Government to set different prices for subsidized fuel. Indonesian government announced that it would likely increase the prices of subsidized fuel: Premium (lead-free gasoline of 88 Research Octane Number/ RON) by IDR 2,000 (USD 0.21) and diesel fuel by IDR 1,000 (USD 0.10). The current price of both subsidized fuels is IDR 4,500 (USD 0.46), well below the market price of around IDR 9,000 (USD 0.92). President Susilo Bambang Yudhoyono (SBY) has remain undecided on rising subsidized-fuel price due to its political sensitivity. The price increase would depend on the House’s approval on the four cash compensation programs for the poor, which consist of Program Keluarga Harapan (family-based poverty alleviation program), Raskin (rice for the poor), BSM (scholarship for the poor), and BLSM (temporary direct cash assistance program). (Source: Jakarta Post)

Government to cut budget for ministries and other government institutions. In order to reduce budget deficit, Indonesian government has secured a budget cut for ministries and institutions by IDR 24.6 trillion (USD 2.52 billion) on Wednesday (15/5). The cut would be aimed toward non-operational and non-priority expenditures. Among the ministries and institutions, the public works ministry and transportation ministry will suffer the largest cuts of IDR 6.15 trillion (USD 0.63 billion or 7.9 percent from its initial budget) and IDR 2.64 trillion (USD 0.27 billion or 7.2 percent from initial budget), respectively. Budget deficit increases due to the swelling fuel subsidy of IDR 297 trillion (USD 30.46 billion). (Source: Kompas)

Indonesian service sector struggles to compete. Although service sector has often been touted as significant contributor to economic growth, Indonesian service sector remains less competitive than foreign players. Service sector deficit widened from USD 10.6 billion in 2011 to USD 10.8 billion in 2012, according to Indonesian central bank, Bank Indonesia (BI). The deficit stems from structural problem that is the lack of transportation infrastructure, according to BI’s economic and monetary statistics director Doddy Zulverdi. He is referring to the USD 9.1 billion deficit comes from trade in transportation, or 85.6 percent of total deficit. Aside from transportation services, losses also ensue from trade in insurance, tourism, finance, computers and information. Without serious efforts undertaken by the government, Indonesia will be facing more pressure as service sector becomes subject of various trade agreements in the future. Chairman of investment coordinating board (BKPM) Chatib Basri mentioned that the government was revising the negative investment list in order for service sector to become more investors-friendly. The list details business areas that are prohibited for foreign investments as well as ascribes cap on foreign ownership. (Source: Jakarta Post)

Indonesian logistic performance rank increased regardless infrastructure development. According to Logistic Performance Index (LPI) report released by the World Bank, Indonesia’s rank in logistic performance increased from the 75^th in 2010 to 59^th in 2012. The LPI is a benchmarking tool in identifying countries’ challenges and opportunities in their performance on trade logistics. It assesses six aspects, which include custom efficiency, ease of international delivery, logistic competence, tracking and tracing system, timeliness, and infrastructure. Similar to the 2010 version, there were 155 countries surveyed and compared in the 2012 report. Although Indonesia’s rank on the LPI improved, its performance on infrastructure remained unchanged. According to National Development Planning Agency’s trade, investment, and international cooperation director Amalia Adininggar Widyasanti, the government is currently working to reduce logistic cost to GDP ratio by 1-2 percent. It does so by prioritizing some improvements in infrastructure projects to be completed in 2014, which include swelling of dry ports volume by 20 percent, development of three regional distribution centers, improvement in port infrastructure, and connectivity to and from the ports. In the rankings, Indonesia stood last among its Southeast Asian peers such as Singapore (ranks first), Malaysia (29^th), Thailand (38^th), Philippines (52^nd), and Vietnam (53^rd).  (Source: Bisnis Indonesia)

Housing prices increase sharply. Price of landed houses increase sharply by almost 100 percent in the last three years, according to statistics provided by property consultant Cushman & Wakefield Indonesia. In the first quarter of 2013, housing prices rose by 25.1 percent compared to the same period last year. They are predicted to escalate by 28 percent this year. Despite the price, sales are doing very well, notably in Jakarta and its satellite cities such as Bogor, Depok, Tangerang, and Bekasi (known as Jabodetabek). Economist Tony Prasetiantono warns that such phenomenon may lead to problem such as the subprime mortgage crisis in United States (US) in 2008. In contrast with Tony, commissary president of Paramount Group property developer Elizabeth Sindoro argues that the exorbitant prices would not trigger property bubble yet since property ownership rises due to the growing economy and the surging Indonesian middle class. Property buyers are not solely from Jakarta, but also from cities outside Java in search for a second home near the capital; she further explains. In addition to landed houses, vertical buildings such as apartment complex also has high market absorption rate of 80-90 percent for a finished project and of 60 percent for a project in progress. (Source: Kompas)

