptions among global financial market actors. On the second semester of

the year 2009, permanent improvement occurred. Things that caused this were the

continuation of short-term capital inflows from foreign investors who are buying rupiah

instruments, such as stocks, government securities and SBIs. The second half of 2009 was

marked as the heavy foreign buying of government securities and SBIs. This caused the raising

in the foreign ownership position to 11.3 billion US dollars for government securities, and to 4.7

billion US dollars of SBIs in December 2009. Or about 41.6% increase in government securities,

and 510.4% increase on SBIs at the end of the year of 2008.

In addition, the financial account surplus in the second half of 2009 also resulted from the

increased in direct investment, particularly residents overseas investments, which was

recorded as surplus, while it was always recorded as deficit on previous periods. This surplus

was generated by the issuance of foreign currency bonds by private companies operating


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through overseas subsidiaries, with the funds from these issues then channeled into loans to

their parent companies in Indonesia.

Said by the Acting Governor of Bank Indonesia, Darmin Nasution, Through the struggle that

began in the final quarter of 2008 and beginning of 2009, we overcame that difficult year with a

number of achievements that we are entitled to feel proud of. The resilience of our economy

was more than satisfactory in response to wild fluctuations and widespread uncertainty in the

global economy. With growth reaching 4.5% in 2009, Indonesia gained entry into an exclusive

group of a few countries that managed positive growth.


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CHAPTER 4


Another global economy problem occurred in the year 2010. The recovery of global economy

that started in 2009 went on slower pace because of the Europe crisis. Started from fourth

quarter of 2009, Greece economic performance experienced downfall. And the economic

problem spread across European Union countries. Nevertheless, debt crisis in some European

countries and high unemployment rate in advanced countries led to a weakening of the global

economic recovery. But, economic recovery in emerging countries continued strong, reflecting

an imbalance in the speed of the recovery between advanced and emerging economies of

countries. The speed up of global economic growth caused the commodities price to increase.

World demand for oil increased and triggered significant increase in oil prices. Thoroughly, the

increased in global commodity price and global demand led to a rise in global inflation. From

the global inflation, the effect that took place to the economically emerging countries was a

higher inflation.

In Indonesia, the highest inflation level exceeded the targeted level. Inflation level reached 6.96

percent in the month of December 2010, while the targeted level by Bank Indonesia and the

government was about 5 percent.

The cause of this increasing inflation level was because the increasing level of price of foods,

due to weather uncertainties. The weather uncertainties cause the agricultural sector to

decrease the productions. The most famous agricultural and economic problem in 2010 was the

price of sembako (primary foods). Another thing that intrigued the increased level of price was

the increasing level of price of crude oil in the world market. Domestically, the increased price


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of crude oil increased the price of cooking oil, which until now also still included in primary life

need. With all those increases in level of price, inflation level in the group of food increased to

2.81 percent in the month of December 2010.

Below is the list and level of inflation on commodities in Indonesia.

As we can see, that the commodity that highly contributed on the level of inflation was the

price of rice which was 1.29 percent. Price of rice was followed by price of electricity which was

0.36 percent, and price of red chili which was 0.32 percent.

The economic growth showed on GDP of 2010 was 6.1 percent. There was an increase in

growth of economy.


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The highest level in the economic growth was still transportation and communication sector.

But a significant rise was occurred to the manufacturing sector, whereas in the 2009 wasmerely 2.2 percent, and in the 2010 was 4.5 percent.


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CHAPTER 5


In the year 2011, the global economic recovery once again slowed down by the effect of the

worsened debt crisis in the European Union, and the slow pace of economic recovery in the

United States of America. This economic problem not only affected the advanced economies,

but also the emerging market economies. But even though with many pessimistic events

occurred on the global economy, Indonesia remained cool and showed the world that the

economy of Indonesia is strong enough to not to be affected by the global economic turmoil.

Instead of a downfall, Indonesia economy managed to rise in the year 2011.

At the edge of the year 2010, many economists believed that the Indonesian economic in the

year 2011 would be better than in the year of 2010. The government already stated that the

growth of economy will be around 6.4 percent. And it did.

