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No 1/YEAR III/March 2014
Macroeconomic DashboardFaculty of Economics and BusinessUniversitas Gadjah Mada
Hope for Changefrom the New Representatives
INDONESIAN ECONOMICREVIEW AND OUTLOOK
Foreword
Letmehopeitisanenjoyablereading
Prof.Dr.SriAdiningsih,M.Sc
HeadofResearcher
MacroeconomicDashboard
IndonesianEconomicReviewandOutlook(IERO)isaquarterlybulletinthatgivesageneraldescriptionofthe latestdevelopments in the Indonesianeconomyanditsprospects in future,aswellasananalysisofmacroeconomicconditionsinSouthEastAsianregion.IEROispublishedbytheMacroeconomicDashboardin collaboration with PT Bank Mandiri, Tbk. TheDashboardisaneconomylaboratorythatfallsundertheaegisoftheDepartmentofEconomics,FacultyofEconomicsandBusiness,UniversitasGadjahMada.
IERO,quarterI-2014hasthetheme“HopeforChangefrom the New Representatives”. The year 2014 isspecialbecausethecountrywillholdpresidentialand
legislativeelections. Thesameconditionwillmakethisyearfullofhopeaswellasuncertainty.Theprocessandoutcomesof thegeneralelectionswillhaveastrongimpactonthestate'seconomy.Iftheconductofelectionsgoesonflawlessly,securely,andpeacefully,andproducesthekindofrepresentativesthathavethecapacitytomake thenecessary improvement, it ismost likely thateconomicstabilitywillbebetter,andtheeconomicgrowthandtheconsumptionwillincrease.
In themeantime, GAMA Leading Economic Indicator (GAMA LEI) in this edition,predicts adecline inGDPcycle, ofwhichhowever itwill be temperedbya slightincreaseinGDPgrowthin2014:Q1(y-o-yandq-t-q).GAMALEIconstitutesamodelwhich has been developed by the Macroeconomic Dashboard team to provideforecastsofconditionsofIndonesianeconomy.Theoutcomesoftheprediction,areexpectedtoassiststakeholdersinanticipatingthefutureeconomicconditions.
TheIEROofthisedition,assumesanewformatwhichhasbeendesignedtomakeitanenjoyablereading. It isa hopethatoursuggestions areuseful forpublicpolicymakers,businesscommunity,membersofacademia,andthegeneralpublic.
TABLE OF CONTENTS
FOREWORD....................................................................................................................... ii
EXECUTIVESUMMARY................................................................................................ v
A. DEVELOPMENTSINTHEECONOMYANDFISCALPOLICY 1. Theeconomyregisteredimprovementlargelyduetogrowth intheservicesandnetexports.................................................................... 1 2. InternationalTradecontinuestoFaceChallenges.............................. 3 3. GovernmentFiscalspacecontinuestobetightandthecapacity torepaydebthasweakened......................................................................... 8 4. PovertyIncidenceandEmploymentWorsened................................... 14
B. MONETARYSITUATIONANDFINANCIALMARKETS 1. RupiahContinuestoDepreciate................................................................. 16 2. Financialmarketsexudesoptimismastheyearended.................... 21
C. GAMALEIANDCONSENSUSONPROJECTIONOFTHEECONOMY 1. GAMALeadingEconomicIndicator(GAMALEI)................................. 25 2. ConsensusonMacroeconomicIndicatorProjections........................ 27
D. ASEAN:RegistersOptimumEconomicPotentialamidst GlobalandRegionalEconomicInstability.............................................. 29
E. CURRENTISSUE...................................................................................................... 35
f. ECONOMICOUTLOOK.......................................................................................... 39
Macroeconomic Dashboard Universitas Gadjah Mada iii
List of Terms
APBN StateBudget ASEAN AssociationofSouthEastAsianNations BI BankIndonesia BPS CentralBureauofStatistic CLMV Cambodia-LaoPDR-Myanmar-VietNam cq CasuQuo(Inthiscase) DIY DaerahIstimewaYogyakarta DPD RegionalRepresentativeCouncil DPR HouseofRepresentatives DPRD RegionalHouseofRepresentatives DSR DebtServiceRatio(TheRatioofPrincipalLoanPayment
andInteresttoExportValue) GAMALEI GadjahMadaLeadingEconomicIndicator IDR Rupiah IHK ConsumerPriceIndex IHSG JakartaCompositeIndex JISDOR JakartaInterbankSpotDollarRate LHS LeftHandSide LPG LiquifiedPetroleumGas LPS DepositInsuranceCorporation MAS MonetaryAuthorityofSingapore m-t-m Month-to-month NAD NangroeAcehDarussalam PBI BankIndonesia'sregulation PDB GrossDomesticProduct(GDP) q-to-q Quarter-to-Quarter RHS RightHandSide SUN Government'sBonds TheFed TheFederalReserve USD USDollar y-o-y Year-on-Year
Indonesian Economic Review and Outlookiv
EXECUTIVE SUMMARY
Indonesian economy registered a slight growth in Q4:2013, of which,
althoughitwashigherthaninthepreviousquarter,butitwasfaroffthelevel
sufficient to made any significant dent into poverty incidence and
unemployment(thatshowedanupwardtrendinlastSeptember).Economic
growthisdrivenbytheservicesectorbyitsnaturenotlaborintensive.Thisis
reflectedbyareductionof6millionjobsintheagriculturalsectorduring
2011-2013 period. With regards to GDP by expenditure, positive
performance in the export sector that marked the end of 2013 (as an
anticipation by the mineral and other extraction industries to the
implementationoftheMineralsLawthatcameintoforceatthebeginningof
thisyear)provedtransientandtradeaccountdeficitplummetedbackinto
deficitinJanuary2014.
Beside the deficit in the trade account, pressure on Rupiah continued to
mountfromtwosides:risinginflationanddepreciationoftheexchangerate.
Not surprisingly, the pressure on international reserves intensified. Bank
Indonesia,asthemonetaryauthority,respondedbyissuingBankIndonesia
regulation on Swap transactions Value Protection as well as introducing
Jakarta InterbankSpotDollarRate (JISDOR)asanofficial rate forRupiah
denominationsinSingaporeMoneymarket.
In themeantime, theGovernment through theMinistry of Finance, in its
capacityasthefiscalauthority,continueditseffortstomobilizefundsfrom
domestic sources, such as the announcing of six strategic steps aimed at
increasingtaxrevenues,andfromforeignsourcesbyissuingGlobalBonds
andbyforeignborrowing.Itisinterestingtonotethatthedebt-to-service
ratio(DSR),whichistheratioofprincipalandinterestpaymentstovalueof
exports),showsanupwardtrend,which inpart isattributable to thesub
optimal performance of the Indonesian export sector. As one of the
indicatorsofcapacitytorepaydebt,theriseinDSRbecomestheconcernfor
thegovernment,especiallyfortheMinistryofFinance.
Macroeconomic Dashboard Universitas Gadjah Mada v
After making a closer observation of various dynamics of Indonesian
economy, GAMA LEI predicts downward trend in Indonesian GDP cycle.
Nonetheless,byobservingthemovementandpatternoftheeconomy,both
year-on-year andquarter-to-quarter, indicate signs of a small increase in
economicgrowthin2014:Q1.
Leaving the domestic economy aside, the performance of economies in
ASEANregiontendstobemixed.Politicalinstabilitythatisaffectingsome
ASEANeconomies,especiallyThailand,havehadadverseimpactonregional
development.Nevertheless,somecountriesintheregionshowremarkable
performance such as the Philippines and CLMV (Cambodia-Lao PDR-
Myanmar-VietNam).Thisthenoffersoptimismamidstbleakperformanceof
currenciesofASEANeconomiesintheaftermathoftaperingoffbytheUnited
States.
Lastly,IEROofthisedition,raisestheissueofgenerallegislativeelectionsby
whichthe citizens face two possibilities: the likelihood that the elected
representativeswillnotfomentchangeforthebetteror,onthecontrary,will
createthemuchneededimprovement.Asanascentdemocraticnation,itis
notadvisablethatdemocraticprocessisentrustedsolelytothewhimsofthe
government and elected representatives in thenational assembly.On the
contrary, in a democracy, members of society participate actively in the
processandthereby,creatinganincentivefortheelectedrepresentativesto
actinaccordancewithpublicinterestandexpectation. Thus,withoutthe
existence of reward and punishment from society to the elected
representatives,politicalrightswhichweregainedduringthereformation
willbeuseless.
Indonesian Economic Review and Outlookvi
A. DEVELOPMENTS IN THE ECONOMY AND FISCAL POLICY
Macroeconomic Dashboard Universitas Gadjah Mada
1. TheEconomyRegisteredImprovementLargelyDuetoGrowthinThe
ServicesandNetExports
Indonesian economy shows some slight improvements in quarter IV-
2013, registering 5.72% growth year-on-year, which was lower than
6.18%inthesameperiodlastyear. Thiswas largelyattributabletothe
incessantpressureonthecurrentaccountanddepreciationofRupiah,coupled
with rising inflation. Thedeficit on the current accountover the last three
quartersstokedinflation,whichinturninducedanupwardrevisionofreference
interestrate,followedbydepressedinvestment.Thus,despitethefactthatthe
levelofcurrentaccountdeficitshowedasignificantdeclinefromUSD8.5Billion
1
Notes:
Primarysector:AgriculturalSector,Livestock,ForestryandFisheries;andMiningandExtractionSector
IndustrialSector:ProcessingIndustrysector;ElectricitySector,GasandCleanWater;andConstructionSector
Services Sector: Trade Sector, Hotel and Restaurants; Transportation and Communications Sector;Financial,RealEstateandCompanyServicesSector;andServicesSector
Source:BPSandCEIC(2014)
Figure 1: GDPEconomicGrowth in Constant 2000Prices by EconomicActivity,2011–2013(y-o-y,in%)
Economicgrowthwasbyandlarge,proppedupbyCommunicationsandTransportationSector,aswellasinprimarysectorsalbeitatadecreasingrate
⁰ .88 ⁰ .9² ⁰ .8³ ⁰ .88 ⁰ .77 ⁰ .78 ⁰ .65 ⁰ .5² ⁰ .479.¹ ⁰ 9.⁰ 7 9.¹ 6
4
5
6
7
8
9
⁰
¹
²
³
54
Primary Industrial Services GDP(RHS)
Indonesian Economic Review and Outlook
inthepreviousquartertoUSD4BillioninquarterIV-2013,theeconomicgrowth
of5.78%registeredin2013waslowerthan6.23%recordedfor2012.
TheservicessectorcontinuestounderpineconomicgrowthinquarterIV-
2013.Nonetheless,thissectoralsoexperiencedslowereconomicgrowth,while
primaryandindustrialsectors,showedagradualupwardtrend. Theservices
sectorpostedlowergrowthofjust6.48%than7.66%inquarterIV-2012.Inthe
meantime,economicgrowthintheprimarysectorwas3.86%(y-o-y),which
was attributable to 3.91% growth in mining and extraction sector (y-o-y).
Despite the fact that theprimarysector registeredagrowth, the rateof the
growthshowsadownwardtrend.Meanwhile,theindustrialsectorregistered
growth of 5.60% (y-o-y),whichwas in linewith rate of growth in exports,
especially non-oil and gas category. Overall, transportation and
communicationssectorregisteredthehighestgrowth(10.32%,y-o-y),followed
byfinancial,realestateandcompanyservices(6.79%,y-o-y)andconstruction
sector(6.68%,y-o-y).
