Government Must Stay Alert amid Global Uncertainties

KOMPAS/TOTOK WIJAYANTO

Workers unload freshly harvested oil palm fruit bunches on Sept. 14, 2015 from a plantation in Tungkal Jaya, Musi Banyuasin, South Sumatra. The farm-level price of oil palm fruits dropped from Rp 1,500 per kilogram to Rp 500-Rp 700 per kg from June to August 2015.

Global economic uncertainties have affected Indonesia’s international trade, which could have a negative impact on state revenues.

JAKARTA, KOMPAS — Indonesia should increase its resilience while taking advantage of the escalating trade war between the United States and China, which has contributed to increasing uncertainties in the global economy.

In coping with the uncertainties, Indonesia should increase exports to non-traditional markets to diversify its export commodities and to attract investment. The escalating trade war has resulted in increased uncertainties in the global economy, which could further affect economic growth.

"We are seeing signs that the economy is slowing as reflected in the tax revenue that continues to decline," Finance Minister Sri Mulyani Indrawati said on Thursday at a press conference on April’s state revenues.

According to the Finance Ministry, state revenues totaled Rp 530.7 trillion (US$36.85 billion) in April, or 24.5 percent of the 2019 state budget target. State revenues increased a mere 0.5 percent year-on-year (yoy) this April. State revenues increased 13.3 percent yoy in April 2018.

The weak growth in state revenues was due to a decline in incomes from taxes, export duties and non-tax revenue of respectively Rp 387 trillion, Rp 1.5 trillion and Rp 94 trillion. Export duties and non-tax revenue fell 29.8 percent and 14.8 percent, respectively.

"The economy is under pressure and is weakening, but it has yet to enter the negative zone. We must stay alert," said Sri Mulyani, stressing that the government was in a state of high vigilance because the current situation was similar to 2014-2015.

AFP/NICOLAS ASFOURI

US President Donald Trump (left) and Chinese President Xi Jinping leave a business leaders event at the Great Hall of the People in Beijing in this Nov. 9, 2017 file photo. On Sept. 18, 2018, President Trump accused China of seeking to influence the US midterm elections in November 2018 by taking aim at his political support base through the escalating trade war. "China has openly stated that they are actively trying to impact and change our election by attacking our farmers, ranchers and industrial workers because of their loyalty to me," Trump tweeted, a day after he targeted another US$200 billion in Chinese imports with tariffs starting next week, drawing an immediate vow of retaliation from Beijing.

Global pressures have caused export and import performances to decline, which impact state revenues. Vigilance is needed to maintain economic growth above 5 percent.

Revised forecast

Meanwhile, Bank Indonesia Governor Perry Warjiyo said that the central bank had decided during the monthly board of governors meeting on Thursday to maintain its benchmark interest rate at 6 percent, in order to maintain the stability of the Indonesian economy amid increasing global uncertainties.

The prolonged trade war has negatively affected the economies of many countries. "As a result, the global economy is predicted to slow further. Global economic recovery will take longer than estimated previously, because uncertainties have again increased in the financial market,” he said.

With the global economy in decline, the country’s exports were facing a serious problem. Due to this unfavorable situation, the central bank had raised its 2019 forecast for the current account deficit from 2.5 percent of gross domestic product (GDP) to 2.5-3 percent of GDP.

Data from the Statistics Indonesia (BPS) shows that the trade deficit grew to $2.56 billion in January-April 2019.

Separately, Bank Mandiri chief economist Andry Asmoro said that the government should make the investment climate more conducive to attract more investment to the country. The government and the central bank should, for example, create policies to maintain macroeconomic stability. The government also needed to encourage the private sector to driver and diversify their exports.

Fice chairman for economic zone development Sanny Iskandar of the Indonesian Chamber of Commerce and Industry (Kadin) said the country must be able to surpass other countries to compete in attracting investors and increasing exports.

Sanny, who also chairs the Association of Industrial Estate Developers, said that several foreign developers had expressed their interest in developing an industrial estate in Indonesia.

"We should be able to accommodate industrial relocations from China. The most appropriate strategy is to build the industrial estates jointly," he said. Investment Coordinating Board (BKPM) data showed that Rp 195.1 trillion in investment was realized at the end of the first quarter, of which Rp 107.9 trillion was foreign investment.

Kompas

An employee walks past monitors displaying stock prices at Indonesia Stock Exchange (IDX) in Jakarta on Friday (23/3). The Jakarta Composite Index closed down 0.69 percent, or 43.48 points, at the level of 6,210.7 points.

Move quickly

The head of the University of Indonesia\'s Center for Macroeconomic Studies, Febrio Kacaribu, urged the government to move quickly to cope with the uncertainties resulting from the US-China trade war. Efforts should be continued to further simplify business licensure and to improve the country’s ease of doing business ranking in order to attract export-oriented investments.

"There should be direct contact with potential investors who want to [relocate] from China. What do they need? The government must move quickly," he said.

Bahana Sekuritas economist Putera Satria Sambijantoro said investment growth needed to be maintained, especially foreign direct investment. To anticipate the impact of increasing global uncertainties as a result of the trade war, increasing export-oriented investment and entering the world supply chain must be prioritized. In the short term, the country should find new export destinations.

Bank Central Asia economist David Sumual urged the government to fully implement the 16 economic policy packages issued in the last two years. Implementing these economic policy packages could help improve the ease of doing business in the country and make it an attractive destination for foreign investors. (DIM/KRN/JUD/CAS)