Indonesia’s economy grows despite global turmoil Reny Eka Putri  ;   A quantitative analyst at PT Bank Mandir

JAKARTA POST,  04 Maret 2014

                                                                                                                        

                                                                                         

                                                      

In the last decade, the global economy experienced turmoil and change. Observing the developments of the domestic economy over the last decade has been interesting. Indonesia’s economic cycle was both not easily followed and predictable. Establishing the current economic condition and future forecasts as a basis for setting policy and supporting decision making for companies and governments is a challenge. Only viewing economic data published publicly by government agencies is not enough. To support business analysis, Bank Mandiri has developed an economic cycle model that generates an index to represent current economic conditions and future forecasts. In Bank Mandiri’s economic cycle analysis model, the result generated the Mandiri Leading Economic Index (MLEI) which moved ahead of the reference series or gross domestic product (GDP) of Indonesia. Indonesia’s economic growth in 2004 was still able to record 5 percent, supported by rising consumption and the export performance of goods and services in line with the improved volume of world trade. In 2005, Indonesia’s economic growth reached 5.7 percent. Investments in the communication sector and advances in technology began to develop with the rise of entrepreneurs establishing small and medium enterprises (SMEs). Slowing investment recurred in 2006 due to damaged public facilities from natural disasters. Economic growth stood at 5.5 percent in 2006, lower than 5.7 percent in 2005. In 2007, economic growth climbed to 6.3 percent. Growth impetus came from a decrease in the poverty rate to 16.6 percent from 17.8 percent and a decrease in the unemployment rate to 9.1 percent from 10.3 percent. The trade sector progressed and shifted manufacturing industry growth during this period. In addition, public consumption and export performance encouraged economic growth in 2007. Economic ups and downs seem to have become a regular thing for this country. In 2008, the Indonesian economy grew by 6 percent due to the slowdown in global economic activities that impacted on Indonesian trading. Indonesia’s economic growth slowed again in 2009 to 4.6 percent. The fall in the majority of commodity prices of plantations, mining and industry led to lower productivity. The trade sector almost did not contribute at all to economic growth in 2009. The period of 2010-2011 was a turning point in Indonesia’s economic growth. The trade sector returned to growth along with the manufacturing industry, followed by the growth of the agricultural and mining sectors. Economic growth in 2010 and 2011 accounted for 6.2 percent and 6.5 percent, respectively. Despite slowing global economic growth, Indonesia’s economic growth remained strong. In 2012, despite the global economic downturn suppressing the trade lines, by making use of public domestic consumption and high investment, economic growth continued to grow by 6.2 percent. The MLEI’s average value to reflect Indonesia’s economic growth in the last three years (2010-2012) was always above the level of 100, indicating an increase or expansion. In February 2014, the Central Statistics Agency (BPS) released Indonesia’s economic growth in 2013 by 5.8 percent. The global economy, especially in developed countries, was slowing, followed by corrections to economic growth in emerging markets, including Indonesia. In terms of domestic demand, investment growth, particularly non-construction investments, was also slowing. The uncertainty of the global financial situation has increased sharply in line with negative sentiment to the reduction of the monetary stimulus in the US. Economic growth in 2013 (5.8 percent) was lower than in 2012 (6.2 percent) according to MLEI indications; average value over the period 3Q12-2Q13 (which was the economic outlook in 2013) was 99.7, lower than the MLEI average value during 3Q11-2Q12 (which was the economic outlook in 2012) at 100.2. According to MLEI, Indonesia’s economy is expected to grow moderately in 2014 due to the impact of the economic tightening policy. The moderation in domestic demand is expected to continue, while export performance will improve with the continuing global economic recovery to drive improvements in Indonesia’s economic structure, with economic growth in 2014 expected to reach 5.6 percent. The average value of the MLEI in 4Q13, which is a picture of economic conditions in 2Q14, was at the level of 99.2. The position, which is not too far from the index of 100, indicates stable economic growth and tends to be similar to current conditions. What about the impact of the 2014 election on the economy? Certainly, the public and investors await the naming of candidates in the presidential election. Based on previous general elections in 1999, 2004 and 2009, economic conditions during these times had their own characteristics. However, 2014 can be compared to 2009 due to the similarity in economic conditions. In both years, challenges came from external sources. In 2009, the government’s focus was to cushion the impact of the subprime-mortgage crisis in 2008, while in 2014 it attempted to keep economic growth from the risks of global financial market volatility. Despite the fact it emerged from the global crisis in 2009, the economy grew by 4.6 percent by relying on domestic consumption, investment and the industrial sector. Assuming the election runs safely and smoothly, positive economic growth can be maintained this year. Fluctuations in the Indonesian economy over the last decade have seen Indonesia rank as the fifth largest economic power in Asia and 16th in the world. Through a series of firm policy reforms and government performance improvements, significant progress was achieved by this nation after the Asian financial crisis in 1997-1998. However, Indonesia must remain introspective since it is extremely vulnerable to external factors and its government is not prepared to deal with the impacts of natural disasters and conflicts between political elites. External factors that should be anticipated by the government come in the form of international financial markets, the volatility of commodity prices and foreign demand. Therefore, Indonesia must be able to maintain inflows into domestic financial markets and improve equitable development and competitiveness, which have an impact on improving people’s welfare in the economy. The results of strong economic growth should be enjoyed by all levels of society. ●

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