With respect to expenditure, economicgrowth inquarter IV-2013was
largelyattributabletotheincreaseinnetexports,whichthereforeserved
asanoffsettothedownwardperformanceofdomesticexpenditure.The
increaseinnetexportsinquarterIV-2013waspartlybecauseof7.40%(y-o-y)
2
Figure2:GDPgrowthrate,IndonesiainConstant2000PricesbyEconomicActivity,2011–2013(y-o-y,in%)
TheincreaseinIndonesianeconomicgrowthinthefourthquarterin2013isattributabletotheincreaseinnetexports
Source:BPSandCEIC(2014)
-5
0
5
10
15
20
ConsumptionExpenditures:Household ConsumptionExpenditures:GovernmentGrossFixedCapitalFormation ExportsofGoodsandServicesImportsofGoodsandServices
Macroeconomic Dashboard Universitas Gadjah Mada
invalueofexportsandadeclineinthevalueofimports-0.60%(y-o-y).Thiswas
largelyduetoanincreaseinnon-oilandgasexportstomaintradingpartners
suchasChina,UnitedStatesandJapan.Meanwhile,householdconsumption,
government consumption and investment, registered lower growth rates,
5.25% (y-o-y), 6.45% (y-o-y) and 4.37 (y-o-y), respectively. To that end,
householdconsumption,governmentconsumption,andinvestment,inquarter
IV-2013, was lower than 5.48% (y-o-y), 8.91% (y-o-y) and 4.54% (y-o-y),
respectively,registeredinquarterIII-2013.Slowerinvestmentgrowth,wasin
partasaconsequenceofBankIndonesiapolicythatraisedreferenceinterest
rate from 7.25% inOctober 2013 to 7.50% inNovember 2013,whichwas
coupledwithpoliticaluncertaintyintherun-uptothegeneralelections.
2. InternationalTradeContinuestoFaceChallenges
In January 2014, the trade account fell back into deficit after three
consecutivemonthsofsurplus(October–December2013).During2013,
Indonesia balance of trade showed a deficit of USD 4.06 Billion, which
constitutedadeterioration froma tradedeficit ofUSD1.66Billion in2012.
RisingtradedeficitinIndonesiain2013,islargelyattributabletothefactthat
3
Developments in The Economy and Fiscal Policy
Figure3:IndonesianBalanceofTrade,January2012–January2014(USDBillion)
IndonesianBalanceofTradefellbackintodeficitatthebeginningoftheyear
Source:BPSandCEIC(2014)
-20
-15
-10
-5
0
5
10
15
20
Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14
Export Import BalanceofTrade
Indonesian Economic Review and Outlook
thesurplusontradebalanceofnonoilandgaswassmallerthanthedeficiton
tradebalanceofnonoilandgas. Onamonth-to-monthbasis,balanceoftrade
registeredadeclineof128%fromasurplusofUSD1.53BillioninDecember
2013toadeficitofUSD0.43BillioninJanuary2014.Theconditionwasbyand
largecausedbyadeclineinIndonesianexportsthatwaslargerthanadeclineof
imports,14%,and3%,respectively.
Thetradebalanceofoilandgasdeterioratedduring2013.Tradebalanceof
oilandgaswhichregisteredadeficitofUSD5.6Billionin2012,increasedtoUSD
12.6Billionin2013.Thedeteriorationintradebalanceofoilandgasin2013,
waslargelyduetosmalleroilandgasexportsandhigheroilandgasimportsin
2013thanin2012.Inthemeantime,inDecember2013,oilandgasrecordeda
tradeaccountdeficitofUSD0.82Billion,whichincreasedslightlytoUSD1.06
BillioninJanuary2014.Theincreaseofdeficitintradebalanceofoilandgaswas
asaresultofadeclineofUSD0.9Billioninoilandgasexportsandasmaller
declineofoilandgasimports(USD0.7Billion).
OilandgasexportsinJanuary2014declined.Onamonth-to-monthbasis,oil
andgasexportsdeclinedfromUSD3.41BillioninDecember2013toUSD2.5
BillioninJanuary2014.Thelargestdecrease(42.1%)affectedcrudeoilexports,
followedbyexportsofoil andgasproducts,whichdeclinedby23.28%and
16.66%,respectively.Overall,oilandgasexportsregisteredadecreaseof26.7%
4
Figure4:TradeBalanceofOilandGas,January2012–January2014(USDBillion)
TheTradeBalanceofOilandGasrecordedadeficit
Source:BPSandCEIC(2014)
-20
-15
-10
-5
0
5
10
15
20
Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14
Export:OilandGas Import:OilandGas Export
Import TradeBalance:OilandGas
Macroeconomic Dashboard Universitas Gadjah Mada
inJanuary2014.InDecember2013,Indonesianoilandgasimportswerevalued
atUSD4.22Billion.Nonetheless,inJanuary2014,thevaluedeclinedtoUSD3.56
Billion(thevalueofimportsdeclinedby15.7%betweenDecember2013and
January2014).
Overall,theperformanceoftradebalanceofnonoilandgasin2013is
betterthanin2012.In2013,thenon-oilandgassurpluswasUSD8.57billion,
farlargerthanUSD3.93billionregisteredin 2012,andrepresentedarapid
increaseof118.9%. Theriseoftradebalanceofnonoilandgassurpluswas
largelyattributabletoa5.21%declineinnon-oilandgasimportsorinabsolute
values,USD7.78billion.Asregardsexports,Indonesiannon-oilandgasexports
in2013showedadeclineofUSD3.12billioncomparedtothevalueregistered
for2012.
Likewasthecasewiththeoilandgastradeaccount(TradeBalanceofOil
and Gas), the performance of non-oil and gas trade account (Trade
Balance of Non Oil and Gas) deteriorated. At quarter IV-2013, the
performanceofTradeBalanceofNonOilandGashadshownapositivetrend.
Butdeterioratedlaterasthedeclineofnonoilandgasexportssetin,coupled
withanincreaseinnon-oilandgasimports.Consequently,non-oilandgastrade
account registeredadeclineof73.1% in January2014.Thedeterioration is
reflectedinthedramaticdeclineintheoilandgastradeaccountsurplusfromof
5
Figure5:TradeBalanceofNonOilandGas,Indonesia,January2012–January2014(USDbillion)
TradeBalanceofNonOilandGassurplusdeclinedinJanuary2014
Source:BPSandCEIC(2014)
-20
-15
-10
-5
0
5
10
15
20
Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14
Export:NonOilandGas Import:NonOilandGasExport ImportTradeBalance:NonOilandGas
Developments in The Economy and Fiscal Policy
Indonesian Economic Review and Outlook
USD2.34billioninDecember2013,tojustUSD0.63billioninJanuary2014.
The decline in non-oil and gas exportswas as result of a decrease in
mineralexports.Non-oilandgasexportsdeclinedby11.6%fromUSD13.58
billioninDecember2013 to USD11.99billioninJanuary2014. Basedon
month-to-month,BPSdatashowsthatthedrasticchangeaffectedores,slag,and
ash commodities,which registered a decline of 70.13% duringDecember
2013–January2014period,whichwas incontrast toan increaseof40.18%
postedduringNovember-December2013period.Thesameappliedtomineral
fuelsandmineraloilproductscommoditieswhichdeclinedagainby17.13%in
January2014,largerthan1.27%declineregisteredinDecember2013. Based
on Bank Indonesia quarterly report, the decline that affected mineral
commoditieswasingeneralasaresultofthecomingintoeffectoftheActon
MineralsandCoalinJanuary2014.Inthemeantime,importsofnon-oilandgas
increasedfromUSD11.24billiontoUSD11.36billioninJanuary2014,which
represented an increase of 1.13% from the position in December 2013.
Commodities of Elect. machinery, sound react.,tv etc. registered the largest
increaseof24.64%(m-t-m).
The surplus on goods trade balance registered a drastic increase in
quarterIV-2013. ThesurplusincreasedfromUSD0.2billioninquarterIII-
6
Figure6:BalanceofTradeandIncome,2010:Q1-2013:Q4(USDbillion)
ThedeficitontheCurrentAccountshowssomeimprovement
Source:BankIndonesiaandCEIC(2014)
-15
-10
-5
0
5
10
15
2010:Q1 2010:Q4 2011:Q3 2012:Q2 2013:Q1 2013:Q4
TradeBalanceGood TradeBalanceService IncomeAccount
CurrentTransfer CurrentAccount
Macroeconomic Dashboard Universitas Gadjah Mada
2013toUSD4.9billioninthenextquarter.Thedrasticincreaseinthesurpluson
goodstradebalanceisattributabletoanincreaseinthesurplusoftradebalance
ofnonoilandgasandadeclineonthedeficitoftradebalanceofoilandgas.In
quarterIII-2013,thesurplusonthetradebalanceofnonoilandgas,whichstood
atjustUSD2.8billion,shotuptoUSD7billioninquarterIV-2013.Meanwhile,
thedeficitoftradebalanceofoilandgasincreasedfromUSD0.5billioninthe
previousquartertoUSD2.2billion.Theincreaseinthesurplusoftradebalance
ofnonoilandgaswasasaresultofRupiahdepreciationduringNovember-
December2013period,whichhadanaugmentingeffectonnon-oilandgas
commodityexportsthatsawanincreaseofUSD4.3billioninquarterIV-2013.
TheimplementationofLawNo.4/2009onMiningMineralsandCoalandthe
MinisterialregulationPermenESDMNo.7/2012inJanuary2014,increasedthe
surplusongoodstradebalance.Thedeclineinthedeficitoftradebalanceofnon
oilandgaswasattributabletotwothings,namely,anincreaseinthesurpluson
thegastradeaccountandadeclineinthedeficitontheoiltradeaccount.
On year-on-year basis, current account position shows some
improvement. In the same period in 2012, Indonesian current account
registeredadeficit ofUSD7.8billion. Inquarter IV-2013, thedeficit on the
currentaccountdeclinedby48.7%toUSD4billion. Inquarter IV-2013, the
performanceofcurrentaccountpositionregisteredsomeimprovement.Thisis
reflectedinthedecreaseinthelevelofthedeficitfromUSD8.5billioninquarter
III-2013 to USD 4 billion in quarter IV-2013. Improvement in the current
accountpositionisattributabletoasurplusofgoodstradebalanceandcurrent
transferthatwaslargerthanthedeficitofservicetradebalanceandincome
account.
Therewasnosignificantchangeinthebalanceofservicetradebalance,
incomeaccount,andcurrenttransfer. InquarterIV-2013,thepositionof
servicetradebalance,incomeaccount,continuedtoregisterdeficitofUSD2.9
BillionandUSD7.1Billion, respectively. Comparedwith theposition in the
previousquarter,theservicetradebalanceandincomeaccount,registeredan
increase of 7.6% and 3%, respectively.Meanwhile, current transfer account
postedaslightimprovementfromasurplusofUSD0.9billioninquarterIII-
2013toUSD1.6billion,whichrepresentsanincreaseof19.6%.
