News Summary 27 June – 17 July 2015

 

Photo credit: republika.co.id

Photo credit: republika.co.id

Summarised by Agnes HT Samosir

Economic team on the edge. Amidst poor performance of the economy, all eyes are now on President Joko Widodo’s (Jokowi) line of economic ministers. Rumours on reshuffle is at this time unavoidable and even escalating further following a meeting between President and a group of prominent economists at State Place. President Jokowi welcomed eleven economists and sought their inputs to improve his current economic team performance. Tony Prasetiantono, a Gadjah Mada University economist, said President Jokowi highlighted his economic aides failed to gain market confidence due to poor communication, despite excellent skills they possess. Also due to the exasperation by the performance of his economic team, President Jokowi has personally taken on the job of performing Indonesian economy to skeptical investors. He does so by holding a closed-door meeting with fund managers and economists. Officials at the state palace said that previous meetings were intended to reverse a souring sentiment since they believe the government has made much progress, only to see public audience that does not realise that. The task of this kind indeed falls on the responsibility of the ministries, but they are not doing much, according to an unnamed palace official. The president is considering this type of meeting to be a common mode of communication between market and the government and thus seeking to hold such meetings on monthly basis. Jokowi came to power with a strong image of business credentials and a promise to improve the country’s infrastructure. He, however, has been hamstrung by incidents within his political party and disputes between government agencies. The president’s current economic team, led by Coordinating Economic Minister Sofyan Djalil and Finance Minister Bambang Brodjonegoro, are under fire for not showcasing the government’s achievements better. In light of this, the Head of State confirmed a reform on his cabinet is necessary. In the first quarter, economic growth fell to a five-year low of 4.7 percent, is slowest in five years, while in May annual inflation accelerated by 7.1 percent, the highest monthly price surge this year. Calls to include new face in the cabinet was echoed in April and the momentum has increased after President Jokowi visit to Tanjung Priok sea port where he noticed dwelling time issue remained unsolved after his last visit few months before. However, the State Place calmed the speculation down by refusing any comment on reshuffle. The Place only confirmed President Jokowi’s understanding that communication between economic minister and the market must be improved. (Souce: The Jakarta Post, The Jakarta Globe, and Reuters)

 

Statistics update: Inflation rose in June. Inflation rose by 0.54 percent in June, according to statistics launched by the Central Statistics Agency (BPS). Inflation peaked up as an impact of price increase in every good category. The highest increase of 1.6 percent was in the category of food material, which was because the largest Moslem-populated country was overcoming the holy month of Ramadan, whereas the lowest rise of 0.07 percent was in the category of education, recreation, and sports. The year-on-year inflation in June was 7.26 percent, higher than in May (7.15 percent) and June last year (6.7 percent). With the new monthly inflation figure, it seems that inflation throughout 2015 has reached 0.96 percent, remain in line with target set by the central bank at 4±1 percent. The statistics launch had denied earlier prediction, which estimated that inflation in June would be at around 0.6 percent, higher than June last year of 0.43 percent. The government and Bank Indonesia were praised for their success in controlling the inflation. Inflation was relatively low compared to previous Ramadhan months, thanks to their concerted efforts. However, economists still take note of problems concerning price stability in the country, despite a prospect that inflation will remain in target. Among the problems is supply shortage which keeps emerging every year in commodities that include chili, flour, and sugar. To curb demand side, the Central Bank had kept its policy rate at 7.5 percent to maintain the rupiah, whereas in the supply side, the Government had issued a presidential regulation on basic food price stabilization. However, the regulation was just issued shortly before Ramadan and had no operational guidelines yet, which should come in form of Ministry of Trade decree. Also, it is believed that the regulation failed to address the basic issue of short supply since import is prohibited at times when domestic supply is low. To tackle shortage, however, the government has initiated open market operation since June to control prices, according to a deputy with the BPS. (Source: Official Statistics Update from the Central Statistics Agency/ Berita Resmi Statistik BPS and KONTAN Newspaper)

 

The Greek crisis and its impact to Indonesia. The economic turbulence that had taken place in Greece appeared to give negative impact to country as far as Indonesia, or not, depending on which side of economic agents arguing on the matter. Market representatives and economists with private institutions tended to see that market restoration could be difficult if Greek’s outcome further worsens. Their arguments were discussed when the bailout for Greece had not been agreed by the Euro Zone leaders on July 13. But director of PT Ekulibrium Komoditi Berjangka, a private company in futures, Ibrahim saw the negative impact would be suffered four months after the decision on the fate of Greece. On another hand, Finance Minister Bambang Brodjonegoro was sanguine that domestic economy condition would remain positive in spite of rupiah depreciation and the Greek crisis. As of July 1st, some IDR 120 trillion (USD 8.9 billion) of surplus was available in cash flow up to June, which based his argument. Yet, minister Bambang admitted that a recent volatility in the domestic financial market was caused by Greece’s debt default, which would be anything but permanent. His argument was backed up by Teten Masduki, the president’s spokesman, who argued that although domestic macro economy was fundamentally good, negative perceptions impacted market confidence, as well as business’ and investors’ view of the country. Bambang was also positive that the economy would rebound on the second quarter, to grow by 5.1 or 5.2 percent this year, higher than last year’s growth of 5.02 percent. (This post is written in a different time frame, and thus reflects the fluctuations of what happens during the Greek crisis. At the time of publication, the Greek crisis has finally been granted another bailout by the Euro Zone, but economists nationwide have yet to watch further impact to Indonesia.). (Source: Bisnis Indonesia, The Jakarta Globe, and The Jakarta Post)