Economic growth loses its steam. Indonesia’s economic growth drags due to declining consumer spending and lower investment. The growth is at its lowest in the last two years. Central Statistics Agency (BPS) announced on Monday (6/5) that GDP grew by 6.02 percent in the first quarter compared to the same period last year. While the central bank and the finance ministry remain upbeat over this year’s growth target of 6.5 percent, the first quarter was below Bank Indonesia’s forecast of 6.2 percent. Domestic consumer spending is the main growth engine in Indonesian economy. Nevertheless, it grew by only 5.17 percent from a year ago, down from 5.38 percent in the fourth quarter last year. (Source: Jakarta Post)

Government plans to lower GDP target amid changes in the economic outlook. Indonesian government will revise the economic growth target and other key economic assumptions in the 2013 state budget amid changes in the economic outlook due to the slower than expected growth in exports and investment. Acting Finance Minister Hatta Rajasa said the government would cut economic the growth target to 6.3 percent or 6.4 percent from the present 6.8 percent due to the prolonged crisis in the global economy. Indonesia’s economy grew at its slowest pace in more than two years to 6.02 percent in the first quarter this year as consumer spending fell and investment shrank. (Source: Kompas)

Standard & Poor’s cut Indonesian debt rating. Standard & Poor’s cut Indonesian rating outlook on Indonesia’s debt from positive to stable (2/5), signaling that a stalling reform momentum and weaker external profile have reduced the chance for an upgrade over the next 12 months. In an official statement released by the agency, S&P’s explains that potential upgrade was diminished due to the absence of structural reform, the external debt, and the current account deficit. It also mentions that slow progress in improving critical infrastructure, legal and regulatory uncertainties, as well as bureaucratic obstacles, detract Indonesia away from its growth potential and thus, delaying poverty reduction and economic development. The agency, though, maintained BB+ rating on Indonesia’s long-term notes and B assessment on short-term securities. Various reactions came in response to the downgrade. The coordinating minister for the economy Hatta Rajasa views it as a reflection of the country’s stance on subsidized fuel and as signal that there is a lot to be done, whereas Standard Chartered Indonesia economist Eric Alexander analyzes that the downgrade could curb foreign investors’ appetite for the bonds. However, Alexander believes that foreign direct investment would continue to flow due to the size of the market. (Source: Jakarta Post)

Bank Indonesia (BI) Governor is still confident about economic growth, despite revised rating by S&P. Bank Indonesia’s governor Darmin Nasution is still confident that Indonesia will achieve its target growth, despite revised rating from positive to stable by Standard & Poor’s. Darmin explains that BI has calculation method that is different than S&P’s calculation. Based on the calculation, he believes that economic growth will remain on the 6.2 percent target. BI is currently projecting economic growth within 6.2 – 6.6 percent target range, lower than the initial 6.3 – 6.8 percent. He further argues that growth projection would be a result of improving capital and financial transaction instigated by portfolio investment as well as global bond issuance by the government. (Source: Bisnis Indonesia)

Slow subsidy reform is a credit negative, according to Moody. Few days after S&P’s had lowered Indonesian sovereign debt rating, Moody’s also issued statement regarding Indonesian debt rating. It argues that Indonesian government’s inability to change its fuel subsidy program is a negative for its debt rating. Moody’s is one of the two rating agencies, aside Fitch, which lifted Indonesia’s rating to investment grade in December 2011 and January 2012. The agency views that President Susilo Bambang Yudhoyono’s (SBY) call for cash compensation as a precondition to increasing fuel prices shows government’s ineffectiveness in circumventing parliamentary approval to raise fuel prices. The agency’s outlook of Indonesia’s sovereign debt is stable. Earlier, President SBY mentioned government’s plan to raise subsidized-fuel price by end of May or in early June. However, it was waiting for approval from the House of Representatives to agree on compensation for the poor. In a separate occasion, Chairman of the Investment Coordinating Board Chatib Basri views the rating given by Standard & Poor’s as criticism and argues that it would not give much effect on investors’ preference to invest in Indonesia. Chatib further encourages the government to improve infrastructure and regulatory system. Both of which are currently Indonesia’s main hurdles, he explains. (Source: Jakarta Post, Kontan)

Update Book Series: Education in Indonesia

The new Update Book is here!