7
Developments in The Economy and Fiscal Policy
Indonesian Economic Review and Outlook8
3. GovernmentFiscalSpaceContinues tobeTightandtheCapacity to
RepayDebtHasWeakened
AsperJanuary2014,revenueandgrantrealizationhadreached5.5%of
the target of IDR 1,667.1 trillion set in the state budget 2014, while
government expenditure realizationwas 5.3%. Target of revenue and
grantsconsistofIDR1,665.78trillionandIDR1.36trillion,indomesticrevenues
andgrants,respectively. Todate,taxrevenueshavereached6.5%ofthetarget
setinstatebudget2014ofIDR1,280.4trillion,werejust2%ofthetargetofIDR
385.4trillion.Totalgovernmentexpenditureinstatebudget2014,issetatIDR
1,842.5 trillion, which comprise IDR 1,249.9 trillion in central government
expenditureandIDR592.6trillioninregionalgovernmenttransfer.ByJanuary
2014, realized central government expenditure has reached 3.2%, while
transferlocalgovernmentswas9.6%.Debtrepaymentandsocialcontributions
constitute the largest percentage of realized government expenditure,
registering10.8%and10.1%,respectively.
Transfertotheregions,includesfundstransferredwithintheframework
of specialautonomyandadjustmentwhich in the2014annualbudget
registeredanincreaseof24.8%comparedwiththepreviousyear.Infact
thepercentageoffundstransferredwithintheframeworkofspecialautonomy
and adjustment to the total funds transferred to the regions, increased by
17.66%.Oneof thenewdevelopments, is the budget allocation of IDR520
billionforspecialadministrationpurposes,whichwasofficiallyearmarkedfor
Figure7:GovernmentRevenue&GrantandExpenditureRealizationasperJanuary2014(%)
Revenueandgrantrealizationis5.5%,whereasexpenditureis5.3%
Source:MinistryofFinance(2014)
(a)RevenueandGrant (b)GovernmentExpenditure
5.5
94.5
Realization Total
5.3
94.7
Realization Total
Macroeconomic Dashboard Universitas Gadjah Mada
Yogyakartaspecialadministrativeregion(DIY).Nonetheless,comparedwiththe
budget allocation for other special autonomy in the country, the amount
allocatedforDIYisstillverysmall.
Thegovernmentstillreliesheavilyontaxrevenuestopayforgovernment
expenditure. Overthelastthreeyears,taxrevenueshavecontributedmore
than75%ofgovernmentrevenues. Inotherwords,despite the fact that the
contributionoftaxrevenuestothenationalbudgetshowsadownwardtrend,
realizedtaxrevenuescontinuetobean importantcomponentthatsupports
fiscalpolicysustainability.
Inanattempttoensurethatthetargetsetfortaxrevenueisachieved,the
DirectorateGeneraloftaxationhasputinplaceoptimizationefforts.The
steps have been translated into six strategic programs: (i) improving tax
administrationsystem;(ii)expansionoftaxeligibleindividuals;(iii)expansion
oftaxbase,includingsmallandmediumsizeenterprises(SMEs);(iv)optimizing
theuseofdataandinformationfromotherinstitutions;(v)strengtheninglaw
enforcement fortaxevaders;and(vi) improvingtaxregulationsthroughthe
formationoftheharmonizationteam.
Figure8:SpecialAutonomyandAdjustmentFund(IDRtrillion)
Specialautonomyandadjustmentfundincreasedby24.8%in2014(y-o-y);DIYreceivedIDR520billioninspecialautonomyfunds
Source:DirectorateGeneralofBudgetingandCEIC(2014,processed)
9
Developments in The Economy and Fiscal Policy
6.78
2.55
6.82
0.52
-
1
2
3
4
5
6
7
8
SpecialAutonomyandDIYPrivilegeFund
14.97% 15.86%
17.66%
20.06%
19.04%
24.80%
0%
5%
10%
15%
20%
25%
30%
0
50
100
150
2012 2013 2014
SpecialAutonomyandAdjustmentFund
Total(LHS)
PercentagefromTotalRegionalTransfer(RHS)
Growth(RHS)
Indonesian Economic Review and Outlook
Besides,otherprogramstoincreasetaxrevenueswhicharestill inthe
worksincludetheintensificationoffinancialtaxandsettingfinaltaxrate.
Theideaofintensifyingfinancialtaxentailstheimpositionoftaxonmonetary
transactionssuchasstocks/shares,bonds,andfutures. Thereasonforthatis
thatthefinancialsectorgeneratesalotofprofits,andthefinancialsectorwasa
beneficiary to government bailouts during the financial crisis. Meanwhile,
settingfinaltaxrates,isoneofthesolutionsforincreasingtheeffectivenessof
self-assessmentsystemwithoutincreasingthenumberoftaxofficials.
Inanattempttoincreasefundsrequiredtomeetdomesticexpenditure,
theMinistryofFinanceissuedIDR50.5trillioninGlobalBondsinJanuary
2014.Theincreaseinitiallyledtoariseinthelevelofoutstandinggovernment
securities in January 2014. However, total government securities (SBN) in
February2014,decreasedbyIDR3.45trillionfromtheJanuary2014levelto
IDR1,459.29trillion,whichrepresentedanincreaseofIDR339.22trillionfrom
thelevelinFebruary2013(seeFig.13).Interestonfixedbondsregisteredan
increaseofIDR22.25trilliontoIDR793.07trillionandincreasedbyIDR153.47
trillionfromFebruary2014. Governmentshariabonds declinedbyIDR5.98
trilliontoIDR77.15trillionfrom January2014,andincreasedby IDR4.63
trillion from February 2014. In February, 2014, government bonds
denominatedinforeigncurrency,registeredadeclineofIDR21.72trilliontoIDR
Figure9: TaxRevenueTargetandPercentageofTaxintheStateBudgets2012-2014Despiteretainingitsimportanceasthemainsourceofgovernmentrevenue,theroleoftaxrevenuesintheannualbudgetshowsaslightdeclineovertime
Source:DirectorateGeneralofBudgetingandCEIC(2014,processed)
10
QLPSS QLQYS QLRXP
WXNWTE
WWNYYE
WVNXPE
VYE
WQE
WSE
WUE
WWE
WYE
XQE
P
RPP
TPP
VPP
XPP
QLPPP
QLRPP
QLTPP
RPQR RPQS RPQT
ĔÏ ŎĔÏ ÒĴ Į ÔHĎĈĒLČĄËÔÒĹŁĹÕŃI
ĔÏ ŎËĮ ÖĮ ŃÕĮ ÊĮ ÒĬĮ ŃÔÏ Ĵ Į IJÒŇĿ ĔŇÔÏ ŁËĮ ÖĮ ŃÕĮ Ï Ńİ ĆÒÏ ŃÔHËĈĒI
Macroeconomic Dashboard Universitas Gadjah Mada
428.26 trillioncomparedwith theposition in January2014,whichhowever
representedanincreaseofIDR164.57trillionforthepositioninFebruary2013.
TheincreaseaffectedgovernmenttreasuriesthatshotupbyIDR2trillionfrom
thepositioninJanuary2014toIDR38.5trillion.Theincreaserepresentedan
increaseofIDR16.53trillionfromthepositioninFebruary2013.
Ingeneral,Indonesiantotalexternaldebtincreased,withprivatesector
debtcontributingmosttothegain.Theratioofprivateexternaldebttototal
externaldebtreach53.21%,whiletheratioofgovernmentandBankIndonesia
externaldebttototalexternaldebtwas46.79%.Indonesiantotalexternaldebt
inDecember2013raisedbyUSD2.6billiontoUSD264.06billioncomparedto
thepositioninNovember2013(anincreaseof1%);increased by USD12.6
billion(5%)fromthepositioninJanuary 2013andUSD11.17billion(4.6%)
comparedtothepositioninDecember2012.Meanwhile,privateexternaldebt
inDecember2013increasedbyUSD2.3billiontoUSD140.5billioncomparedto
thepositioninNovember2013(anincreaseof2%).
Government external debt in December 2013 increased by USD 212
milliontoUSD114.29billioncomparedtothepositioninNovember2013
whichgain0.2%.ItwasdecreasedbyUSD914million(-1%)comparedtothe
positioninJanuary2013andUSD1.8billion(-1.6%)comparedtothepositionin
December 2012. Short-term private external debt by original maturity in
Figure10:GovernmentandPrivateSectorExternalDebt,September2011–December2013(USDbillion)
Privatesectorexternaldebtincreased
Source:TheMinistryofFinanceandCEIC(2014)
11
SP
SR
ST
SV
SX
TP
TR
TT
P
UP
QPP
QUP
RPP
RUP
SPPÆŎÔĮ ÒŃÏ ŁĄĮ Ī ÔĆŇÖĮ ÒŃĿ Į ŃÔÏ ŃİǺĮ ŃÔÒÏ ŁÅÏ ŃĻHĎĈĒI
ÊÒĹÖÏ ÔĮ ÆŎÔĮÒŃÏ ŁĄĮ Ī ÔHĎĈĒI
ĔŇÔÏ ŁÆŎÔĮÒŃÏ ŁĄĮ Ī ÔHĎĈĒI
ĒĶŇÒÔMĔĮÒĿ ÊÒĹÖÏ ÔĮÆŎÔĮ ÒŃÏ ŁĄĮ Ī ÔZÉÒĹĴ ĹŃÏ ŁĐ Ï ÔÕÒĹÔŐHËĈĒI
ĒĶŇÒÔMĔĮÒĿ ÊÒĹÖÏ ÔĮÆŎÔÒĮ ŃÏ ŁĄĮ Ī ÔZËĮ Ŀ Ï ĹŃĹŃĴ Đ Ï ÔÕÒĹÔŐHËĈĒI
Developments in The Economy and Fiscal Policy
Indonesian Economic Review and Outlook
December2013increasedbyUSD1.9billiontoUSD40.67billioncomparedto
thepositioninNovember2013(anincreaseof4.9%).Theincreasecontinuedin
January2013,whenshort-termprivateexternaldebtshotupbyUSD4.84billion
(14%)comparedtothepositioninJanuary2013 andUSD3.8billion(1.04%)
compared to theposition inDecember2012.Meanwhile, short-termprivate
externaldebtbyremainingmaturityinDecember2013 declinedbyUSD338
milliontoUSD41.159billioncomparedtothepositioninNovember2013(a
decreaseof-0.8%);increasedbyUSD2.3billion(6%)comparedtotheposition
in January 2013 and USD 1.09 billion (2.7%) compared to the position in
December2012.
DebtServiceRatiowhichshowsanupwardtrend,rosesharplyinquarter
IV-2013. In the last quarter of 2013, IndonesiaDSR reached 52.7%,which
reflectsweakeningcapacityoftheIndonesiangovernmenttorepayitsdebtfrom
onequartertothenext,whichinturnhasstokedupriskfortheIndonesian
economy.
Foreign ownership of securities increased. Foreign ownership of
governmentbonds in January2014raisedby IDR4.8 trillion to IDR328.65
trillioncomparedtothepositioninDecember2013,andincreasedbyIDR55.45
trillioncomparedtothepositioninJanuary2013.Thisfollowedtheissuingof
Global Bonds in January 2014. Meanwhile, foreign ownership of equity in
December2013stoodatIDR1,475.45trillion,andincreasedtoIDR1.7trillion
Source:BankIndonesiaandCEIC(2014)
Figure11:IndonesiaDebtServiceRatio,December2007–December2013(%)
DebtServiceRatioincreasedsharply
12
RPNQY
TQNPP
URNWP
P
QP
RP
SP
TP
UP
VP
Macroeconomic Dashboard Universitas Gadjah Mada
compared to the position in November 2013. However, it suffered a sharp
declineofIDR87.4trillioncomparedtothepositioninJanuary2013andIDR
71.6trillioncomparedtoDecember2012.ForeignownershipofBankIndonesia
Certificates(SBI)increasedbyIDR3.9trillioninJanuary2014,andincreasedby
IDR180billioncomparedtothepositioninDecember2013andincreasedby
IDR3.7trillioncomparedtothepositioninJanuary2013.
