The 2015 economic review: never too late for stimuli

Ayomi Amindoni & Arif Gunawan Sulistiyono

Throughout the year, Indonesia's economy has been struggling against weaker global commodities demand, twin deficits, and delayed infrastructure spending. The global uncertainties have made macroeconomic management more challenging and led to a massive deregulation policies, ultimately.

In the first two quarters of 2015, Indonesian economic growth confirmed the effect of the global slowdown, with a slower growths from 4.71 percent in Q1/2015 to 4.67 percent (Q2/2015). The Q3/2015 growth has increased a little bit, to 4.73 percent, but still it’s a slowdown compared to Q3/2014 which stood at 4.92 percent.

It happened while the country facing a twin deficit—a fiscal deficit which then followed by current account deficit. Since the 1998 crisis, Indonesia implemented a fiscal deficit policy—a fiscal measure aimed to be useful tool for jumpstarting the stalled economy.

After the 2008 global economy melt down, the commodities prices were squeezed in 2011 which hit Indonesia badly as the main producers of coal and crude palm oil (CPO). Thus, the current account deficit (CAD) followed the budget deficit. In 2015, Indonesia coincidently recorded 1.9 percent both for fiscal deficit and CAD.

The failure in boosting tax revenue has worsened the CAD as the government kept borrowing from the foreign investors through global bonds which in turns added the problem amid slow exports. If only the debts were used to finance investments whose return higher than the interest rate, it should be okay. Unfortunately, that did not happen. After four years on, the twin deficit had yet to be solved.

At the beginning of 2015, the country is in euphoria of the new government who has the courage to slash the burdening fuel subsidy. Several courageous measures were expected to follow in the first quarter of 2015, building optimism in the stock market reflected in a 6.7 percent of rally in Jakarta Composite Index (JCI) to 5,518.67.

However, as months passed by, the public seemed to have been disappointed with the political uproar amid Corruption Eradication Commission (KPK) criminalization saga, the slow budget spending, and especially the subsidized fuel price cut—a “setback” steps compared to the previous price hike.

Investor then-punished the government for such situation by selling stocks during the second quarter of 2015 that brought the JCI down 11 percent, or 608 points of losses, to 4,910.66. The stock market dropped further in the third quarter to by 686.75 points or 14 percent to 4,223.91.

President Joko “Jokowi” Widodo answered the anxiety with a reshuffle in economic team on Aug. 12. The outspoken Rizal Ramli was inaugurated as coordinating maritime affairs minister, former official of the Indonesian Bank Restructuring Agency (BPPN) Thomas Trikasih Lembong was inaugurated as trade minister.

And, former Bank Indonesia governor Darmin Nasution was inaugurated as coordinating economic minister, replacing Sofyan Djalil who appointed to head the National Development Planning Board (Bappenas).

And then, there came the stimuli a month after the inauguration. Since September, seven economic stimulus packages released to simplify numbers of regulation and permits, in a bid to facilitate investment and support export activities amid global economic slowdown and low commodity prices.

The first economic package unveiled on September 9 was focus on boosting industrial competitiveness through deregulation, curtail red tape and enhance law enforcement and business certainty.

On Sept. 30 the second economic package issued, focusing on investment permits in industrial estates, relaxation import taxes on capital goods in industrial estates and aviation, also interest rate tax cuts for exporters, and deregulation in forestry.

On Oct. 7, the government unveiled the third economic package that focus on cutting energy tariffs for labor-intensive industries, the expansion of micro loans recipients and deregulation of land permit in investment activities.

Oct. 14, the government announced the fourth economic package focused on fixed formula to determine increases in labor wages and soft micro loans for small and medium, export-oriented, labor-intensive business.

Oct. 22, the fifth economic package launched, focused on tax incentive for asset revaluation, scrap double taxation on real estate investment trust and deregulation in Islamic banking.

Nov. 6, the sixth economic package unveiled focused on tax incentives for investment in special economic zones (KEK), sustainable water supply for society, and paperless licensing process for pharmaceutical imports.

Nov. 17, the seventh economic package unveiled focused on waive income tax for workers in labor-intensive industries, free leasehold certificates for street vendors operating in 34 state-owned.

And last, for the 2015, the government launched the eighth economic package on Dec. 21 which aimed to speed up oil refinery construction, standardize land-mapping and provide incentives for the aviation industry.

Delayed effects
Institute Development of Economics and Finance (INDEF) Executive Director Enny Sri Hartati appraised the government's commitment to boost the economy. However, the results of these policies have not been seen in 2015 since the policy was released.

She considered these economic policy series has not been effective enough to boost the Indonesian economy in 2015. For example, the first economic package released to boost competitiveness through deregulation, curtailing red tape and enhancing law enforcement and business certainty.

"The main problem is the slow implementation, and the coordination among departments are not running. To boost the investment we need more simplification on regulation, but has not been completed. Coordination between sectors and formulate appropriate policy are necessary to make this real," said Enny to TheJakartaPost.com

The effectiveness of these series of policy packages, Enny continued, will be felt when significant investments, ultimately in the manufacturing sector began to writhe amid the sluggish commodity price conditions.

"If Indonesia can complete the investment constraints, the investment will be swift, while the greatest challenge to our investment is in the licensing and regulations. This is what our government must address," said Enny.

Coordinating Economic Affairs Minister Darmin Nasution said the stimulus policies were aimed at addressing short-, medium- and long-term problems in the sluggish economy. All seven economic packages are in action now as the minister has signed 90 percent of the regulation and deregulation measures they contain.

"No immediate impact, but some of the effects will be seen in the first semester of 2016. For example, [the new policy on] liquefied petroleum gas [LPG] converters for fishermen will be implemented next year," said Darmin at a press briefing at Aryaduta Hotel Karawaci, Banten.

Now, we can only see that the government has built the foundation for boosting the economy, through de-regulation and re-regulation. Will this help Indonesia to deal with the twin deficit, it’s just the beginning and the result—quoting Darmin—needs to be waited days after the New Year Eve. (ags)