Fixing the ship amid the mighty wave

In a storm, it is impossible to have a ship floating comfortably. And, of course, totally unfair to expect the ship to cruise at a normal speed. Nonetheless, we can expect that the ship can move stable, riding the mighty waves and not sinking.

This analogy should be applied when we evaluate what President Joko ‘Jokowi’ Widodo has done in his first year of taking office, in terms of economic and business.

We should analyze the economic data synchronically, put it in the right context and situation, instead of reading it diachronically in a bid to compare what Jokowi has gained (in this turbulence era) with what the previous President (Susilo Bambang ‘SBY’ Yudhoyono) has scored (in the bonanza era).

If we look at the macro-economic indicators, indeed we can see the recession in our economy in the last one year. Under Jokowi’s administration, Indonesia’s growth domestic product (GDP) managed to grow fast only in the fourth quarter of 2014.

The economy grew 5.01 percent (yoy) three months after Jokowi’s inauguration, rose from the Q3/2014 growth at 4.92 percent (yoy). And then, in the latter two quarters of 2015 we had consecutive slower growths at 4.71 percent (Q1/2015), and 4.67 percent (Q2/2015).

Quoting an economist from the Indonesian Institute of Sciences (LIPI), Latif Adam, the slower economy in 2015 was understandable, as there were numerous structural factors that made our economy vulnerable to the external impacts.

“It is tolerable. The most important thing to underline is what the government has done to build a stronger fundamental economy. It is illogic to expect the structural economic problem of this country can be solved with a few policies at a time,” he said to thejakartapost.com on Tuesday in Jakarta.

Amid the modern global world, it is also illogical to expect the economy to be fully immune from the effect of the global economy. The international trade is connected one to another and all local capital markets heavily intertwined with the global market.

Thus, Indonesia’s GDP grew at a slower pace recently due to the global recession which squeezed the country's export and import. The depreciated rupiah led to the higher imported inflation as the cost to buy imported goods and imported capital goods were a lot pricier.

Rupiah was closed at Rp 12,032 per US dollar on 20 October after Jokowi inauguration. And now, after 12 months we can see the rupiah traded at 13,639, depreciated 13 percent or 1,607 points weaker against the greenback.

“As the inflation gets higher, the people’s purchase power curbed, and amid the delayed corporate investment due to the global woe, the people consumption drastically reduced and ultimately the GDP grows at a slower pace,” Latif explained.

Indeed, we had a rising inflation in the first 12 months of Jokowi’s administration. The consumer price index added by 2 points from 4.83 percent in October 2014 to 6.83 percent in September 2015. On average, the inflation was at 6.79 percent.

Amid the situation, Bank Indonesia (BI) as the central bank maintained the interest rate benchmark (BI rate) at 7.5 percent during Jokowi’s administration. They’re consistent with it and managed to calm the financial and monetary situation.


The right path

President Jokowi highlighted that his administration has been building the foundation needed to boost the economy, despite the harsh and volatile situation in the global market. The most iconic one was the fuel subsidy reduction that led to Rp 200 trillion of cash in the state budget.

“More than Rp 200 trillion of the fuel subsidy which has been wasted on the streets, transferred into programs to support people’s welfare. [..] we change the paradigm from consumptive economy to productive one,” Jokowi said in a note published by the Presidential Chief of Staff Teten Masduki.

Latif agree with that. He argued that Jokowi’s government has walked to the right path with his economic visions: maritime axis, putting the villages as the center of the country’s development with village fund (dana desa), and simplifying the investment bureaucracy.

It explains why the foreign investors, from 2 January to 20 October 2014 recorded a ‘net buy’ of Rp 43.12 trillion (US$3.16 billion) in the capital market, welcoming Jokowi’s inauguration last year.

A ‘net buy’ means the investors buy stocks in a larger amount and value than the stocks they sell, reflecting their confidence on the economic situation in a country.

But, as usual, the devil is on the details and the execution. The investor had enough with ‘promise’ and vision, especially when the GDP recorded a slower growth in Q1/2015.

As the execution of Jokowi’s vision proved to be slow, the market reacted negatively. Amid the bigger chance for the US’ Fed to increase its Fed Fund rate, they cashed out and scored a net sell of Rp 10.87 trillion (year-to-date of 2015).

“Reforming economic fundament, with some progressive policies, is not like chewing a chili. Once you’ve done it, you straightly feel the hot. What we should see is how commit they are in implementing it, instead of why the economic growth keeps slowing even after the policy launched,” Latif said.

To fix the structural problem in Indonesia’s economy, the government had launched four economic packages aimed to improve business competitiveness, guard the rupiah, hasten the investment appetite in the real sector, and simplify annual wage rise system.

And, of course, criticisms as well as rejections arouse. Using the momentum of Jokowi’s administrative anniversary, the labor organizations held a rally rejecting the new wage rise formula which they call ‘unfair’, and ‘a step back’ from the existing formula.

“Even Suharto in his dictatorship era involved the labor union in formulating the annual wage rise through the worker’s minimum physical needs (KFM), which is now changed to the workers' cost of living index (KHL),” Said Iqbal, the chairman of the Confederation of Indonesian Workers Union (KSPI) said to thejakartapost.com.

The labor union federation, he continued, agreed with all other three economic packages, unless the fourth package specifically on the annual wage rise formula. He promised to launch a national labor strike if the government refuse to have a negotiation.

This kind of rejections including from the political party, including Jokowi’s backer party PDI-P, and from Jokowi’s internal staffs who keep their own personal interest would be serious challenges that Jokowi has to overcome in fixing the economy, Latif said.

The slow execution, for whatever reasons—ranging from the inefficient bureaucracy, massive political interests, corruption—has to be overcame with the right dialogue and practical policies.

We have got to get all this cleared up before the Fed Rate’s Chair Janet Yellen appear on the podium in the near future announcing that the Fed Fund Rate effectively rise, which would lead to a massive capital outflow from the country.

And Jokowi’s team, had to do it in the middle of the ‘stormy and wavy’ global economy. So.. all hands on deck, Captain! (Arif Gunawan S.)