Figure12:ForeignOwnershipofSecurities,October2011–January2014(IDRtrillion)
ForeignownershipofIndonesiansecuritiesincreased
Source:MinistryofFinance,BankIndonesia,OJK,andCEIC(2014)
Figure13:CompositionofGovernmentSecurities,2011–February2014(IDRtrillion)
Governmentsecuritiesoutstandingdeclinedslightly
Source:DMOMinistryofFinanceandCEIC(2014)
13
P
U
QP
QU
RP
RU
SP
SU
P
RPP
TPP
VPP
XPP
QLPPP
QLRPP
QLTPP
QLVPP
QLXPP
RLPPP
ÉĬÔMQQ ĊÏ ŃMQR ĂÑÒMQR ĊÕŁMQR ÉĬÔMQR ĊÏ ŃMQS ĂÑÒMQS ĊÕŁMQS ÉĬÔMQS ĊÏ ŃMQT
ǼŇÒĮ ĹĴ ŃÉŌŃĮ ÒÓĶĹÑŇIJÆŅÕĹÔŐHĎĈĒI
ǼŇÒĮ ĹĴ ŃÉŌŃĮ ÒÓĶĹÑŇIJĆŇÖĮ ÒŃĿ Į ŃÔÅŇŃİ ÓHĎĈĒI
ǼŇÒĮ ĹĴ ŃÉŌŃĮ ÒÓĶĹÑŇIJǺĮ ÒÔĹIJĹĬ Ï ÔĮ ŇIJÅÏ ŃĻČŃİ ŇŃĮ ÓĹÏ HËĈĒI
QLTUY
WYS
QRS
TUP
P
UPP
QLPPP
QLUPP
RLPPP
RLUPP
SLPPP
SLUPP
ÈŇÖMQQ ǼĮ Ī MQR ĐÏŐMQR ĂÕĴMQR ÈŇÖMQR ǼĮ Ī MQS ĐÏ ŐMQS ĂÕĴMQS ÈŇÖMQS ǼĮ Ī MQT
ĆŇÖĮÒŃĿ Į ŃÔÅŇŃİ ZÉÕÔÓÔÏ Ńİ ĹŃĴ ĢĮ ÒŇǺŇÕÑŇŃÅŇŃİǼĹŎĮ İ ËÏ ÔĮ ÅŇŃİ ĘÏ ÒĹÏ Ī ŁĮ ËÏ ÔĮ ÅŇŃİĔÒĮ Ï ÓÕÒŐÅĹŁŁ ĆŇÖĮ ÒŃĿ Į ŃÔČÓŁÏ Ŀ ĹĬ ĒĮ ĬÕÒĹÔĹĮ ÓHĆČIǼŇÒĮ ĹĴ ŃǺÕÒÒĮ ŃĬŐĄĮ ŃŇĿ ĹŃÏ ÔĮ İ HǼǺI
Developments in The Economy and Fiscal Policy
Indonesian Economic Review and Outlook
4. PovertyIncidenceandEmploymentWorsened
Despite the fact that the economy showed slight improvement in
quarter IV 2013, unemployment increased in August 2013. Open
unemployment rose to6.3% inAugust 2013 from6.1%during the same
periodinthepreviousyear.Besides,basedonBPSpublication,thenumberof
peopleinIndonesianworkforceincreasedby150,000from118.05millionto
118.19million.Viewedfromthevantagepointofgender,theparticipationof
men and women in the work force declined from 84.42% and 51.39%,
respectively,inAugust2012,to83.58%and50.28%,respectively,inAugust
2013.Ingeneral,theparticipationofwomenintheworkcontinuestotrail
thatofmen.
Inthemeantime,basedonthestructureofemployment,inaccordance
with the position in August 2013, the contribution the population
workingintheagriculturalsectorcontinuestodecline.InAugust2012,
agricultural sector contributed 35.09% of the work force, but by August
2013, it has declined to 34.36%. The decline in the workforce in the
agricultural sector is in part attributable to the high wage differential
between wages offered in agricultural sector and other sectors such as
industryandtrade.Nonetheless,theagriculturalcontinuestobethelargest
sourceofemploymentinIndonesia,followedbytrade,socialservices,and
industry in that order. Nonetheless, workforce in the construction and
Industrysectorsalsodeclinedto 5.67%and13.43%in2013,from6.13%
Source:BPSandCEIC(2014)
14
XTNXV XTNSP XUNVW XTNTR XUNQRXSNUX
UUNQS URNTT USNWQ UQNSY USNSV UPNRX
VNXVNV
VNSVNQ
UNY
VNS
P
R
T
V
X
P
RP
TP
VP
XP
QPP
ǼĮ Ī MQQ ĂĴ ÕÓÔMQQ ǼĮ Ī MQR ĂĴ ÕÓÔMQR ǼĮ Ī MQS ĂĴ ÕÓÔMQS
Đ Ï ŁĮ ĎÏ Ī ŇÕÒǼŇÒĬĮ ÊÏ ÒÔĹĬĹÑÏ ÔĹŇŃËÏ ÔĮ HĎĈĒI
ǼĮ Ŀ Ï ŁĮ ĎÏ Ī ŇÕÒǼŇÒĬĮ ÊÏ ÒÔĹĬĹÑÏ ÔĹŇŃËÏ ÔĮ HĎĈĒI
ĖŃĮ Ŀ ÑŁŇŐĿ Į ŃÔËÏ ÔĮ HËĈĒI
Figure 14: Workforce Participation Rate by Gender and OpenUnemploymentinIndonesia,February2011–August2013(in%)Openunemploymentincreased
Macroeconomic Dashboard Universitas Gadjah Mada
and13.87%in2012,respectively.
Inevitably, the increase in open unemployment, has led to higher
povertyincidence.Peoplewhowerecategorizedaspoor increasedfrom
28.07million(11.37%oftotalpopulation)inMarch2013to28.55million
(11.47%ofthetotalpopulation)inSeptember2013.Thedrasticincreasein
povertyisinpartattributabletotheriseininflationasadirectconsequence
ofgovernmentpolicyto raisefuelpricesinJune2013. Meanwhile,open
unemployment inAugust2013,was6.3%,whichrepresentedan increase
fromthepositioninFebruaryof5.9%.Theincreaseinpovertyin2013was
aggravated by rising income inequality reflected in the Gini Ratio,which
increasedfrom0.410in2012to0.413in2013.Thisatteststoineffectiveness
ofincomedistributionprograms.Risingincomeinequalitycontinuestogrow
amidstrisingeconomicgrowth.Tothatend,thereisneedforthegovernment
to increase its focus on equitable development rather than pursuing
economicgrowthforitssake.
Table 1: Population 15 Years Old and Above by Main Source ofEmployment,2011-2013(in%)
Contributionofpopulationtoworkforceintheagriculturalsectorcontinuestodecrease,whilethatintheindustryshowsanincrease
Source:BPSandCEIC(2014)
15
ǼĮ Ī Aug Feb Aug Feb Aug
Agriculture 38.17 35.86 36.52 35.09 35.05 34.36
ManufacturingIndustry 12.31 13.26 12.6 13.87 12.96 13.43
Construction 5.02 5.78 5.41 6.13 6.04 5.67
Trade 20.88 21.34 21.29 20.9 21.76 21.43
Transportation,Storage,andCommunication 5.01 4.63 4.61 4.51 4.59 4.55
Financing 1.85 2.4 2.46 2.4 2.64 2.63
Community,Social,andPersonalServices 15.29 15.18 15.4 15.43 15.37 16.44
Others 1.45 1.55 1.7 1.67 1.59 1.51
TOTAL 100 100 100 100 100 100
Đ Ï ĹŃČŃİ ÕÓÔÒŐ2011 2012 2013
Developments in The Economy and Fiscal Policy
Table2:DevelopmentsinPovertyandInequalityinIndonesia,2011-2013
PovertyincidenceandIncomeInequalityinIndonesiahaveincreased
Source:BPSandCEIC(2014)
(inmillionpeople) (in%)
Mar-11 30.02 12.49
Sep-11 29.89 12.36
Mar-12 29.13 11.96
Sep-12 28.59 11.66
Mar-13 28.07 11.37
Sep-13 28.55 11.47
NumberofPoorPeopleinIndonesiaGiniIndex
0.41
0.41
0.413
Year
Indonesian Economic Review and Outlook16
B. MONETARY SITUATION AND FINANCIAL MARKETS
1. RupiahContinuestoDepreciate
High inflationarypressure in Indonesia isoftenattributable tonon-
monetary factors such as poor infrastructure, floods, and natural
disasters.Sucheventshaveoftenendedupsendingpricesof foodprices
higher,whichinturnfuelsinflation.InflationinJanuary2014rosesharply
compared to the position inDecember 2013 (8.08%, y-o-y). Besides, the
increaseinpricesofcommoditiesthatareundergovernmentdirectionand
control—suchastheincreaseinliquefiedpetroleumgaswhichoccurredat
thebeginningoftheyear—alsocontributedtothedrasticriseininflation.
InFebruary2014,thegovernmentsucceededindepressinginflationto
7.75%(y-o-y),whichislowerthanthepreviousmonth,8.22%(y-o-y).
ControloverinflationinFebruary2014isinpartattributabletoadoptionof
government policy that imposed import quotas based on closed system
whichisstillunderway.Impositionofimportquotasisstillunderway,until
pricesaredeemedrelativelystable. Intheeventfoodsuppliesaredeemed
sufficient,theimpositionofimportquotaswillbeputintoeffectonceagain.
Figure15:Inflation,February2011–February2014(y-o-y,in%)
InflationinFebruary2014was7.75%(y-o-y)
Source:BPSandCEIC(2014)
0
2
4
6
8
10
12
14
16
18
20
02/2011 08/2011 02/2012 08/2012 02/2013 08/2013 02/2014
Inflation,2012=100 Core Administered Volatile
Macroeconomic Dashboard Universitas Gadjah Mada 17
In order for the government to succeed in putting inflation under
control, there isneed forensuringthatdistributionof foodsupplies
runs smoothly which requires carrying out repairs on national
infrastructure. InFebruary2014,year-on-year,coreinflationwas5.26%,
while administered price component stood at 16.76%, and volatile
component was 8.73%. Meanwhile, based on month-to-month trend,
inflation in February 2014 was 0.26%, which was lower than 1.07%
registeredinthepreviousmonth.
ThecompositionofinflationinFebruary2014wasrelativelyevenforall
item categories, compared with the previous month, which was
dominated by food stuffs. Processed food, beverages, and tobacco,
contributedmosttoinflationinFebruary2014. Theexpenditurecategory
contributed0.08%oftotalinflationinFebruary2014whichstoodat0.26%.
Meanwhile, inflationof thatcategory is0.36%(m-t-m)or9.62%(y-o-y).
