Indonesia to Face Two Economic Phases in 2019

KOMPAS/AGUS SUSANTO

An economic panel discussion entitled "Anticipating the 2019 Economic and Political Situation" is held by the Kompas daily in Jakarta on Tuesday (4/12/2018). Speakers involved included (left to right) Ari Kuncoro, dean of the School of Economics and Business of the University of Indonesia, Faisal Basri, an economics lecturer, Enrico Tanuwidjaja, the chief economist and researcher of Bank UOB Indonesia, Ninuk Mardiana Pambudy, chief editor of Kompas daily, and Bambang Kesowo, a lecturer for the post-graduate department of the University of Gadjahmada\'s Law School.

JAKARTA, KOMPAS – Global economic volatility will continue in 2019, although there will be less pressure on the domestic economy. This situation will put the country through two economic phases: fluctuation and consolidation.

Economic fluctuation is expected to occur in the first half of 2019, followed by tightening monetary and fiscal policies, while economic consolidation is expected in the second half of 2019, to be followed by easing monetary and fiscal policies.

The two economic phases will occur amid the increased political dynamics ahead of the 2019 general elections. The government is expected stay on guard and continue its efforts in maintaining economic stability, rather than encouraging economic growth.

These issues were raised during "Anticipating the 2019 Economic and Political Situation", a panel discussion on the economy held on Tuesday in Jakarta by the Kompas daily. The discussion’s speakers were: University of Indonesia (UI) lecturer Faisal Basri, Bank UOB Indonesia chief economist and researcher Enrico Tanuwidjaja, National Resilience Institute (Lemhanas) Alumni Association advisory board chairman Bambang Kesowo and UI Faculty of Economics and Business dean Ari Kuncoro.

According to Enrico, volatility will persist in the global economy because the US Federal Reserve (the Fed) is expected to continue raising its benchmark interest rate next year. Although it is expected that the hike will not be as much as this year, increasing the Fed rate will still affect the strengthening rupiah and could trigger outflows of foreign funds from developing countries, including Indonesia.

The 90-day truce in the US-China trade war will still cause volatility. The volume of world trade will continue to decline in the first quarter of 2019, and there was still a possibility that US President Donald Trump would issue some shocking policies during the 90-day “ceasefire”.

"For this, Indonesia needs to maintain the stability of the rupiah in the first half of 2019 so that government bond yields remain attractive to foreign investors. On the other hand, Indonesia needs to increase use of the local currency with each trade partner in transactions, especially with China, in order to maintain the foreign exchange reserves," Enrico said.

In the second semester, Enrico added, volatility was predicted to subside. The country could therefore ease its monetary and fiscal policies to encourage economic growth. The present Bank Indonesia benchmark interest rate was 6 percent.

Meanwhile, Faisal Basri projected that Indonesia\'s 2019 economic growth would not be as strong as this year, despite weakening external pressures. The Indonesian economy was expected to grow 5.1 percent in 2019, less than this year’s estimated 5.2 percent growth.

This was due to tightening monetary and fiscal policies during 2018. In addition, 2019 would see major events were in the country. "Indonesia\'s economic growth this year was helped by the Asian Games and the International Monetary Fund and World Bank Annual Meetings. As for next year, the [legislative and presidential] elections are among the major activities that are expected to drive the domestic economy," he said.

Momentum

According to Faisal, the elections would slightly change the political and economic dynamics. Advancements in information technology would also change the economy in various sectors, especially industry.

Whoever is elected president in 2019 must be able to maintain momentum in strengthening the foundation of the Indonesian economy. Indonesia\'s fragile economic structure must be improved.

"So far, Indonesia still relies on imported raw materials. Indonesia also relies on foreign funds to cover funding shortages. Indonesia also needs to grasp opportunities for developing information technology. Maybe the sector will help promote Indonesia\'s economy, especially small and medium enterprises," Faisal said.

Ari Kuncoro said that Indonesia must take advantage of the gap caused by the US-China trade war in the short term. China had reduced import duties for a number of commodities from countries outside the US. Indonesia should not lose out to Thailand and Vietnam in benefiting from the gap. Indonesia also needed to change its pattern of trade diplomacy with trade partners.

"The United States under Donald Trump has changed the pattern of diplomacy from bloc-to-bloc to personal-to-personal or state-to-state," he said.

In the long term, Ari added, Indonesia needed to increase the capacity and quality of its human resources. The goal was to prepare workers to deal with the rapid development of information technology while increasing exports of skilled workers.

Bambang Kesowo hoped the government would make a better policy strategy in facing global pressures and domestic situations. So far, no strong "bridge" existed as an intermediary to convert the problems facing Indonesia into a policy strategy.

Next year was expected to be an occasion to promote shared awareness in developing the Indonesian economy. The elected state leader must not neglect the sustainability of the policies and programs so far. "The stability of [existing] policies needs to be maintained, because there has been a tendency to bring forth new policies even though the good, old policies are not yet complete," said Bambang.

(HEN)