Last weekend we received from ISEAS, the publisher, the newest in the Update Book series: Education in Indonesia, editors: Daniel Suryadarma & Gavin Jones. The book is based from last year’s Indonesia Update: The State of Education.

This book is going to be launched at Hasanuddin University, Makassar, on 28 May; in Jakarta in conjunction with Hadi Soesastro Policy Forum on 30 May; and in Canberra in June. If you’re interested to have a copy, it will be available in Indonesia via the Centre for Strategic and International Studies (CSIS), online from ISEAS, or from us in Canberra.

Congratulations Daniel, Gavin, and all book authors.

ANU Indonesia Project & SMERU Research Institute Research Grants 2013 – 2014

Call for Proposals

To stimulate research cooperation between Indonesian and Australian research institutes, the Indonesia Project at the Australian National University and the SMERU Research Institute invite research proposals for funding collaborative research projects in any of the main research themes of the Indonesia Project: (i) Trade and Industry, (ii) Politics and Governance, (iii) Agriculture, Resources and the Environment, (iv) Social Policy and Human Capital.

Funding

The research grants provide funding of up to A$15,000 per grant, intended to cover the cost of initiating new research activities, such as travel costs, field work, data collection or research assistance. The grants are not meant to cover salary costs of applicants or overhead costs by the applicant institutes. A maximum of 4 research grants are available for the 2013/2014 application round.

Who can apply?

Partnerships of Indonesian and Australian research institutes are eligible to submit proposals. The main applicant should be a senior researcher based at the Indonesian partner institute; the co-applicant should be a researcher based at the Australian partner institute.

Evaluation criteria

Proposals will be assessed on the basis of academic quality and research potential. We will give priority to proposals that show prospect for long term cooperation between Indonesian and Australian institutes and obtaining additional funding.

Proposals should specify research objectives, background, significance and innovative aspects, policy relevance, expected outcomes and deliverables, and budget.

Dates and time line

Applications close on 14 June 2013. Applicants will be notified in July 2013.

Proposals can be submitted to the Indonesia Project at indonesia.project@anu.edu.au.

For more information please contact Robert Sparrow (robert.sparrow@anu.edu.au).

Download Application Form

ASEAN Summit 2013, photosource: ASEAN Secretariat

By Kiki Verico

This article was first published here.

Southeast Asia is among the important pillars in Asia’s economic integration whereby ASEAN is expected to gain solid economic integration from trade and investment. This would mean that ASEAN must have significant and positive relations in her intra regional trade and intra regional investments. Yet a previous study finds them to be significant nevertheless having negative relations (Verico, 2012). Given its long-run economic integration objective, ASEAN must turn this relation into one that is significant and positive. This will require an economic convergence by which an equivalent level of playing field within its member states.

Economic convergence is a necessary condition for a solid regional economic integration.

It will move ASEAN’s economic integration stage from an intra regional trade to that of an intra regional investment. However, ASEAN still faces huge economic gaps between its ASEAN-6 and ASEAN-4 as well as within the groups themselves. This economic divergence becomes a major source of asymmetric information in the ASEAN economy.

Among one of the useful tools to prove this divergence is the ‘gravity model of trade’ (Tinbergen, 1962, Anderson, 1979, Helpman and Krugman, 1985). The model which was inspired by Newton’s Law of gravity describes that among the significant factors in economic integration process are economic size (GDP) and economic level (GNI per capita). Utilizing this model, in terms of economic size, ASEAN must deal with economic biases towards Indonesia’s economy as her nominal GDP is at around 40% of total ASEAN’s nominal GDP, making it too dominant.

In 2011, Indonesia’s nominal economic size (GDP) is around US$ 847 billion, much larger than Thailand at US$ 346 billion, Malaysia at US$ 288 billion, and Singapore at US$ 240 billion. Indonesia’s nominal GDP size is ranked 16in the world, making her the only ASEAN member in the G20 group.