FooditemscontributedthelargestproportiontoinflationinJanuary2014,
Table3:InflationbyTypeofExpenditure,2011–2014
(2012=100,m-t-m,in%)
Foodpricescontinuetobeveryhigh;inflationforFebruary2014was0.26%
Notes:(1)Foodstuffs;(2)Processedfoods,Beverages,Tobacco;(3)Housing,Electricity,Gas,andFuels;(4)Clothing;(5)Health;(6)Education,Recreation,andSports;(7)Transportation,Communications,andfinance
Source:BPSandCEIC(2014)
(1) (2) (3) (4) (5) (6) (7)
15.64 6.96 4.08 6.51 2.19 3.29 2.69
3.64 4.51 3.47 7.57 4.26 5.16 1.92
5.68 6.11 3.35 4.67 2.91 4.21 2.2
Jan 3.39 0.46 0.56 0.25 0.29 0.05 -0.28
Feb 2.08 0.47 0.82 -0.59 0.56 0.19 0.08
Mar 2.04 0.4 0.21 -0.7 0.24 0.12 0.19
Apr -0.8 0.3 0.41 -1.13 0.22 0.15 0.1
May -0.83 0.35 0.75 -1.22 0.23 0.06 0.05
Jun 1.17 0.67 0.21 -0.29 0.23 0.04 3.8
Jul 5.46 1.55 0.44 -0.09 0.4 0.69 9.6
Aug 1.75 0.68 0.66 1.81 0.37 1.36 0.95
Sep -2.88 0.78 0.61 2.99 0.27 0.71 -0.79
Oct -0.62 0.55 0.26 -0.56 0.33 0.31 0.53
Nov -0.47 0.27 0.68 -0.03 0.34 0.11 0.02
Dec 0.79 0.73 0.44 0.17 0.16 0.06 0.56
Jan 2.77 0.72 1.01 0.55 0.72 0.28 0.2
Feb 0.36 0.43 0.17 0.57 0.28 0.17 0.152014
Tahun
2010
2011
2012
2013
Monetary Situation and Financial Markets
Indonesian Economic Review and Outlook18
0.56%of inflationinFebruary2014of11.43%(y-o-y)or2.77%(m-t-m).
Besides, expenditure on housing, water, electricity, Gas, and fuels also
contributed0.25%,toinflationof7.63%(y-o-y)or1.01%(m-t-m),inJanuary
2014.
Meanwhile,basedoninflationin82largestcitiesIndonesia,mostcities
inIndonesiaregisteredinflationinJanuaryandFebruary2014.Based
ondatareleasedbyBPSinFebruary2014,55citiesexperiencedinflation.
Pontianak recorded the highest inflation of 2.73% (m-t-m). However, 27
citiesinIndonesiaexperienceddeflationinFebruary2014.Sibolgarecorded
thehighestdeflationof2.43%(m-t-m).Meanwhile,inJanuary2014,78cities
registeredinflation,withPangkalPinangpostingthehighestfigureof3.79%,
whilefourcitiesexperienceddeflation,withSorongregisteringthehighest
0.17%.
Highinflation,coupledwithlowerlevelofinternationalreservesthan
in previous years, stoked rupiah depreciation. The level of Indonesia
internationalreservesinJanuary2014wasUSD100.651billionorincreased
byUSD1.265 billion comparedwith the position in the previousmonth.
Figure 16: Indonesia International Reserves (billion USD) andDevelopmentsintheRupiahExchangerate(IDR/USD),February2011–February2014InFebruary2014,IndonesianregisteredthehighestlevelofInternationalreservesoverthelast9months
Source:BankIndonesiaandCEIC(2014)
6,000
7,000
8,000
9,000
10,000
11,000
12,000
13,000
60
70
80
90
100
110
120
130
InternationalReserve(billion),LHS IDR/USD,RHS
Macroeconomic Dashboard Universitas Gadjah Mada 19
Meanwhile, in February 2014, international reserve rose to USD 102.74
billion,orincreasedbyUSD2.09billion.Thepositivetrendhascontinued
since August 2013. Nonetheless, the level of international reserves put
Indonesiainapositionthatcouldberegardedasmorethansufficient.The
increaseininternationalreservesinJanuaryandFebruary2014wasinpart
duetoBankIndonesiaeffortstoimprovethecountry'stradeaccountposition
byimplementingBankIndonesiaregulation(PBI)No.15/17/PBI/2013on
ProtectingtheValueofSwapTransactions,andgovernmentbondsauctions
intheendofJanuaryandinmidFebruary2014.
Besides,BankIndonesiaregulationonprotectionofswaptransactions,
BankIndonesiaalsoimplementedrupiahexchangeratestabilization
effortsbydeepeningforeignexchangemarket.Theeffectofsucheffortsis
visible in improvements inexchangerateofRupiahwhichappreciatedby
4.84% to IDR 11,643/USD in February, which in brought to a stop the
depreciationofthecurrencythatbeguninNovember2013.InJanuary2014,
theexchangerateofRupiahstoodatIDR12,226/USD,whichrepresenteda
depreciationof0.3%comparedwith theposition inDecember2013.The
appreciation of Rupiah is in part attributable to the implementation of
governmentpolicythatinvolvedtheissuingofUSD4billionofgovernment
bondsdenominatedinUSdollars,whichwasaimedatattractinginflowof
globalinvestors.ThesellingofbondsisalsoaimedatstrengtheningRupiahin
thewakeofUSFed'sdecreaseinlevelofquantitativeeasingthattookeffectin
January2014. Thedebtsecuritiesissuedbythegovernmentconsistedof
bondswith10yearmaturity,couponrateof5.95%,and20yearbondswith
couponof6.85%,USD2billionineachcategory.
Inrelationtoeffortstocontrolrupiahexchangerate,BankIndonesia
through JISDOR (Jakarta Interbank Spot Dollar Rate) succeeded in
achieving international recognition. Singapore Monetary Authority
(MAS)witheffectfrom27March2014startedtoadoptJISDORastheofficial
exchangerateforRupiahdenominationsinSingaporemoneymarket. This
wasverymuchinlinewiththegoalofBankIndonesiaoflaunchingJISDORin
20May2013,whichhadthemaingoalofensuringthatRupiahexchangerate
Rupiahwasafairone. Asaconsequence,financialdeepeningisboundto
occurduetoimprovementinmarketefficiency.
Monetary Situation and Financial Markets
Indonesian Economic Review and Outlook20
DespiteinflationarypressureandweakeningRupiah,BankIndonesia
decidedtoleaveBIrateunchanged.BasedonminutesofBankIndonesia
council meeting that convened on 13 February 2014, BI rate remained
unchangedat7.5%.ThepolicyunderscoresBankIndonesia's intentionto
continuetocontrolinflationandimproveIndonesianbalanceofpayments
position. It is worth noting that, the last time BI rate changed was in
November2013whichatthetimewasraisedby0.25basispoints.
In general, interest rates have not shown significant movements in
JanuaryandFebruary2014comparedwiththepositioninDecember
2013.InterestrateonLPSguaranteedloans,increasedby0.25basispointsto
7.5%(rupiahdenominated)andby1.5%(onforeigncurrencydenominated)
inJanuary2014,whichremainedunchangedinFebruary2014.Theincrease
was aimed at ensuring that LPS continued to guarantee people's savings
amidstrisinginterestratethatoccurredinDecember2013. Ontheother
hand,interestrateontimedeposits3monthsshowedanupwardtrend,and
roseaboveinterestrateonloansaswellasBIrate. InDecember2013,
interestrateon timedeposits3monthswas7.61%,butrose to7.95%in
January 2014. This may be potential sign that banks are facing liquidity
problems.
Figure17:DevelopmentsinBIRate,February2011–February2014(in%)
BIrateremainedunchangedat7.5%inFebruary2014
Source:BankIndonesiaandCEIC(2014)
3
4
5
6
7
8
9
02/2011 08/2011 02/2012 08/2012 02/2013 08/2013 02/2014
Macroeconomic Dashboard Universitas Gadjah Mada 21
2. FinancialMarketsExudesOptimismastheYearEnded
Financial markets, Jakarta composite index (IHSG) showed positive
movements,whilegovernmentbonds(SUN)showedsomefluctuation
in January and February 2014. IHSG increased by 3.38% to 4,418.757
(December 2013 – January 2014), and continued that trend by posting
another increase of 4.56% to 4,620.216 (January – February 2014). The
strengtheningofIHSGinJanuaryandFebruary2014maysignalthatforeign
investors have started returning to Indonesia. On the other hand, the
movement of the yield on government bonds in the market, indicated
fluctuation that hovered around8.6% (December 2013), 9.01% (January
2014),and8.4%(February2014). Thisisbecauseyieldsfollowinflation.
Yieldincreasewheneverinflationincreases,aswasthecaseinJanuary2014,
anddeclinewheninflationrecedeswhichisalsowhathappenedinFebruary
2014.SUNbearingmediumtermmaturitysuchas10yearsisthefavourite
forinvestorsasitisconsideredasafeandsecureinvestment.Itservesasa
goodinvestmentincounteringthepotentialfornegativesentimentsinthe
financialmarkets,anditissufficientlyliquidinthesecondarymarket.
Figure18:DevelopmentsinInterestRateonLPSGuaranteedLoansandDeposits,2011–2014*(in%)
LPSraisedinterestrateonguaranteedloans,3monthdepositrateishigherthanBIrateandLPSinterestrate
*=January2014(timedeposits)danFebruari2014(LPSguaranteedloans)
Source:BankIndonesiaandCEIC(2014)
4
5
6
7
8
9
10DepositRateMaxGuarantee(IDR,1Month) TimeDepositRate3Months
Monetary Situation and Financial Markets
Indonesian Economic Review and Outlook22
After initially registering a decline in quarter III-2013, capital and
financial account begun to show an upward trend in IV-2013. The
surplusonthecapitalandfinancialaccountincreasedfromUSD5.6billion
to USD 9.2 billion, which represents an increase of 65.4% quarter-to-
quarter.Theincreaseinthesurplusisattributabletothedrasticchangeinthe
componentsofotherinvestmentsthatoccurredinquarterIII-2013,which
initiallywas in deficit butmoved into a surplus in the following quarter.
Directinvestmentandportfolioinvestmentcontinuedtoregisterasurplus.
Thevalueof direct investment andportfolio investmentdeclined in
quarter IV2013.The largestdecrease indirect investmentwasUSD5.7
billioninquarterIII-2013toUSD1.6billioninquarterIV-2013.Meanwhile,
portfolioinvestmentexperiencedslightdeclinefromadecreaseofUSD1.9
billiontoUSD1.8billion.Inpercentageterms,thevalueofdirectinvestment
andportfolio investmentdeclinedby71.9%and9.6%during theperiod,
respectively.Thedeclineindirectinvestmentwasaresultofanincreasein
thedeficitondirectinvestmentabroadtoUSD2.5billioninquarterIV-2013,
farlargerthanUSD87milliondeficitinthepreviousquarter.Besides,the
surplusonforeigndirectinvestmentinIndonesiaalsodecreasedbyUSD1.7
billioncomparedwiththepositioninthepreviousquarter.
Figure19:MovementofIHSGandYieldonSUN10YearMaturity,February2011-February2014(in%)
IHSGcontinuedtostrengthenrightfromDecembertoFebruary;yieldonSUNdecreasedinlateFebruary2014
Source:IDX,CEIC,andBloomberg(2014)
0
1
2
3
4
5
6
7
8
9
10
0
1,000
2,000
3,000
4,000
5,000
6,000
IDXComposite,LHS YieldSUN10Year(%),RHS
Macroeconomic Dashboard Universitas Gadjah Mada 23
OtherInvestmentsincreaseddrasticallyinquarterIV-2013.Inquarter
III-2013thevalueofotherinvestmentsregisteredadeficitofUSD2billion,
but movedbackintosurplus ofUSD5.9billioninthefollowing quarter.
According to the data from Bank Indonesia, The drastic increase in the
surplusonotherinvestmentsisattributabletowithdrawalofbankdeposits
heldoffshoreandnetsurplusonprivatesectorliabilities.
