Will Indonesia debunk the market pessimism?Michael Frigo ; The regional manager for Atradius, one of the world´s largest credit insurers |
JAKARTA POST, 05 Maret 2014
| The year 2013 still saw Indonesia at the center of global attention, being hailed as the largest economy in Southeast Asia for successfully maneuvering out of global recession and maintaining both economic and political stability on a longer term. The archipelago was blessed with a booming middle class and increased domestic consumer spending in the short and medium term while managing to book all-time high investments ,which mostly came from direct foreign ventures, thus, making the nation’s status as the emerging power in the global economy seem difficult to match. However, the last quarter in 2013 proved to be more challenging than expected and several hurdles were presented for Indonesia. Inflation climbed to 8.4 percent at the end of the year — nearly double the 4.3 percent in 2012 — interest rate hiked and gross domestic product (GDP) growth was estimated to have fallen from 6.2 percent to 5.6 percent, according to a Standard Chartered research. In addition, Indonesia’s trade deficit jumped to US$2.3 billion for the July-September period as imports remained strong while exports shrank due to the slowdown in China and continuing troubles in Europe and the US, and finally, the weakening of rupiah against US dollars raised combined fears that the once stellar-performing Southeast Asian economy could be hitting a wall so soon. According to the World Bank, Indonesia will see a slower economic growth in 2014 and faces tough economic risks. The risks to growth are high as the needed adjustments to weaker external balances continue to play out in the domestic economy, and as a result of shifting economic conditions and policies internationally (notably the US Federal Reserve “tapering”), which may further tighten external financing conditions. Indonesia is also expecting a considerably slower investment flow in 2014, as companies may hold off during the election year, providing even less stimulus to an economy challenged with current-account deficit. Given the country’s strong reliance on imports, the weakening rupiah is also likely to add to inflationary pressures. Sensing the potential downfall, the Indonesian government then launched several initiatives to secure monetary balance, including using trade finance as a solution to boost trade deficit. The finance minister has announced that the government is planning to strengthen its trade financing scheme to encourage local exporters to tap into non-conventional markets, so that the country’s export growth could stay strong amid the weak global demand. Currently, local manufacturers prefer not to sell their goods outside of Indonesia’s traditional export markets due to high risks. Another concern for businesses this year is the rising percentage of late payment when doing business in the country. According to Atradius’ recent Payment Practices Barometer survey conducted for Indonesian businesses, late payment of domestic invoices due to insufficient availability of funds occurs more often in Indonesia than in the other countries surveyed in Asia-Pacific. Of the respondents in Indonesia, 63.5 percent voiced the concern, the highest percentage of the countries surveyed in Asia-Pacific. Meanwhile for late payment from foreign Business-to-Business customers, 48.1 percent of respondents said it was most often due to inefficiencies of the banking system. With all these challenges present, businesses need to start thinking about ways to provide extra safeguards for their traded goods. This is especially crucial considering the increasingly competitive global export market, both bilaterally and regionally, thanks to the growing free trade agreements — and this is still not taking into account the upcoming ASEAN Economic Community next year, which promises to lift both trade and non-trade barriers in order to achieve a single integration of the members. Once businesses take a further step in protecting their goods, potential importers to Indonesia will have additional confidence to buy more products from the country as they will benefit from stronger trade protection. But specifically for Indonesia, the challenge of living in a massive archipelago spanning across more than 17,000 islands is the provision of infrastructure to support economic activities. The massive archipelago’s physical infrastructure is considered to be the main issue that needs to be encountered by foreign investors operating in the country. Infrastructure, which encourages connectivity between regions, will reduce the cost of transportation and logistics, which will improve product competitiveness and help the nation accelerate its economic growth. A proper infrastructure can also be helpful in boosting intra-regional trade in order to counter weak — albeit improving — demand from Europe and North America. The Indonesian Government has indeed launched the MP3EI (Master Plan for the Acceleration and Expansion of Indonesia’s Economic Development) project among others to overcome the infrastructure underdevelopment. However, the project to date still needs to overcome several factors such as land acquisition issues, low level of coordination between governmental institutions and overlapping land concessions. In order for the nation to gain maximum trade and investment trust, infrastructure remains a priority sector to be addressed. In today’s highly dynamic economic landscape, anything from natural disaster to small trade challenges can cause real issues for business practice. It is time for Indonesian businesses to start taking a step further to ensure business continuity to survive this challenging year, and contribute to the nation’s overall economic stability in a longer term. The door of opportunities is still wide open for Indonesia to continue charging ahead and prove the predictions wrong, and be on its way to once again reclaim its economic throne in the Southeast Asian region. ● |
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