The slowdown of Indonesia’s economy is expected to continue in the first quarter of 2020. Economic conditions will improve only if investment and household spending increase.
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JAKARTA, KOMPAS — The slowdown of Indonesia’s economy is expected to continue in the first quarter of 2020. Economic conditions will improve only if investment and household spending increase.
In the first quarter, the Indonesian economy may grow at an annual rate below 5 percent. Bank Indonesia projects growth of 4.9 percent, but the government is optimistic first-quarter economic growth will reach 5 percent.
According to Statistics Indonesia (BPS), Indonesia\'s economy grew by 5.02 percent in 2019, the lowest full-year rate since 2016.
In the fourth quarter of 2019, the Indonesian economy grew 4.97 percent year-on-year (yoy), marking a slowdown from rates of 5.07 percent, 5.05 percent and 5.02 percent yoy in the first, second and third quarters of 2019, respectively.
Economic activity is slowed down by the impact of the COVID-19 outbreak and as people are more cautious about spending. The COVID-19 epidemic has seriously affected Indonesia\'s tourism, trade and investment.
The rector of Atma Jaya Catholic University (Unika Atma Jaya), A Prasetyantoko, noted less favorable conditions in the domestic and global economy at the beginning of this year. Global pressure stemming from the slowing down of China\'s economic growth has had a negative impact on almost all developing countries, including Indonesia. The global consensus estimate is for China\'s economy to grow at 4-5 percent.
"The Indonesian economy will also slow down, because most trade and investment are currently with China," Prasetyantoko said when contacted from Jakarta on Friday (21/2/2020).
The Trade Ministry\'s website shows that Indonesian exports to China totaled US$27.91 billion in 2019, while imports from the country amounted to $44.90 billion in the same period. Indonesia suffered a trade deficit of $16.98 billion.
Prasetyantoko said the economic slowdown would reverse only if the government’s short-term domestic policy was focused on stimulating household spending. Meanwhile, the medium-term policy should be to encourage investment.
"Indonesia\'s problem lies in implementation. There may be budget allocations, but there is a problem in their disbursement," he said.
The government\'s move to stimulate household spending by accelerating the disbursement of state spending is considered appropriate. However, the acceleration of spending must really be implemented down to the local government level.
The disbursement of state budget funds from the central government may be high, but the funds stay only in local government accounts.
Household spending could also be increased by allocating more funds for the social assistance budget through direct transfers and by providing incentives for certain sectors.
The plan to provide incentives to the tourist sector should be realized immediately to minimize the impact of the COVID-19 outbreak.
The plan to provide incentives to the tourist sector should be realized immediately to minimize the impact of the COVID-19 outbreak.
Prasetyantoko said increased investment was key to tackling the economic slowdown. Investment would have a multiplier effect on industrial production and people’s income and thereby could accelerate economic recovery.
This year, the government is targeting investment realization of Rp 900 trillion.
The deputy chairperson of the Indonesian Employers Association (Apindo), Shinta Widjaja Kamdani, believes the implementation of the omnibus law on job creation and omnibus law on taxation can improve investment, but only if the government is able to accommodate the interests of various parties, including those who are in favor of and those who are against the bill.
"No one can be sure when the economic condition will reverse its direction. The bill is formulated so that the country will be ready," he said.
Not easy
The slowing economic growth in China has begun to affect exports and domestic industrial production. However, according to Shinta, finding sources of raw materials other than China is not an easy matter. The types of imported goods are relatively difficult to obtain, and the price is higher. Finding new trading partners also takes time. "Finding new sources of imported raw materials is not the right solution to encourage domestic industrial production," Shinta said.
Economic Coordinating Minister Airlangga Hartarto said the impact of the slowdown of the Chinese economy on Indonesia was still being monitored. So far, 1 percentage point decline in China\'s economic growth would probably drag down Indonesia\'s economic growth by 0.3 to 0.6 percentage points.
A number of industries are of concern, especially those related to cosmetics and pharmaceuticals, because imports from China are relatively high.
Finance Minister Sri Mulyani Indrawati said the economy needed stimulus to maintain the growth momentum. The government has issued a number of policies to encourage economic growth, such as accelerating the disbursement of capital expenditure and social assistance as well as encouraging labor-intensive activities through the accelerated disbursement of regional transfer funds and village funds. (KRN)