Compared with quarter–IV, 2012, the performance of capital and
financialaccount, registeredadecline.This is reflected in thevalueof
surpluswhichwashigherinquarterIV-2012(USD12billion),thanUSD9.2
billion registered in quarter IV-2013. On year-on-year basis, capital and
financialaccountpositionposteda23.1%decrease.
Balance of payments position in quarter IV-2013 improved. This is
indicatedbythebalanceofpaymentspositionthatregisteredasurplusof
USD 4.4 billion in quarter IV-2013. On the contrary, in quarter III-2013,
IndonesianbalanceofpaymentspositionplummetedintoadeficitofUSD2.6
billion. Improvement in balance of payments was a result of surplus on
capitalandfinancialaccount,andthedeclineinthedeficitonthecurrent
account.
Figure20:CapitalandFinancialAccountPosition,2010:Q1-2013:Q4(USDbillion)
Surplusonthecapitalandfinancialaccount,increased
Source:BankIndonesiaandCEIC(2014)
-15
-10
-5
0
5
10
15
2010:Q1 2010:Q4 2011:Q3 2012:Q2 2013:Q1 2013:Q4
DirectInvestment PortfolioInvestmentOtherInvestment CapitalandFinancialAccountCurrentAccount
Monetary Situation and Financial Markets
Indonesian Economic Review and Outlook24
ComparedwithquarterIV-2012,balanceofpaymentspositionshowed
slightimprovement.InquarterIV-2012,duetoasurplusofUSD3.2billion
onthebalanceofpayments,whichincreasedinthesameperiodin2013to
USD 4.4 billion. On year-on-year basis, the surplus on the balance of
paymentsregisteredanincreaseof36.8%.
Figure21:BalanceofPayments2010:Q1-2013:Q4(USDbillion)
BalanceofpaymentscontinuedtobeinSurplusinquarterIV-2013
Source:BankIndonesiaandCEIC(2014)
-15
-10
-5
0
5
10
15
2010:Q1 2010:Q4 2011:Q3 2012:Q2 2013:Q1 2013:Q4
TransaksiBerjalan TransaksiModaldanFinansial
SelisihPerhitungan NeracaPembayaran
Macroeconomic Dashboard Universitas Gadjah Mada 25
C. GAMA LEI AND CONSENSUS ON
PROJECTION OF THE ECONOMY
1. GAMALeadingEconomicIndicator(GAMALEI)
GAMALeadingEconomicIndicator(GAMALEI)isamodel,whichwas
developedbyMacroeconomicDashboardteam,ofFEB,UGM,whichhas
theabilitytoundertakestateoftheartforecasting.Predictionresults
generatedbyGAMALEImodelhavetheability topredict thedirectionof
movements of Indonesian economy in future long before the event. The
predictionofthedirectionofmovementofIndonesianeconomyisdoneby
observingthemovementorchangeindirection,whichisproducedbythe
GAMALEImodelforacertainperiodoftime.GAMALEIiscompiledonthe
basisofstringentquantitativeandqualitativetestsandusingaselectionof
certainvariables,deemedtohavetheabilitytoproducethebestprediction.
GAMALEIhastheabilitytopredicttheeconomiccycleofIndonesian
economy(GDP)withimpeccableaccuracylongbeforetheevent.Thisfar,
GAMALEImodelhasalreadyshownitsaccuracyinpredictingthedirectionof
thattheeconomycycletakes.Inthistime,GAMALEIpredictsimprovementin
theperformanceofseveralkey indicators in Indonesiawhich in turnwill
continuetofeedintobetterimprovementoftheeconomyasawhole.Inthis
edition,GAMALEIpredictsthedirectionoftheeconomycycleastheyearof
politics,2014,takesshape.
GAMALEIiscompiledfromvariousindicatorswhichmustpassthrough
stringentstatisticstests.Anindicationofimprovementintheperformance
ofcertainvariablessuchasexportstoeconomicregions(ChinaandEurope),
internationalreservesposition(fromthevantagepointofmacroeconomic),
marketcapitalization andIHSG(inrelationtocapitalmarkets),arequite
influencial in macroeconomicconditions.Nonetheless, it isworthnoting
thatothermacroeconomicindicatorscanchangequicklyinjustacoupleof
weeksinfuture.
Indonesian Economic Review and Outlook26
The uniformitywith respect to the pattern of economic growth
trajectory of Indonesian economy, coupled with results of the
projectionofthedirectionofcycleofIndonesianeconomyproducedby
GAMALEImodel,generatecomprehensiveprediction.Thepredictionof
thebusiness cycle focusesondeterminingwhether, themovementof the
economic cycle fallswithin an expansion phase or contraction in several
weeksinfuture. GAMALEI2013:Q4cyclestandsintheexpansionphase
(abovethepointoforigin)althoughthereisatendencytowarddeclining.An
example:economicgrowthinIndonesiain2013:Q4basedonyear-on-year,is
showedtoincrease.However,GDPcyclethatisgeneratedbythemodelshows
adownwardtrend,albeitduringtheexpansionphase.
GAMALEIinthisfiftheditionpredictsadownwardtrendinIndonesian
economiccycle(GDP).Nonetheless,basedonthemovementandpatternof
themovement of the economyboth year-on-year and quarter-to-quarter,
portendspossibilityof slight increase ineconomicgrowth in2014:Q1. In
otherwords,ifthegovernmentdoesnottakefulladvantageofthepotential
foreconomicgrowthwhichisshowntoincreaseyear-on-yearin2013:Q4,
suchamomentumtoimprovetheperformanceoftheeconomyislikelytobe
lost.
GAMALEIinthisfifthedition,predictsadownwardtrendinIndonesian
economy(GDP). Nonetheless,basedonthemovementandpatternofthe
Figure22:GAMALeadingEconomicIndicator
GAMALEIpredictsadownwardtrendintheIndonesiaeconomycycle
-8
-6
4
6
8
⁰
²
Q5 Q7 Q5 Q7 Q5 Q7 Q5 Q7 Q5 Q7 Q5 Q7 Q5 Q7 Q5 Q7 Q5 Q7 Q5 Q7
6448 6449 644⁰ 644¹ 644² 644³ 6454 6455 6456 6457
-54
-9
4
9
54
59
64
PDBCycle(LHS) GAMALEI(RHS)
GrowthYoY(RHS,± ) GrowthQtoQ(RHS,± )
Macroeconomic Dashboard Universitas Gadjah Mada 27
movement of the economy both year-on-year and quarter-to-quarter,
portendspossibilityof slight increase ineconomicgrowth in2014:Q1. In
otherwords,ifthegovernmentdoesnottakefulladvantageofthepotential
foreconomicgrowthwhichisshowntoincreaseyear-on-yearin2013:Q4,
suchamomentumtoimprovetheperformanceoftheeconomyislikelytobe
lost.
2. ConsensusonMacroeconomicIndicatorProjections
OutcomeofconsensusshowsthatthevalueofthreekeyIndicatorsfor
Indonesia,interalia:economicgrowth,inflation,andexchangerateare
moving toward improvement from2014 to 2015. The consensuswas
achieved based on results of a survey conducted by the Macroeconomic
Dashboard team with respondents who were drawn from lecturers and
researchers in theFacultyofEconomicsandBusiness,UniversitasGadjah
Mada.
Ingeneral,realGDPgrowthin2014willnotdiffermarkedlyfrom2013.
RealGDP(y-o-y) ispredictedtogrowthwithintherangeof5.85%±
0.14%inquarterI-2014and5.86%±0.14%inquarterII-2014.Ona
yearbasis,realGDPfor2014and2015,ispredictedtogrowthwithinthe
range5.91%±0.14%and6.3%±0.3%,respectively.
TheRupiahexchangerateispredictedtoimproveandbecomemore
stablein2014.InquarterI-2014,Rupiahexchangerateispredictedwithin
therangeIDR/USD11,680±IDR/USD363.Inthefollowingquarter,rupiah
exchange rate is predicted to experience slight appreciation to the level
IDR/USD11,510±IDR/USD404.Onayearlybasis,rupiahexchangeratein
2014ispredictedtobeIDR/USD11,550±IDR/USD447andwillappreciate
in2015toIDR/USD11,130±IDR/USD589.
InflationinIndonesiain2014-2015ispredictedabove 5percent.In
2014,predictionoutcomesofIndonesianinflationshowthatitwillbewithin
therangeof5.58%±3.19%,whilein2015,inflationwillbetamedsomewhat
reaching the range of 5.22% ± 3.17%. Meanwhile, on quarterly basis,
Indonesianinflationinpredictedwithintherangeof 4.33%±3.46% and
4.25%±3.26%,inquarterI-2014andII-2014,respectively.
GAMA LEI and Consensus on Projection of The Economy
Indonesian Economic Review and Outlook28
Table4:EstimationofrealGDPGrowth(y-o-y,in%)
Source:PrimaryData,calculated(2014)
Table5:EstimationofRupiahExchangeRate(IDR/USD)
Source:PrimaryData,calculated(2014)
Quarter-I2014 Quarter-II2014 Year2014 Year2015
Exchangerate 11.68 11.51 11.55 11.13
Range± 363 404 447 589
Table6:EstimationofInflation(y-o-y,in%)
Source:PrimaryData,calculated(2014)
Quarter-I2014 Quarter-II2014 Year2014 Year2015
Inflation 4.33 4.25 5.58 5.22
Range± 3.46 3.26 3.19 3.17
Quarter-I2014 Quarter-II2014 Year2014 Year2015
Growth 5.85 5.86 5.91 6.3
Range± 0.14 0.14 0.14 0.3
Macroeconomic Dashboard Universitas Gadjah Mada
D. ASEAN: Registers Optimum Economic
Potential amidst Global and Regional
Economic Instability
In general, as the year 2013, came to an end, economies in ASEAN
(AssociationofSouthEastAsianNations)economicregionwereableto
registerslowereconomicgrowthhencehavenotyettoreachtheirfull
potential. Suboptimalregionaleconomy,was largelyattributable to the
performanceofIndonesiaandThailandin2013,whicharekeyplayersinthe
region,whichfellbelowthelevelachievedin2012. Basedonyearonyear
growth, in2013, Indonesia and Indonesia registeredeconomicgrowthof
5.8%and2.9%,respectively,whichwaslowerthan6.2%and6.4%,in2012,
respectively. Suchasituationiscauseforconcernconsideringthefactthat
oneoftheenginesofgrowthinAsia,ASEANonlyregisteredanaemicgrowth
of5%overthelastdecade,whichfallsfarshortofeconomicpotentialamidst
formidable economic challenges associatedwith the formation of ASEAN
EconomicCommunity2015.
Potential economic growth in the region faces both internal and
externalchallenges.Inadditiontotheglobalsituationthatcontinuestofar
below normal, volatile political stability in the region, is another major
challengefacingASEANregion. ThelatestchallengesASEANnationsface
emanate from problems in Thailand and Myanmar and dynamics in the
relations between Indonesia and Singapore.Moreover, another challenge
ASEANnationsfacetodayisinternalinnature,andrelatestotheneedtoseize
the economic opportunity which is being created by changing economic
structureofeconomies intheregion. Basedonapublicationreleasedby
ASEAN Secretariat in October 2013, therewere indications of significant
shiftsinstructuresofeconomiesinASEANregion,especiallywiththedecline
inthecontributionofagriculturalsectortoeconomiesintheregionandthe
development of service based economy. This is attributable to the
emergence of large cities that are becomingmetropolitan in naturewith
attendantgrowthanddevelopmentoffinancialservicesintheregion,aswell
asincreasingtendencyofsomeeconomiessuchasthePhilippinestobecome
importantsourceofforeignworkers.ThePhilippineswillintheforeseeable
futurereplaceIndiaasthelargestsupplierofforeignworkers.