On the other hand, in terms of economic level, ASEAN’s economic gravity direction is biased towards Singapore’s economy.

According to the World Bank’s atlas method (Gross National Income/GNI per capita per year), the circumstance shows the opposite of the preceding figures. Using 2011 data, among those four countries, the highest income per capita belongs to the lowest economic sized country, which is Singapore. Singapore’s GNI per capita per year is US$ 42,930 that is much higher than Malaysia at US$ 8,770, Thailand at US$ 4,440, while the lowest level among these countries is the highest economic sized country, which is Indonesia at US$ 2,940.

These two figures show that within its member states, ASEAN has a large economic sized country – Indonesia- that has a low economic level and also has a high economic level country – Singapore – yet is a low economic size. Hence ASEAN’s economic power seems to resemble a ‘donut’, lacking a country that has the characteristics of having both a large economic size and high economic level. This is in contrast to the EU’s experience with Germany, a high income country that also has a large economic size of GDP, population and geographic proportions. This ‘donut’-shape is a major challenge for ASEAN in obtaining a solid intra-regional trade and investment.

What does ASEAN need to do to overcome this economic integration disadvantage?

From the market-driven strategy, ASEAN will gain her economic integration advantage when her largest economic-size member attains high-income level. This would mean when Indonesia becomes a developed country. Among the references for this projection is ‘Vision 2030’, where Indonesia is predicted to become a developed country in year 2030 with an income per capita per year above US$ 18,000.

Given this circumstance, furthermore, using the EU’s experience, if the ASEAN Economic Community (AEC) of 2015 is similar to the European Economic Community (EEC) of 1967 then ASEAN is forecasted to complete her comprehensive economic integration in year 2050. The latter is under the assumption that ASEAN will follow EU’s time-frame which took around 35 years to move from EEC of 1967 to Euro as a single currency in 2002.

As from the government intervention strategy, ASEAN could utilize her wide regionalism strategy to increase its intra regional investment. Different from the Custom Union (CU) in Europe, ASEAN adopts an ‘open and soft’ regionalism principle. In its ‘open’ regionalism principle, ASEAN implements the Free Trade Area (FTA) at which the regional economic institution does not regulate external tariff between member state and non-member state enabling each member state to have ‘direct bilateral trade agreements’ with non-member states. This gives benefits to non-member states as they can still have a free trade relation with the member states of ASEAN without being a member themselves.

In its ‘soft’ regionalism principle, ASEAN implements a ‘non-legal binding’ principle without a supranational body. Both the’open and soft’ regionalism principles makes ‘ASEAN-wide frameworks’ such as the ASEAN+1, ASEAN+3 and so on, appropriate for ASEAN.

In the short-run, the ASEAN Plus frameworks will solve ASEAN’s major problem in not having a member state with both large economic size and high income level.

Intra regional investment is estimated to come from the new-member states of such regional-wide frameworks.

At last, the relation between market-driven and government-led strategy is complementary therefore ASEAN must combine them in order to achieve her comprehensive regional economic integration objective.

*Kiki Verico is Co-Editor of Journal of Economics and Finance in Indonesia (EFI) at the Institute for Economic and Social Research Faculty of Economics University of Indonesia (LPEM FEUI), currently living in Canberra.

Budy P. Resosudarmo, head of ANU Indonesia Project, gave a public lecture titled Principles of Quantitative Modelling in Economics to approximately 40 economics and public policy postgraduate students and lecturers. This was held at Gedung Program Pasca Ilmu Ekonomi, New Campus, Cendrawasih University, Jayapura, Papua, on 18 April 2013, 2pm.

The visit to Cendrawasih University (Uncen) was also intended to develop stronger relationship between ANU Indonesia Project and Faculty of Economics Uncen, as well as to encourage FE Uncen to link up more with Indonesia Project’s Development Research Network.

