News Summary: 28 March – 10 April 2015

News from Indonesia

Summarised by Agnes Samosir

Statistics update: Inflation picked up in March and February trade balance posted a surplus. Indonesia’s inflation slightly appreciated in March 2015, as data was launched by Indonesian Central Statistics Agency (BPS) early this month. According to the agency, inflation in March picked up by 0.17 percent, making the year-to-year inflation to reach 6.38 percent and lower compared to year-to-year inflation in 2014, which was 7.32 percent. Almost all categories of goods experience price rise, except for food material and clothing – both of which declined in price index by 0.16 and 0.01 percent, respectively. Economists believe that Bank Indonesia will cut BI rate again this year following deflation in the economy which has been 0.44 percent since January. The chance to do that in April appears to be limited now that the inflation picked up in March. In terms of export and import, February trade balance recorded a trade surplus of USD 0.74 billion. Indonesian trade balance data is always published in one-month lag and the trade balance in February continued to exhibit a same pattern such as in January, in which the surplus was an impact of slowing imports notably in oil and gas import. Oil and gas import was 18.7 percent lower compared to January 2015, whereas non-oil and gas import was only lower by 6.34 percent. In terms of volume, however, non-oil and gas import increased by 2.8 percent. (Source: The Jakarta Globe and Official Statistics Update by the Central Statistics Agency/ Berita Resmi Statistik oleh BPS)

Government warned to adopt conservation farming. Indonesian government needs to adopt conservation farming, according to the United Nations’ (UN) Food and Agriculture Organisation (FAO). The suggestion is for the government to invest in infrastructure development rather than simply subsidising fertilisers, which the government plans on doing this year through the earmarked 2015 budget of fertilisers subsidy. A conservation farming method comprises of techniques such as permanent soil cover and planting holes and intercropping. The farming method promotes for soil and natural reserves preservation while also helps farmers to increase yields, all by using a combination of traditional techniques. With fertilisers, crops could also get higher yield, but the cost is too high as fertilisers are expensive and they ruin the soil, according FAO Indonesia representative Mark Smulders. To disseminate about conservation farming to Indonesian farmers, the FAO initiated pilot project involving 4,902 farmers in nine districts across East and West Nusa Tenggara. The land for the farming covers 30-hectare demonstration plots of land in 237 locations across the provinces. Agricultural crop has gained more attention as President Joko Widodo seeks for food sufficiency in sugar, rice, and corn within four years. His program was enacted in the 2015 budget by providing subsidy for fertilisers to farmers. (Source: The Jakarta Globe)

Public questions ‘Jokowinomics’ and the President’s fumble policies. Foreign and domestic public, notably economists and analysts, have started to question Indonesian president’s, Joko Widodo (Jokowi), credibility of policies and plan as realisation remains sluggish. As recently as Wednesday (08/04), Bank of America Merrill Lynch cut growth prediction for Indonesia from 5.7 percent to 5.5 percent. It also slashed growth prediction for 2016, from 6 percent initially to 5.7 percent on concern of slow progress of infrastructure investment’s realisation due to problems from complex land acquisition process, weak implementation capacity, and poor inter-agency coordination. President Jokowi based his growth target ambition on infrastructure by boosting capital expenditure early on his administration. Capital expenditure in the 2015 revised state budget was increased to IDR 290 trillion (USD 22.4 billion) from IDR 190 trillion last year. Disbursement, however, remains slow as only 18.5 percent of total spending was disbursed in the first quarter of this year. Another concern is also from the fiscal side, where deficit is anticipated due to an overly ambitious target on tax revenue boost this year. The president targets tax revenue to increase by 30 percent in 2015, to reach IDR 1.48 quadrillon (USD 114.6 billion) and total revenue by 39 percent. A realistic tax revenue increase should be around 15 percent, according to Goldman Sachs. The government admits that it has not prepared any measure yet to counter the fiscal deficit that may happen but seems to be confident that any concrete steps would be ready in May, June, or July this year. In other policy areas, public also appears to be doubtful of the ability of the president to produce sound policies. Jokowi has reversed some policies he made in his six months in office. A recent one is the cancellation of a recently signed presidential regulation which provides a substantial rise in car purchase allowances for top officials worth IDR 158 billion (USD 12.2 million). When cancelling, the president defended that he did not know the detail of the regulation content, which exposes his weakness with regard to detail and policy making. Some reversals of Jokowi’s policies had been made earlier (in the table). After the election in 2014, Jokowi was burdened with high expectation created by international and domestic audiences to be the person who implement reforms in Indonesia. The expectation seems to fade now that his administration has shown some setbacks. (Source: The Jakarta Post, Bisnis Indonesia, and The Jakarta Globe)

 