29
Indonesian Economic Review and Outlook
Governments in ASEAN nations still face stiff obstacles in creating
sufficient job opportunities to meet the burgeoning unemployment
whichisattributabletodemographicboomand inabilitytoprovide
sufficientrequisiteinfrastructuretosupporteconomicproductivity.As
anexample,thePhilippines, Malaysia, Vietnam,Indonesia,Myanmarand
Cambodia, are countries that face high growth of productively active
populationwhilethedependencyratiosarefalling,whichwilltranslateintoa
boon for development the potential of their economies. Such economic
capital,unlessmanagedwell,byASEANgovernmentsposesthedangerof
underminingtheperformanceofeconomiesintheregion.
Philippinesregisteredthehighestgrowthintheregionin2013,posting
astaggering7.2%towardtheendof2013.Suchastaggeringgrowthwas
notonlythehighestinASEANregion,butalsothehighestinASIAingeneral.
Philippineseconomyhasachievedsuchrapideconomicgrowththankstoits
success in being rated as Investment Grade by Moody's in 2013, high
proportion of private investment and government expenditure in the
structureoftheeconomycomparedwithothereconomiesintheregion,low
proportionofexportsandimportsinGDPwhichmakesitpossibletomitigate
adverseeffectofglobaleconomicinstabilityonthedomesticeconomy.
TheachievementofeconomiesinASEANwasalsodrivenbygrowthin
CLMV countries (Cambodia, Lao PDR, Myanmar, and Viet Nam).
MembersofCLMVcountrieswereabletoregisterhighereconomicgrowth
than ASEAN+6 (initial ASEAN countries), which are considered to have
Table7:GDPGrowthinASEAN,ConstantPrice,1998–2013(y-o-y,%)
PhilippinesandCLMVarethemaindriversofeconomicgrowthintheregion
Note:Averagegrowthfor1998-1999,2000-2007,and2008-2009
Source:IMFandCEIC(2014)
30
QYYXMQYYY 2000-2007 2008-2009
Asia'sCrisis ĒÔÏ Ī ŁĮ ĆÒŇŌÔĶGlobalCrisis
BruneiDarussalam 1.25 2.24 -1.85 2.6 2.20 1.60 1.00
Cambodia 8.50 9.93 3.40 6.1 7.10 7.20 7.20
Indonesia -6.15 5.04 5.30 6.2 6.50 6.20 5.78
LaoPDR 4.25 6.75 7.65 8.1 8.00 8.10 8.00
Malaysia -0.65 5.50 1.65 7.1 5.10 5.60 6.80
Myanmar 8.35 12.88 4.35 5.3 5.40 6.30 6.50
ThePhilippines 1.25 4.89 2.65 7.6 3.90 6.50 7.20
Singapore 2.05 6.36 0.50 14.8 5.10 1.20 3.70
Thailand -3.05 5.05 0.10 7.8 -0.10 6.40 2.90
VietNam 5.30 7.64 5.80 6.8 5.9 5.00 5.42
ASEAN -1.90 5.56 3.85 8.3 4.9 5.20 5.10
COUNTRIES 2010 2011 2012 2013
Macroeconomic Dashboard Universitas Gadjah Mada
economies that aremoremodern. In 2013, CLMVcountries registered
economicgrowthof6.8%onaverage,whichishigherthanaveragegrowthof
ASEAN+6nations(BruneiDarussalam,Indonesia,Malaysia,ThePhilippines,
Singapore,Thailand),whichregisteredjust 4.57%.Higheconomicgrowth
registeredbyCLMVnationsisattributabletothefacttheeconomiesstillhave
hugeunexploitedpotential,which coupledwith improvement in political
stability and strong commitment of national governments to develop
facilitiesandinfrastructurenetworks, infulfilmentoftheircommitmentto
supportregionalMasterPlanonASEANConnectivity2015.
High inflation inASEANeconomies isoneof themajorobstacles the
economies face in achieving optimal economic growth requisite for
making significant improvement in social welfare of their citizenry.
During2013,Indonesiawasthecountrythatregisteredthehighestinflation
in the region, leading her to fall into the category of countrieswith high
inflationintheregionsuchasLaoPDRandVietnam.Unlikeothercountries
intheregionwhichhavesucceededinputtinginflationundercontrol(below
3%),theIndonesiangovernment,LaoPDRandVietnamhavesofarfailedto
Figure23:ConsumerPriceIndex(CPI)inASEANNations,2000-2014*(y-o-y,%)
Inflationlevelthatcontinuestobehighposesathreattoeconomiesintheregion
44
46
48
4⁰
4²
54
56
58
5⁰
5²
64
6455 6456 6457 Jan©58(YoY)
BruneiDarussalam
Cambodia
LaoPDR
Malaysia
Myanmar
ThePhilippines
Singapore
Thailand
VietNam
Indonesia
*=DataforBruneiDarussalam,Cambodia,andMyanmarrelatetoDecember2013position(y-o-y).DataforIndonesia,LaoPDR.Malaysia,ThePhilippines,Singapore,Thailand,VietNamrelatedtothepositioninJanuary2014(y-o-y)
Source:Bloomberg(2014)
31
ASEAN
Indonesian Economic Review and Outlook
emulateexamplesoftheircounterpartsinredressinghighinflationintheir
economies.
The latest developments which are based on inflation figures for
January2014,releasedrecently,showthatIndonesiacontinuestohave
thehighestyearonyearinflationintheregion.IndonesiaregisteredCPI
of8.22%whichissignificantlyhigherthanLAOPDR,withthesecondhighest
inflation of (5.99%) and Viet Nam (5.45%). Inflationary pressure on
economiesintheregionshouldthereforeassumemoreimportanceamong
ASEANnationsasitsignificantlyaffectscollectivepreparationsleadingtothe
formationofASEANEconomicCommunity2015.
Thus, demographic boom phenomenon puts ASEAN Nations in a
position to register high economic growth. High growth of actively
productivepopulationcoupledwithimprovementinsocialwelfarehavethe
potential to promote high industrial and household consumption.
Nonetheless, it is regrettable thatmostof theconsumptionconstitutesof
importedwhichdonotonlyposepotentialdangertostokeexchangerate
fluctuationbutalsoincreasethelikelihoodofimportedinflation.
Capitalmarketsinregionshowmixedresults.Somecountriesregistered
drasticdeclinein2013 forexampleCambodia(-17.74%) and Thailand(-
11.58%), others registered drastic growth for example the Philippines
(62.30%)andVietNam(23.06%),whileothersrecordedslightgainssuchas
Table8:GrowthinCapitalMarketIndicesinASEAN,2009–2014(y-o-y,%)
ThePerformanceofCapitalMarketsinASEANismixed
Note:Dataforthepositionon28February2014isgrowthbasedonyear-to-Date
Source:Bloomberg(2014)
32
ǺÉĖÈĔËČÆĒ 2009 2010 2011 2012 2013 Feb28th2014
BruneiDarussalam
Cambodia -17.74 MQNUW
Indonesia 87.9 46.9 3 13.3 0.25 6.77
LaoPDR 35.1 3.86 3.09
Malaysia 45 19.5 0.8 10.3 10.54 -1.68
Myanmar
ThePhilippines 60.3 55.7 1.9 21.1 62.3 7.36
Singapore 64.5 10.1 -17.1 19.7 0.24 -2.01
Thailand 66.1 39.2 -0.9 35.9 -11.58 7.68
VietNam 56.6 -2.8 -20.9 7.7 23.06 16.25
DoesnothaveCapitalmarket
DoesnothaveCapitalmarket
DoesnothaveCapitalmarket
DoesnothaveCapitalmarket
Macroeconomic Dashboard Universitas Gadjah Mada
Indonesia,LaoPDRandSingapore.
Capital market growth in the region reflect optimism of market
practitioners about the ASEAN economies but also are wary of the
potentialvulnerabilityofthefinancialsystemsintheregion.Thedeluge
offoreigncapitalinflowwhichfallsintowhatpunditsdescribeashotmoney
poses thedangerofanalmost instantaneousdrasticwithdrawalof funds
fromeconomieswhichinturncanunderminestabilityoffinancialsystemsin
the region at a time when they are facing growth momentum. Another
potential danger to financial systems of ASEAN member nations is the
increaseinhouseholddebtwhichisattributabletorisingconsumptionof
luxuriesandcontemporarygoodsbythemiddleclass. Theincreaseinflow
capital flows toASEAN region,whichhovered aroundUSD144billion in
2013,which isnot significantlyhigher thanChina that receivedUSD121
billion.
Some investment analysts and market practitioners expressed
optimismthattheinflowofforeigncapitalintoASEANeconomieswill
notreversecourseinthenearfuture.Suchoptimismisbasedonthebelief
thatinvestorshaveyettofindabetterinvestmentdestinationthatcanoffer
as an attractive and safe an environment for their funds as long as high
uncertaintyin globaleconomypersists.Moreover,analystscontentevenif
investorsweretowithdrawaltheirfundsinaninstantinlargeamounts,the
effectontheeconomiesintheregionwillnotbeasdevastatingaswasthe
caseduringAsiafinancialcrisisin1998astheexperiencein1998havesince
ledtoimprovementinfinancialsystemregulationaswellastherelatively
highlevelofinternationalreserveswhichcanavertthedrasticplungeinthe
valueofcurrenciesintheregion.
BalanceoftradeinASEANregionisfacingpressurefromvariousangles.
Thishasmuchtodowiththeimpactofeconomicrecessionthatcontinuesto
affectWesternEuropeannationsandweakeningeconomicgrowthinChina
over the last few years,which have led to a decline in exports as global
demand tookahit. In fact tradeamongdevelopingcountrieswhichoften
offsets decline in demand in developed nations, seems impotent at the
momentgivenweakeningeconomicgrowthinBrazil-thelargesteconomyin
the South as well as problems that are bedevilling other developing
countries.
33
ASEAN
Indonesian Economic Review and Outlook
Thedeclineinthebalanceoftradeintheregionhasinturnledtothe
weakening of exchange rates of all currencies in the region against
UnitedStatesDollar(USD). Moreover,withtheongoingtaperingofthe
quantitativeeasingprogram,thepotentialforevendeeperdepreciationof
currenciesintheregionisevenhigherduetorisinginstabilityinthefinancial
marketsandcapitalmarketsintheregion.
Capital markets in ASEAN registered slight increase, as has been
discussedinanearliersection.Nonetheless,thesamecanbesaidabout
financialmarkets.Thisisreflectedinthedepreciationthatcurrentlyaffects
almostallcurrenciesintheregionduring2013.Indonesia,Rupiahsuffered
thedeepestdepreciationofthemagnitudeof26.92%andMyanmar“Kyat”
whichdepreciatedby14.93%,whicharetwokeyeconomiesintheregion
thathavenotbeenabletopreventthedepreciationoftheircurrenciesfrom
hittingtheunder10%threshold,ashasbeenachievedbyothercountriesin
theregionin2013.