Summarized by Agnes Samosir

President Yudhoyono confident Indonesia is ready for ASEAN Economic Community. President Susilo Bambang Yudhoyono shares that optimism that Indonesia is ready to face the ASEAN Economic Community (AEC) in 2015 and emphasizes that the country should reap the benefits from the integration. He also said he already instructed Coordinating Minister for Economic Affairs, Hatta Radjasa, to establish a committee consisting of think tanks, government officials, entrepreneurs and experts from various sectors. The committee members will identify challenges faced by Indonesia and offer solutions before the initiation of AEC in 2015. With AEC, ASEAN countries would be made into a single market and the region will be increasingly competitive. (Source: ANTARA)

Dual price system for subsidized fuel is cancelled. After weeks of preparation, President Susilo Bambang Yudhoyono (SBY) cancelled the dual pricing system on subsidized fuel. SBY doubts that the policy will be able to hold the increasing subsidy cost. President spokesman Julian Aldrin Pasha said that the president is currently studying other alternative policies and that he prefers to have a single pricing system for all motor vehicles. Energy and mineral resources minister Jero Wacik explains that dual pricing system creates confusion and that cancellation is due to government’s intention to design a more comprehensive policy. Jero further predicts that in the single price system, price will not exceed IDR 6,500 (USD 0.67) per liter. In addition, single price system could save more money for the budget than a dual price system, an IDR 30 trillion (USD 3.09 billion) as opposed to IDR 21 trillion (USD 2.16 billion), explains fiscal agency chief Bambang Brodjonegoro. Prior to cancellation, government officials had been unequivocal over the dual pricing system. To accommodate, state-owned energy enterprise Pertamina had prepared more than 5,000 gas stations countrywide and raised public awareness through printed advertisements. In the initial dual pricing plan, public vehicles and motorcycles would enjoy full subsidy and be charged IDR 4,500 (USD 0.46) per liter, whereas private vehicles would be partly subsidized and charged IDR 6,500. (Source: Jakarta Post)

Indonesian labors commemorating Labor Day with protest. Indonesian labors held a protest in front of the state palace on the international Labor Day (1/5), also dubbed May Day. The protest was followed by more than 135,000 workers from three Indonesia’s largest labor unions. The demands, among others, were for government to halt outsourcing – a practice of contracting workers out from third parties – to review policy to cut fuel subsidy, and to implement social security. Unions argue that outsourced workers lack the protection and benefits of regular workers. President Susilo Bambang Yudhoyono (SBY) was not in the office that day due to working visit to Surabaya. From Surabaya he announced that starting next year, May 1 would be a national holiday and a presidential decree would soon be issued following his announcement. In another place, hundreds of workers also marched to the City Hall, demanding audience with Jakarta’s governor Joko Widodo (popular as Jokowi). Protestors were criticizing the governor for allowing some companies to exempt from new minimum-wage regulation. Jokowi agreed to increase minimum wage by more than 40 percent last year to IDR 2.2 million (USD 226.3). The new minimum-wage policy is still in delay until now. (Source: Kompas and Jakarta Globe)

Government to cut tax obligation for oil and gas companies. To encourage oil production and increase reserve, Indonesian government launched its plan to cut tax obligations for gas and oil companies. The move is taken in response to a decreasing investment from gas-and-oil’s exploration and drilling. Under a new finance ministry’s regulation, such companies will be exempted from few taxes such as value-added tax (PPN) and luxury goods sales tax (PPnBM). The new regulation will apply for companies actively engaged in exploration of new sites as well as contractors at the exploitation stage. Upstream regulatory task force (SKKMigas) secretary Gde Pradnyana appreciates the step taken by government, arguing that risk of failure in oil exploration is very high and thus, investors must not further be burdened with taxes. (Source: Jakarta Post)

Indonesia is in top three of South East Asia remittance list. Indonesia received US$7.2 billion its migrant workers in 2012, according to a recent World Bank report World Bank Migration and Development Brief. The figure has listed Indonesia the third-largest recipient of remittances in Southeast Asia, after top receiver the Philippines ($24.45 billion) and Vietnam ($10 billion). Globally, India is topping the list with $69.35 billion followed by China with $60.24 billion. The report said that migrant workers from developing countries remitted a record $401 billion last year, up 5.3 percent from 2011. Southeast Asian nations received $47.96 billion remittances from their migrant workers in 2012, up 8.43 percent from $44.23 billion in 2011. However, the record was held by South Asian nations with $109 billion remittances in 2012, an increase of 12.3 percent from 2011. (Source: Jakarta Post)

Disclaimer: The summary series aim to capture the economic and political issues that make the headlines in the Indonesian media. They do not necessarily reflect the views of The Indonesia Project and its members.