 

BI to enforce no dollar rule despite opposition. Indonesian central bank has decided to maintain its stance in enforcing the ban on US dollars for domestic transactions. It argues that it has provided sufficient exemptions for strategic industries that the economy would not be negatively affected by the rule. The requirement to use the rupiah in all domestic transactions is enforced starting effectively on July 1, despite oppositions from certain local businesspersons. The measure was sourced based on the central bank regulation (PBI) number 7 that regulates the use of rupiah in all onshore transactions, and consequently, bans all transactions conducted in foreign exchange currencies such as the US dollar. The regulation aims to rein in local demand for dollars and stabilise the rupiah, which is known as among Asia’s most volatile currencies. The regulation, however, exempts a number of transactions including international financial and commercial transactions, specified incomes and expenditure under the state budget, foreign currency savings and deposits in banks, as well as many other transactions allowed by the BI Law and the Investment Law. The rupiah is trading steadily at a level around IDR 13,300 per USD. BI Governor Agus Martowardojo believes that the currency is slightly undervalued. (Source: The Jakarta Post and The Jakarta Globe)

 

Lower dwelling time is the priority. The finance minister on Wednesday (01/07) installed Heru Pambudi as director general of customs and excise under the Ministry of Finance. With his appointment, the priority is now set to lower dwelling time among other internal reforms that could smooth export-import activities for local manufacturers, Heru pledged. He is looking to streamline custom clearance process in order to push the dwelling time. The average dwelling time in ports, which now stands at 5.5 days on average, is sought to be cut to 4.7 days by the president. At the moment, a cargo could spend 0.7 days in the custom clearance process alone. Heru seems to believe that the lengthy dwelling time is a result of coordination problems between ministries and institutions that have stakes in the port embarkation and disembarkation process. Aside from enhancing port efficiency, which is among the president’s priority agenda, the new director general also bears a challenge to collect import duty to cigarette excise to meet a revenue target of IDR 195 trillion (USD 14.6 billion). Within the customs and excise office itself, a strong hierarchical culture and deep divisions between schools and class years have long been known, which add to the coordination problem. Heru promised to intervene directly to solve the problem. Early in June, President Jokowi was outraged after an inspection to Indonesia Port Corporation (IPC) control tower and discovered dwelling time that was lengthy. (Source: The Jakarta Post and Bisnis Indonesia)

 

Statistics update: another trade surplus posted in June. The country’s Central Statistics Agency recently released the trade balance statistics (15/07), which revealed another trade surplus posted by Indonesia, a seventh consecutive monthly surplus. The surplus was USD 477 million and lower than in May, in which surplus was USD 1.08 billion. Behind the surplus that had happened months before, since December last year, was the same falls in imports which was faster than exports. Where exports have been declining by only 11.9 percent this year (January – June), imports saw drop by 17.8 percent compared to the same period last year. Imports in June, however, rose from May by 26.4 percent. It was bolstered by the presence of Ramadan (starting in mid June), which triggered people to conduct buying. Analysts, however, still see that imports are moving in a downward trajectory, taking into consideration the trend that has been seen in comparison to last year. With the figures released, there is now an emerging concern that growth will remain sluggish. As the second quarter was concluded, statistics on the GDP performance has yet to be published. Bank Indonesia expected that the 2015’s Q2 current account gap will be at around 2.5 percent level. Both economic growth and current account balance statistics are planned to be launched in the coming August. (Source: Official Statistics Update by the Central Statistics Agency/ Berita Resmi Statistik BPS and The Jakarta Globe)

 

BI rate is kept at 7.5 percent to face economic uncertainty. As predicted by many economists, Bank Indonesia set the policy rate unchanged at 7.5 percent at its latest Board of Governor meeting. This decision marks the central bank policy to keep the policy rate for five consecutive months in 2015 since they lowered the rate from 7.75 to 7.5 percent in February 2015. According to the monetary authority, keeping the rate is still consistent with the efforts to ensure inflation rate within 3-5 percent range target for 2015. Tirta Segara, Executive Director of Communication Unit said in the press release, the central bank policy consistently aimed to focus on macroeconomic stability, not economic growth. Tirta added the policy is required to cope global economic uncertainty that include economic slowdown in China and the US as well as debt crisis in Greece. A number of economists praised the decision of the central bank since room to have policy rate lowered is only possible when global economic has picked up. (Source: The Jakarta Post and KONTAN Newspaper)

 

President Joko Widodo shares optimism on the economy. Facing harsh critics from all sides on the recent poor economic situation, President Joko “Jokowi” Widodo remained confident things will be better and shared his optimism to business players. Speaking at a gathering held by the Indonesian Economists Association, he said economy will pick up in the third quarter as government disbursement kicks off and move even faster in years to come. He confirmed that the state budget funds, mostly earmarked for infrastructure projects, would be spent more effectively. It is expected government spending will contribute between 0.5 to 1 percent of economic growth, from between 0.1 to 0.3 percent currently. President Jokowi also added he would speed up the real investment from committed countries such as China, Japan, and the United States. One important message from his statement is government currently undertakes structural reform by switching the country from commodity-based to production-led economy. The reform is deemed necessary since many countries, including Indonesia, are now facing declining prices for commodities. Hence, commodities can no longer be a driven factor to economic growth. Suryo Bambang Sulisto, the chairman of the Indonesian Chamber of Commerce, praised the speech with full expectation that government can do more by removing red tape and improving inter ministerial communication. (Source: The 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.