In a storm, it is impossible to have a ship floating comfortably. And of course, it is totally unfair to expect a ship to cruise at normal speed. Nonetheless, we can expect the ship to move accordingly, riding the mighty waves and not sinking.
This analogy should be applied when we are evaluating what President Joko “Jokowi” Widodo has done in his first year of taking office, in terms of economics and business.
We should analyze the economic data synchronically, placed in the right context and situation, instead of reading it diachronically, in a bid to compare what Jokowi has gained (in this turbulent era) with what the previous president (Susilo Bambang Yudhoyono) had scored (in the bonanza era).
If we look at the macro-economic indicators, indeed we can see a recession in our economy in the last year. Under Jokowi’s administration, Indonesia’s growth domestic product (GDP) grew at a faster pace only in the fourth quarter of 2014.
The economy grew 5.01 percent (yoy) three months after Jokowi’s inauguration, rising from third quarter (Q3) 2014 growth at 4.92 percent (yoy). And then, in the latter two quarters of 2015, we had consecutive slower growth, at 4.71 percent (Q1/2015), and 4.67 percent (Q2/2015).
Quoting an economist from the Indonesian Institute of Sciences (LIPI), Latif Adam, the slower economy in 2015 was understandable, as there were numerous structural factors that made our economy vulnerable to an external impact.
“It is tolerable. The most important thing to underline is what the government does to build a stronger fundamental economy. It is not logical to expect the structural economic problem of this country to be solved with a few policies at a time,” he said to thejakartapost.com on Tuesday in Jakarta.
Amid the modern global world, it is illogical to expect the economy to be fully immune from the effect of the global economy. International trade, in case some of us forgot, is connects everyone and all local capital markets with the global market.
Thus, Indonesia’s GDP grew at a slower pace due to the global recession, which squeezed Indonesia’ exports and imports. The depreciated rupiah led to higher imported inflation as the cost to buy imported goods and imported capital goods was pricier.
The rupiah was closed at Rp 12,032 per US dollar on 20 October after Jokowi’s inauguration. And now, after 12 months, the rupiah is trading at 13,639, depreciating 13 percent or 1,607 points weaker, per US dollar.
“As inflation gets higher, people’s purchasing power gets curbed and corporate investment is delayed due to global woes, people’s consumption is drastically reduced and ultimately the GDP grows at a slower pace,” Latif explained.
Indeed, we had rising inflation in the first 12 months of Jokowi’s administration. The consumer price index added 2 points from 4.83 percent in October 2014 to 6.83 percent in September 2015. On average, the inflation was 6.79 percent.
In this situation, Bank Indonesia (BI) as the central bank maintained the interest rate benchmark (BI rate) at 7.5 percent. They were consistent with it and managed to calm the financial and monetary situation.
The right path
President Jokowi highlighted that his administration has been building the fundamentals needed to boost the economy, despite the harsh and volatile situation in the global market. The most iconic one was the fuel subsidy reduction that led to Rp 200 trillion in extra cash for the government.
“More than Rp 200 trillion of the fuel subsidy, which has been wasted on the streets, was transferred into programs to support people’s welfare. […] We changed the paradigm from a consumptive economy to a productive one,” Jokowi said in a note published by the Presidential Chief of Staff Teten Masduki.
Latif agree with that. He argued that Jokowi’s government had walked the right direction with his economic visions: maritime axis, putting villages as the center of the country’s development with the village fund (dana desa) and simplifying the investment bureaucracy.
It explains why foreign investors, from 2 January to 20 October 2014 recorded a net buy of Rp 43.12 trillion in the capital market, welcoming Jokowi’s inauguration last year.
A ‘net buy’ means the investors buy stocks in a larger amount and value the stocks they sell, reflecting their confidence in the economic situation in a country.
But, as usual, the devil is in the details and the execution. The investor had enough with these promises and visions, especially when the GDP recorded slower growth in the first quarter 2015.
As the execution of Jokowi’s vision proved to be slow, and the market reacted negatively. Amid the big chance that the US Federal Reserve would increase the interest rate, they cashed out and scored a net sell of Rp 10.87 trillion (year-to-date in 2015).
“Reforming economic fundamentals, with some progressive policies, is not like chewing a chili. Once you’ve done it, you feel the heat straightaway. What we should look for is how committed they are to implementing it, instead of why economic growth keeps slowing even after the policy was launched,” Latif said.
To fix structural problems in Indonesia’s economy, the government launched four economic packages aimed to improve business competitiveness, guard the rupiah, hasten investment appetite in the real sector and simplify annual wage raising system.
And, of course, criticism as well as rejections arose. Using the momentum of Jokowi’s administrative anniversary, the labor organizations held a rally rejecting the new wage raising formula that they call “unfair”, and “a step back” from the existing formula.
“Even Suharto in his dictatorship era involved the labor union in formulating the annual wage rise through the worker’s minimum physical needs (KFM), which is now changed to the workers’ cost of living index (KHL),” Said Iqbal, the chairman of the Confederation of Indonesian Workers Union (KSPI), told thejakartapost.com.
Workers, he continued, agree with all the other economic packages, except the fourth package specifically on the annual wage raise formula. He promised to launch a national labor strike if the government refused to hold a negotiation.
These kind of rejections, including from political parties, and from Jokowi’s internal staff, who follow their own personal interests, are serious challenges that Jokowi has to overcome in fixing the economy, Latif said.
The slow execution—for whatever reason, ranging from inefficient bureaucracy, massive political interests and corruption—has to be overcome with the right dialogue and practical policies.
We have got to get all this cleared up before the US Federal Reserve’s chair Janet Yellen appears on the podium in the near future announcing that the US interest rate is rising, which would lead to a massive capital outflow from the country.
And Jokowi’s team has to do it in the middle of the “stormy and wavy” global economy. So… all hands on deck, Captain!
source : http://www.thejakartapost.com/news/2015/10/20/jokowi-s-1-year-economic-review-fixing-a-ship-surrounded-mighty-waves.html