This year’s Sadli Lecture is the 7th in the series. It was held in Sumba Room Hotel Borobudur Jakarta on 25 April. This year’s Lecture was by Vikram Nehru, Bakrie Chair in Southeast Asian Studies at the Carnegie Endowment for International Peace, Washington DC. He presented
‘Manufacturing in India and Indonesia: Performance and Policies’, which explained the resilience of Asia’s two giants, India and Indonesia during the crisis. Nehru argued that these two countries are alike in many respects and face similar challenges, as reflected in their emerging policy priorities. Comparative approach to the issues that both countries face can yield interesting insights and provide potential solutions to their development challenges.

Each year the Lecture is based on a commissioned paper on Indonesia in comparative economic perspective, published in the August number of the Bulletin of Indonesian Economic Studies. Vikram’s paper were discussed by Professor Ari Kuncoro from Faculty of Economics, University of Indonesia, and Dr Dionisius Ardiyanto from Economic Research Institute for ASEAN and East Asia (ERIA). Deputy Head of BAPPENAS, Dr Lukita Dinarsyah Tuwo, opened Sadli Lecture.

115 people attended this year’s Lecture, almost half were women. The largest participants came from research institutions with 44% and non-governmental organisations, followed by students (16%), government officials (13%) and academics (10%). Vikram received media interviews from Bisnis Indonesia, Investor Daily. Neraca and Bloomberg TV.

Summarized by Agnes Samosir

Chief economics minister named acting finance minister. Minister of Coordinating Economics Affairs, Hatta Rajasa, has been appointed as acting finance minister by President Yudhoyono. He will replace Agus Martowardojo, who will be inaugurated as the new central bank governor in May. As acting finance minister, he is mandated to set the course of fiscal policy, including issuing regulations and making key decisions in the deliberations of the 2014 state budget. Speaking in a press conference after being sworn in at the ministry, he said that he wanted to cut hefty government fuel subsidies and avoid deepening fiscal deficits in Southeast Asia’s largest economy. Lastly, he vowed to keep the pro-growth and low-debt policies of his predecessor. (Source: Jakarta Globe)

Foreign direct investment trends downward. Despite high investment realization in the first quarter of 2013, Indonesian Investment Coordinating Board (BKPM) predicts that the trend will slow considerably by end of the year. Up until the first quarter, investment realization has reached IDR 93 trillion (USD 9.6 billion), a 30 percent increase from 2012. According to the board’s chairman, Chatib Basri, the increase will be between 10 and 20 percent in the fourth quarter due to imports of capital goods. Chatib views that imports of capital goods are reliable indicator of investment. A positive growth of imports in capital goods usually correlates positively with FDI since capital goods are required by companies before opening factories in Indonesia. He further analyses that the slowing trend of capital goods imports are due to the internal and external factor. While external factor comes from the global economic recovery which remains slow, the internal factor comes from the lack of infrastructure. Household and investment contribute the most to Indonesia’s economic growth. in investment itself, foreign investors are the biggest contributor, supplying 70 percent of the country’s total investment in Q1. (Source: Jakarta Post)

Indonesian government facing reaction in attempt to tackle explosive fuel subsidies. The pledge to reduce fuel subsidies has brought Indonesian government into treacherous ground before elections in 2014. Recently, the government launched a new plan to increase subsidized-fuel price, which would be the first time rise in the last five years. The strategy is by employing a dual pricing policy – IDR 6,500 per liter (USD 0.67) for private cars and IDR 4,500 (USD 0.46) for public vehicles and motorcycles – to avoid social unrest. Yet, there are already sparking fears that the price hike will not just increase the number of motorcyclists, but also drive up inflation due to higher cost of transporting goods. Fuel subsidies have been decades-long issue in Indonesia and lowering them in the past led to nationwide protests. This time, however, the government is trying to temper resistance by maintaining full subsidies for public vehicles and motorcycles – an action criticized by economists as a half measure, which will give only small impact on subsidies. Nonetheless, the announcement creates immediate anger from unions, which are threatening to organize protest on May 1. (Source: Jakarta Globe)

Economy to grow slower in first quarter. The Indonesian economy is expected to grow at a slower pace in the first quarter of 2013 as the global economy has not fully improved, according to acting chief of fiscal policy office at Ministry of Finance, Bambang Brodjonegoro. His office predicts the first-quarter economic growth will range from 6.2-6.3%. Bambang expresses hope that the global economy will begin to improve in the second half of this year to achieve the government target of 6.3-6.5%. Earlier, Bank Indonesia predicts the Indonesian economy this year will expand by a range of 6.2-6.6%, down from its earlier forecast of 6.3-6.8%. Meanwhile, the World Bank predicts that the Indonesian economy will grow 6.2% this year while the Asian Development Bank (ADB) comes with 6.4%.(Source: ANTARA)

