Expansion Restrained in Anticipation of Risks

KOMPAS/WAWAN H PRABOWO

Finance Minister Sri Mulyani Indrawati (second left, front row) attends a working meeting with the Budget Agency of the House of Representatives (Banggar DPR) at the House complex in Jakarta, Friday (6/9/2019). On that occasion, Sri Mulyani conveyed the basic assumptions of the State Budget’s temporary posture such as economic growth of 5.3 percent, inflation of 3.1 percent, the rupiah exchange rate of Rp 14,400 per US dollar, and interest on government treasury bills (SPN).

JAKARTA, KOMPAS — Business players are observing ongoing economic changes caused by internal and external factors in order to anticipate risks and adapt to the latest conditions.

On the other hand, industry players are hoping for concrete action from the government, including erasing obstacles to doing business in the country.

Indonesia is ranked 73rd out of 190 countries in the World Bank’s recently released 2019 Ease of Doing Business Index.

“With a weakening global economy, we have restrained expansion and improved efficiency,” Indonesian Chamber of Commerce (Kadin) chair Rosan Perkasa Roeslani said in London on Friday (6/9/2019).

Bank Indonesia (BI) projects the country’s economy to grow by between 5 and 5.2 percent this year. Statistics Indonesia data shows that the country’s economy grew by 5.06 percent in the first half of this year.

Indonesian Textile Association chairman Ade Sudrajat requested the government to reduce or even eradicate investment obstacles that have made foreign investors reluctant to come to Indonesia.

Indonesian Employers Association (Apindo) advisory council chair Sofjan Wanandi said that business players could withstand an increasingly uncertain global economy with reduced burden. This can be achieved with the government’s concrete breakthroughs in stimulating businesses nationwide.

Sofjan said the government should realize the threats imposed by global economic recession. The problem is that, in the current transitional period of central government, it is difficult to expect that the government, including ministries and regional administrations, will make breakthroughs to reduce the burden on business players.

The World Bank cited several risks Indonesia is facing in line with weakening global economic growth. Falling commodity prices, in line with reduced global economic growth, may decrease Indonesia’s gross domestic product growth.

AFP/CHINA OUT

A Chinese bank employee counts new 50-yuan notes with a money counting machine at a bank counter in Hangzhou in China\'s eastern Zhejiang province on August 30, 2019, as the People’s Bank of China issues the newest 2019 edition of the fifth series of the yuan notes. - China\'s currency slid on August 26 to its weakest point in more than 11 years as concerns over the US trade war and the potential for global recession weighed on markets.

There is also risk in foreign capital outflow, which is expected to negatively affect the rupiah’s exchange rate against the US dollar. “The solution is to increase direct investment in Indonesia, instead of reducing the current account deficit,” the World Bank recommendation says.

Direct foreign investment will absorb labor.

BI data shows that the current account deficit was US$8.443 billion in the second quarter of 2019. Direct investment was $5.394 billion and portfolio investment was $4.501 billion. The increased coupon rate of Chinese government bond in the 10-month-long Government Bond Index-Emerging Markets (GBI-EM)

starting from February 2020 is expected to attract foreign capital of up to $20 billion. This bond increases the risk that Indonesia has to face.

Encouraging investment

Finance Minister Sri Mulyani Indrawati said that, in line with a weakening global economy, the government would exercise caution. Policies are aimed at maintaining economic growth of more than 5 percent.

“The government maintains a low inflation rate and continues improvement in the development sector. Policies are aimed at encouraging direct investment,” Sri Mulyani said in Jakarta.

BI senior deputy governor Destry Damayanti said that Indonesia had good economic foundations amid potential for a global economic recession. Indonesia’s money market is attractive due to relatively high yields compared to those of neighboring countries, with a yield gap of more than 5.5 percent.

“Market trust remains high. All policies are on the right track. We just have to maintain it,” she said.

Nevertheless, Destry said, foreign capital outflow might potentially occur. A similar phenomenon is also taking place in other countries.

KOMPAS/ALIF ICHWAN

A man passes in front of a stock trading information board at the Indonesia Stock Exchange building, Jakarta, Monday (26/8/2019).

Indonesia’s foreign exchange reserves are estimated to be at $126.4 billion as of August 2019. BI communication department director Junanto Herdiawan said the foreign exchange reserve could support external resilience and maintain macroeconomic and financial system stability. (KRN/CAS/FER/DIM)