Table 1. Policies reversed under Jokowi’s administration

Policy Initial Provision Ban/ Reversal
Hotel ban policy Government institutions are prohibited from conducting meetings and events in hotels. On April 1, 2015 the regulation was revoked after slump in hotel occupancy rates.
Visa-free policy On March 16, 2015 the government announced to waive visa requirements for 30 countries in an attempt to boost tourism. Days later, the policy was scrapped since it would violate an existing Immigration Law, which provides that waive of visa could be given on reciprocal basis.
Website censorship The government reopened access to 22 websites due to pressure from Muslim groups. The block was opened just a day before there was announcement by the National Counterterrorism Agency that the sites promoted extremism.
Drug convicts executions The government had announced it would carry out the second batch of executions of death row inmates in February 2015. No executions have been made until now and they have been postponed several times to a point where officials are unsure whether they will be carried or not
Car allowances The government allowed for a significant rise in car allowances for top officials and legislators through a presidential regulation. The regulation was just scrapped.

 

Indonesian exports struggle even with depreciating currency. Since June last year, Indonesian rupiah has depreciated against the US dollar by around 9.3 percent. With the fall in the currency, exporters should be able to gain back its competitiveness in producing goods such as clothes, shoes, and furniture. Yet the expectation appears to be high now that problems inhibiting the export progress emerge. Among other factors are the rising wage, lack of infrastructures, and bureaucracy. Many factory owners see the increasing wage as the biggest concern. The steadily increasing wage has made businessmen suffering, according to Indonesian Employers Association (Apindo) chairman Hariyadi Sukamdani. Businessmen see that a wage that keeps rising could be acceptable as long as the increase is in line with an official mechanism set by the government; this way, businessmen could predict the increase and plan for years ahead. What frequently happens, however, is local governments rising wage in order to accommodate protests by workers. Even in a domain of export which the country has advantage in, such as textile, export is losing grip; among the top 30 garment exporters, Indonesia has dropped to the 14th place, from the 11th. Vietnam, on the other hand, stands on the seventh largest. Another export product which is also suffering is furniture. Indonesian rattan and furniture association chairman estimated that members have lost USD 40 million this year because buyers switch to Vietnamese producers. The declining rupiah appears to be not sufficient to compensate for the overall loss of competitiveness because the high inflation has caused the rupiah’s real trade-weighted exchange rate to be 9.8 percent stronger than in the mid of 2014, according to JP Morgan, which is believed by the World Bank’s chief economist for Asia Sudhir Shetty to be the fundamental reason as to why export remains uncompetitive. (Source: The Jakarta Globe)

CPO exports get levied to form a CPO supporting fund. In a serious attempt to promote biodiesel fuel in Indonesia, the government regulates that crude palm oil (CPO) export will be imposed of levy and that the regulation takes effect early last week, after the signing of the government regulation. Based on the regulation, export levy will be charged when the commodity price remains below USD 750 per ton. Above the USD 750 per-ton price, CPO export will be charged of custom fees by 7.5 percent and 22.5 percent, if the price reaches more than USD 1,250 per ton. The regulation is to encourage CPO producers to distribute the CPO within Indonesia to compensate for the government’s mandatory biodiesel fuel policy from 10 percent from content to 15 percent (B10 to B15). The money collected from this regulation will be used to subsidise the state oil and gas company (Pertamina) to produce biodiesel fuel, whose price is more expensive than the currently distributed diesel fuel (solar). The CPO fund will be collected in and managed by a specific government body, whose steering committee will consist of few ministers, supervisory council involving government and private sector representatives. It will be used not only to subsidise renewable fuel development, but also for other purposes including CPO plantation’s replanting and infrastructure development in areas surrounding plantations. CPO is one of Indonesia’ major commodity exports and CPO plantation is largest in Indonesia. Following the fluctuation of fossil-based fuel price in global market, there have been attempts to develop alternative fuel sources by the government in order to smooth the impact of fluctuation. (Source: Bisnis Indonesia and others)

Foreign reserves drop recorded lowest in two years. In March this year, Indonesia saw the largest foreign exchange reserves drop in two years since the central bank tried to intervene heavily following a steep fall in the rupiah last month. Based on a recently launched data, foreign exchange reserves fell by USD 3.9 billion in March to hit USD 111.6 billion at the end of the month. It was USD 115.5 billion at the end of February. Although the amount was still sufficient to pay for 6.9 months of imports on top of debt payments or 6.6 months of import and debt payments, above the international safe standards of three months imports, it was the largest monthly fall since June 2013. BI spokesperson Peter Jacobs said that the data should answer to all hesitation in the market regarding the central bank’s lack of effort to help the falling currency. The currency depreciated to IDR 13,237 per USD one time in March, which was the weakest level after the 1998 financial crisis. Economists, however, are not worried about the falling forex reserves since they remain above the suggested minimum. (Source: Kompas and 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.