Summarized by Agnes Samosir

Government’s solution over debate of subsidized fuel. Following the prolonged debate over solutions to limit subsidized-fuel consumption, Indonesian government announces that it will start a “dual pricing policy”. Although the final decision in price has not been made, the government has estimated that the price for fuel used by private cars will be around IDR 6,500 per liter (approximately USD 0.67), while price for public vehicles and motorcycle will remain unchanged at IDR 4,500 per liter – less than half of the price of the non-subsidized one. In practice, to avoid complication, the government will divide the selling of subsidized fuel for public vehicles and motorcycles with those of private cars. Signs will be put at gas stations which sell subsidized fuel for public vehicles and motorcycles. Jero Wacik, the energy and mineral resources minister, acknowledges that the plan would bring challenges and complicated technical issues. He, however, argues that without differentiating stations, it would be even more difficult to implement the dual pricing system. Under the new system, it is estimated that the state would save at least IDR 21 trillion (USD 2.16 billion) by the end of year. (Source: Jakarta Post and Kontan)

Bureaucratic reform shows little improvement.  Despite regulations and bureaucratic reform blue-print, the agenda for reform in bureaucracy shows little improvement, argues Eko Prasojo, a deputy minister for administrative reforms. Eko further explains his view on the government which shows little interest in turning the overstaffed, underproductive, expensive, and graft-ridden bureaucracy into a slim, competent, efficient, and service-oriented one. The recently released audit report by the Supreme Audit Agency (BPK) assesses that the state spending for civil servants is excessive. According to the report, there are currently 4.57 million civil servants working for the central or regional government, incurring IDR 407.16 trillion cost to the state. The cost is approximately one-third of the state budget, which currently amounts to IDR 1,229 trillion. In some regencies, BPK also finds that personnel expenditures for civil servants even exceed 60 percent of the local budget. To restructure bureaucracy, Eko argues that the government needs to trim down some structural posts and eliminate non-performing staffs. Ministries must also remove few of their directorate generals and refrain from the common practice of appointing numbers of aide from political parties. (Source: Jakarta Post)

WTO requests Indonesia to revise and improve trade policies. After a review meeting, WTO recommends Indonesia to improve its trade policies in order to comply to its international commitments. In the meeting, Joakim Reiter, the WTO chairman, reminds Indonesia that in its effort to realize the ambition of being a leader in global trade, Indonesia must respect the commitment to support multilateral trading system. Among other things, WTO members urge Indonesia to reassess restrictive trade regulations such as import licensing and permit requirements covering 20 percent of overall tariff lines, as well as restrictions on import entry points. In response to WTO’s recommendation, Bayu Krisnamurthi, the deputy trade minister who also led Indonesia delegation in the review meeting, explains that Indonesian government welcomes the recommendation and would do as much as it can to instigate important changes. However, the government would, amongst other things, prioritize the interest of domestic business despite foreign requests for revision. (Source: Jakarta Post)

Rupiah to continue its upward trend. After facing pressure in the first quarter of 2013, Rupiah starts appreciating this week. The trend is likely to continue due to high foreign fund inflows to the country, predicts Indonesian central bank (BI) governor Darmin Nasution. Darmin argues that Indonesia would experience a strengthening capital account due to increasing portfolio investment, which includes the global bonds issued by the government. In the recent government’s global bond offering, Indonesia’s finance ministry managed to book USD 3 billion. A strengthening capital account would then reduce the impact of current account deficit, which has been the culprit of negative sentiment to the rupiah in the first three months of 2013. In addition to that, analysts believe that the appreciation of Rupiah owes to increasing optimism over export, which happens after the International Monetary Fund (IMF) increased its forecast for Japan’s economic growth. Japan is currently Indonesia’s second largest export destination for non-oil products after China. In the future, rupiah may continuously strengthen due to quantitative easing policies implemented by developed countries such as the US, some European countries, and Japan, according BI deputy governor Hartadi Sarwono. The policies have created more funding inflows to developing countries as investors seek higher returns. (Source: Jakarta Globe and Jakarta Post)