34
Table6:ExchangeRateofASEANCurrenciesAgainstUSD,2009–2014(y-o-y,%)
During2013,allASEANcurrenciesdepreciatedagainstUSD
*=in2012Myanmarrevalueditscurrency
Note:Dataforthepositionon28February2014arebasedonYear-to-Dategrowth
Source:Bloomberg(2014)
COUNTRIES 2009 2010 2011 2012 2013 Feb28th2014
BruneiDarussalam 4.17 7.97 0 4.72 -2.48 -0.8
Cambodia -2.21 0.81 0.3 1.76 -0.33 0.25
Indonesia 14 5.79 0.36 -8.72 -26.92 4.51
LaoPDR -0.05 3.53 0.56 1.77 -2.07 0.12
Malaysia 0.59 9.17 -3.26 4.42 -8.58 0.3
Myanmar 0.32 0.16 0.48 -13360* -14.93 0.45
ThePhilippines 1.44 5.73 0.09 7.05 -9.03 -0.54
Singapore 3.45 8.57 -0.78 5.43 -3.28 0
Thailand 4.52 9.32 -6.26 4.25 -7.96 0.79
VietNam 6.7 -5.71 -7.97 2.05 -2.36 0.02
Macroeconomic Dashboard Universitas Gadjah Mada 35
E. CURRENT ISSUE
LegislativeElectionsandHopeForChange
AkhmadAkbarSusamto
Thegenerallegislativeelections(Pileg)2014isimminent.Basedonphases
oftheconductoftheelection,whichthenationalelectionscommissionhas
released, elections for electing members of regional representatives
assembly,nationallegislativeassembly,andregionallegislativeassemblyare
slatedfor9April2014.Theelectionswillfeatureindividualcandidatesvying
forregionallegislativeassemblyseats,12politicalpartiesthatwillcontest
for seats in thenational assemblyand regional legislativeassemblies, of
which11are'old'politicalpartieswhileoneisanewpoliticalparty.
Thequestionistowhatextentshould2014generalelectionsbeexpectedto
producegood,credibleandreliablerepresentatives?Isthereanypossibility
thatthegeneralelectionsthistimearoundwillbedifferentfromprevious
episodesandserveasaninitialphaseinthedirectiontowardchangeforthe
better?
Basedonmycontention,answerstotheabovequestionsarenoteasytocome
by. ThishasnothingtodowithwhetherornotIdisagreewithpervasive
disappointment of most of the population with the performance of
representativeswhocametotheforeintheaftermathofpreviousgeneral
elections. ItisnotalsotruethatIhavestrongbeliefintheideathatchange
willoccurjustbecauseofthelargenumberofyoungvoterswhohavehigh
informationliteracythatbased on simplecalculationsareestimatedtobe
around 40 million. On the contrary, this is because answers to the two
questionsareendogenousinnature.
Likethefirstlecturethatbearsthetitle“10principlesofEconomics”,which
lecturesteachtonewstudents,thebehaviorofindividualsinaneconomy
verymuchdependsonamongothers,incentives. Thegoodperformanceor
thelackofit,ofmembersoflegislaturewhowillassumetheirrolesinthe
Indonesian Economic Review and Outlook36
¹ MancurOlsonmentionsvotingaspublicgoods.Onecanstillgetthebenefitsofvotingresultsdespite choosing not to vote. However, as a consequence (corollary), there will be wellorganized special interest groupswhichwill have a greater influence inpolitical decision-making.SeeMancurOlson(1965),TheLogicofCollectiveAction:PublicGoodsandtheTheoryofGroups,Cambridge,MA,HarvardUniversityPress.
aftermathof2014generalelections,doesnotonlydependonpreferencesof
candidateswhowillbeelectedbutalsoaseriesofrewardsandpunishments,
whichthesocietycanaddresstothem,rightfromthecandidatureperiodto
fiveyearsasmembersoflegislature.
Unfortunately, society incentives has the tendency of giving thewrong
incentivestomembersofrepresentatives. Duringcandidature,membersof
thegeneralpublicarealreadycastigatingcandidateswhohavehighpotential
andhavebrillianttrackrecordsbyaccusingthemoftryingtoseizepower,
engagingindirtypoliticalpractices,andcorruption.Itisasifthemomentan
individualtakesthedecisiontoenterpolitics,allhis/hergoodpastrecords
becomenegative:Independencebecomespartisanship,objectivitybecomes
groupsubjectivityandcommonsensebecomesevil.Inlightofthat,adverse
selectiongainsground,asindividualswhoarecleanshowalotofreluctance
to join politics,while thosewho have shady characters, hence have little
reputationtolose,enterpoliticswithoutmuchado.
Polarizationtakescenterstageasthevotingdayapproaches.Onehand,isa
section of society which chooses not to vote, perhaps because there see
nothing to differentiate all candidates and political parties that are
participatinginthegeneralelections.Itisalsopossiblethatthedecisionnot
toparticipateintheelectionsismotivatedbythefeelingofdisappointment
withtheconductoflegislativeelectionswhichtothemisdevoidofhonesty
andfairness.Ontheotherhand,thereisasectionofsocietywhichbindsitself
to electing a certain candidate and certain political partywithout paying
considerationtothecharacterofeitherthecandidateorthepoliticalpartyor
both. Itisevenbetterifthechoiceisbasedonideologicalgrounds,rather
than pragmatic considerations that are based on fulfilling promises and
distribution of ill-gotten wealth and money politics, as has now become
common. Inthiscontext,whathappensisnotthecorollaryaccordingto
Mancur Olson (1965),¹ but tests and temptations for clean candidates.
Macroeconomic Dashboard Universitas Gadjah Mada 37
² AnthonyDowns(1957),AnEconomicTheoryofDemocracy,NewYork,HarperandRow.
Convincingsomemembersofsocietywhoarecriticaltodesist fromtheir
stance of not voting in the general elections is no simple task, while
persuading some section of society that votes on the basis of pragmatic
considerations is not also a mean feat. The choice then is to follow the
pragmaticroot,whichincludesshoweringpotentialvoterswithpromisesto
distributeill-gottenwealth andmoneypoliticsorelseonelosesoutinthe
contest for people's votes. This is the more so given the representative
systemthatcharacterizeslegislativeinstitutionswhichisbasedproportional
representation rather than representation of plurality,makes votes from
smallpoliticalpartiesandcandidatesveryimportant.
Ingeneral,oncemembersofthelegislatureareanointed,andassumetheir
offices,theevaluationofthegeneralpublicabouttheirperformancebecomes
unduly overgeneralized. Formostmembers of society,whatever people's
representativesdo inparliament is consideredasbad. Thus, there isno
differencebetweenmembersofthelegislaturewhoarecleanandthosewho
arelessso,ortousethelocalterm,'rotten'. Nodifferenceismadebetween
oneissueandanother,betweenonepolicyandanotherpolicy. “Essentially
they are all bad.” To that end,wrong incentives take shape, as clean and
diligent representatives do not get the rewards, rather punishments are
metedouttotheminthesamewayasthoserepresentativesthatarenotclean
andperformpoorly.
Incentiveswhichrepresentativesgetfromsocietycanbewrongbecauseof
pervasiverationalapathyandrationalignorance.Rationalapathyreflectsthe
tendencytoignoreissuesandshowresignationtodifficultsituationthatis
considered extremely difficult to change. Meanwhile, rational ignorance
relatestothetendencyofnotwantingtoknow,becauseonedoesnotyet
knowanddoesnotwanttomakeeffortstoknow(Down,1957).²
Theonlywayincentivesthatsocietygivestopeople'srepresentativescanbe
changed is by willingness to pay sacrifice as well as paying attention,
collecting information and differentiating between clean and tainted
people'srepresentatives.Ontheelectionsday,registeredvoterscansome
contributionbymakingslightsacrificebyelectingthebestcandidates.Inany
Current Issue
Indonesian Economic Review and Outlook38
case,nationalelectionscommissionregulationsondeterminingcandidates
whoqualifytobecomeelectedasourrepresentatives basedonthemost
votesacquiredstillenablesustochoosecarefullyandmeticulouslybetween
candidateswhoarecleanandthosethatarenot,evenwithinthesameparty.
After elected representatives are anointed and assume their offices, we
shoulddesistfromengaginginunnecessarilyvitrioliccriticismoflegislative
assemblymembers,andwhenevertheydotherightthing,thereisnothing
wrongifweshowerthemwithsomepraiseandplauditsfordoingtheirwork.
Despite the fact that it is not easy to make distinction between good
performingmembersofthelegislatureandthosethatarenot,creatingthat
differencewillprovideastrongandrightincentivethatwillemboldenthem
intheirfuturework.
Tothatend,goingbacktothequestionthatwasposedatthebeginningofthis
pieceontheextenttowhich2014legislativeelectionswillbetheinitialphase
towardchange,theanswerthereforedependsonoutattitude!Theproblemis
thatarewereadytochangeourattitude?
Macroeconomic Dashboard Universitas Gadjah Mada
F. Economic Outlook
As the year 2014 begun, Indonesian macroeconomic condition which
registeredsomestabilitycontinuestofacepotentialinstabilityasaresultof
the tapering off policy implemented by US Federal reserve as well as
weakeningeconomicgrowthinChina,JapanandIndia,andtheemergencyof
anotherhotspotcreatedbyprobleminUkraine.Thisisthemoreso,giventhe
fact that the current level of international reserves is to a large extent
underpinnedbygovernmentglobalbondissuingtothetuneofUSD4billion
inJanuary2014.Thesamecanbesaidabouteconomicgrowthwhichhas
registeredslightperformanceinquarterIV-2013of5.72%,continuestoface
formidablechallengesandthreatsthatarediscerniblefromthechangein
surplusinthebalanceoftradeingoodsaccountinOctober–December2013,
intoadeficit,whichislargelyattributabletogovernmentpolicythatforbids
exportsofunprocessedmineralsaswellastherisingdeficitontheoilandgas
tradeaccount.Thisiscoupledwithadeclineinthesurplusonthenon-oiland
gastradeaccountinJanuary2014.Thisisthemoreconcerningconsidering
thefactthatinvestmentgrowthfaceddownwardpressureinquarterIV2013
intherun-uptothegeneralelections.Thisisdespitethefactthatgrowthin
theprocessingindustrialsectorshowssignsofimproving.Theconductofthe
elections will also increase consumption expenditure, which in turn will
strengthendemand.
Thus,variouseconomicandpoliticaldevelopmentsinIndonesiaarelikelyto
continue toposepotential economic instability in future. Inotherwords,
despitethefactthatGAMALEIpredictsslighteconomicgrowth,Indonesian
economystillfacespotentialvolatility.Thatsaid,theprocessandoutcomeof
the general elections will make a great extent influence conditions of
Indonesianeconomyinthefuture.Intheconductofgeneralelectionsgoes
smoothly, safely, and peacefully, and elections produce people's
representativeswhoarecredibleandhavetheabilitytomakeimprovements
in Indonesia, there is a lot of hope that macroeconomic instability will
39
Indonesian Economic Review and Outlook40
diminish, and economic growth will increase significantly as investment
growthwillpickuppace.Tothatend, letusprayforaflawless,safeand
peaceful conduct of 2014 general elections as well as produce
representatives who will have the ability to introduce and make
improvementsinIndonesia.Thatway,theeconomywillgrowanddevelop,
paving way for the emergence of a just, socially wealthy and advanced
Indonesia.Let'shopeso.
Macroeconomic Dashboard Universitas Gadjah Mada 41
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INDONESIAN ECONOMIC REVIEW AND OUTLOOK
MACROECONOMIC DASHBOARD TEAM
MACROECONOMIC DASHBOARD
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