Indonesia managed the economy growth level to the level of 6.5 percent. The highest level of

growth still happened in the sector of transport and communication, and the manufacturing

sector reached its highest growth rate in the last five years, which was 6.2 percent in 2011. High


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domestic and external demand, added by the increasing conducive investment climate

improved business optimism in the manufacturing sector.

The increasing in economic growth caused the employment condition to rise as well. Reported

by BPS, open unemployment rates dropped from 7.1 percent in 2010 to 6.6 percent in 2011.

The increasing level of employment was caused by improvement in the manufacturing sector.

And the improving manufacturing sector, which absorbed and still absorbs many formally

employed and highly educated workers was supported by the improvement in the formal

sector with more sustainable economic structure.

Following the trend in 2010, inflation started with a high level on the early months of 2011. Thelevel was exceeding the 7 percent.


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At the first quarter of 2011, high inflation occurred in group of foods and primary needs

following the year 2010. But actually, the expected inflation was also high. This was the

government policy to rationalize the usage of subsidized fuel. After that, the inflation level

keeps declining because of the harvesting season. The decrease in inflation level was supported

by the deflation in group of food that took place during the February-April period in 2011.


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Conclusion

Since the year of 2007 up to 2011, the biggest contribution in Indonesia GDP based by industrial

origin has been the sector of manufacturing industry. Though the number may vary, but it is stillthe biggest contributor. This showing that the manufacturing industry of Indonesia had been

improved and still improving up until now. It is said that the manufacturing industry is the main

support of industrial development of a country. And Indonesia managed to develop its

manufacturing industry. Increasing in the growth rate of manufacturing sector is a result of the

increasing demand from domestic public, particularly the demand on metals, foods, chemicals,

and automotive spare parts. Domestic demand seems as not affected by the global financial

crisis and grew by 6.4 percent in the first half of 2012.

Investment and consumption also still grow despite all the crisis happened in the world. It is

reported by the BKPM (Indonesia Investment Coordinating Board) in 2012, that the investment

activities by the foreign investors were keep on increasing. Reported by BKPM, on the second

quarter of 2012, the foreign investment activities reached up to $1.2 billion, which was

increased by 62 percent from the previous year. Many big companies of textiles, clothing, and

footwear who located their factories in China were expected to move their manufactory

operations to Indonesia because of the increase in labor costs in China. Numbers of Japanese

automotive companies were also planning to expand their network of suppliers to Indonesia,

and it is expected to increase the profit of Indonesias automotive industry.

Quoted by the worldbank.org, The World Bank Country Director for Indonesia, Stefan Koeberlesaid, Indonesia could potentially boost its global market share in manufacturing, create

millions of new jobs and facilitate structural transformation. But riding on the back of domestic

and international demand is not enough. To improve overall competitiveness and sustain

growth, the government and private sector need to overcome the main challenges in the

manufacturing sector.1

1World Bank. The World Bank. 10 October 2012. .


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References:

ANTARA news. ANTARANEWS.com. 12 October 2012.

.

Bank Indonesia. 2007 Economic Report on Indonesia. Jakarta: Bank Indonesia, 2008.

. 2008 Economic Report on Indonesia. Jakarta: Bank Indonesia, 2009.




Barnes, Ryan. Investopedia. Unspecified year..

Chairil, Haidi, Prima. "Inflasi dan Kenaikan Harga Beras." February 2011. Website Resmi Kementerian

Sekretariat Negara Republik Indonesia.

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Ibnu Purna, Hamidi, Prima. "Perekonomian Indonesia Tahun 2008 Tengah Krisis Keuangan Global." May

2009. Website Kementrian Sekretariat Negara Republik Indonesia.

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Moseley, Fred. ISR. March 2009. .

"Press Release." 2008, 2009, 2010, 2011, 2012, 2013. Badan Pusat Statistik.

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Sindonews.com. OkeZone. June 2012.

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Susanto, Heri. "Kenapa Ekonomi Indonesia 2011 Lebih Baik?" January 2011. VivaNews.

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World Bank. The World Bank. 10 October 2012. .

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