FOCUS - ON INDONESIAN ECONOMY

IBRAHIM ISA FOCUS - ON INDONESIAN ECONOMY
Wednesday, January 12, 2011
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-- Indonesia and the global rise of economic, political power
-- RI economic fundamentals strong, investors shouldn't worry
-- UBS: RI economy to expand by 6 percent in two years
-- RI to remain attractive destination of global funds
-- RI vows to remove barriers on creation of common market
-- State bodies keep doors closed on budget documents
-- CSIS paints grim political, economic outlook for 2011
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Indonesia and the global rise of economic, political power
Magda Safrina, Jakarta | Sat, 03/20/2010
Despite the complication caused by some delays and coordination matters related to the official visit of the US President Barack Obama to Indonesia, which was later postponed to June this year, the essence of the visit itself signals an important message to Indonesia and to the rest of the world.
To Barack Obama, Indonesia is not only a childhood home where he spent four happy years with family and friends, but a source of political and economic power that he needs to keep his political and economic agenda moving forward.
How could Indonesia, a country that was overlooked for almost a decade as a global forum and global influence suddenly become so important to Obama and to the US, both from political and economic standpoints?
The importance of Indonesia as having the world’s largest Muslim population nation has often been discussed in media, particularly Indonesia’s strategic position in its relation to the Middle East conflict.
The fact that Indonesia has been praised by the US as the role model where democracy and Islam prosper harmoniously adds to the list of Indonesia’s political capital in the global forum.    
Indonesia is the largest nation in ASEAN (Southeast Asian Nations), which comprises 10 Southeast Asian countries. Indonesia is also ASEAN’s largest economy with 2009 GDP at US$514 billion.
Indonesia is one of the founding nations of ASEAN together with Thailand, Malaysia, Singapore and the Philippines.
Since ASEAN was founded in 1967, Indonesia has always been playing important role in ASEAN. Indonesia’s former president, Soeharto, was one of the most respectful ASEAN figures.
The East Asian integration, often called ASEAN + 3, which refers to China, Japan and South Korea, now has moved further in policy implementation.
One major achievement that had integrated the region more closely is noted by the signing agreement of ACFTA in January 2010, an agreement that unites China and ASEAN economies with 0 tariff on goods and services crossing each borders.
The East Asian integration itself would bring about an integration of $12.2 trillion of world economy, with a total population of 2.1 billion people.
The integration of East Asian economies both as the Asian production platform and as the world’s growing domestic market has become much more important particularly since East Asia has proven that it can weather global recession relatively smoothly.
Asia is believed to be the source of world economic growth in the future. Led by China, the East Asian economy is projected to contribute to three quarters of 2.5 percent of world economic growth in 2010.
What unique about East Asian integration, in some extent has become a source of concern among other economies in the rest of the world, is the fact on how countries in East Asia are trading and investing between each other at a much faster pace and much larger volume than ever before.  
Although there are increasing concerns within each ASEAN nation about the decline of country’s competitiveness compared to China, the world’s largest production base is believed to also offer a huge export opportunity that could offset the decreasing competitiveness of certain industries in ASEAN countries.  
As the policy implementation is in progress, where adjustments in ASEAN economies are also taking place, we would need some more time to further evaluate how this integration would improve Asia’s economic status.
In such context, Indonesia is becoming more and more important both for the US and China.
Both countries would need to maintain their close relationships with Indonesia to secure their
economic stakes in East Asian
economy, particularly because US-China economic relations are often tenuous.
The US is China’s largest export market. In 2008 and 2009, China’s exports to the US accounted to $252.3 billion and $296.4 billion respectively.
However, China’s domestic market is well developed enough to absorb its massive production capacity if US market declines due to the economic recession.
Therefore, China needs the US to continue to import from it to assure there won’t be massive lay off workers at companies and factories in China.
The continuation of Chinese government investing in US Treasury Bonds providing the US government loans shows the complexity of US-China relations.
Today, China holds $755 billion in US government treasury bonds. The complication is increased by the US’s accusation that China is manipulating its currency to prevent the yuan from increasing while most experts believe the Chinese currency should have appreciated due to the increasing value of yuan’s real exchange rate.
The Chinese government’s effort to keep yuan stable against the US dollar is believed to have effectively maintained Chinese competitiveness in the global playing field.
With the rise of its importance among the two world economic powers, Indonesia is now entering its most important economic and political milestone in the global forum.
How Indonesia makes the most of this, given its rising role, would determine Indonesia’s position in the future, politically and economically.
As the nation at the crossroads, Indonesia should make the best of this opportunity to progress its economic and political relations with both the US and China. This progress should be real, well designed and well implemented.
The writer is a graduate student at International Business
School, Brandeis University,
Massachusetts, US.
RI economic fundamentals strong, investors shouldn't worry
The Jakarta Post, Businesss | Mon, 05/10/2010
(JP/P.J. Leo)First quarter growth of 5.7 percent is an indicator that Indonesia economic fundamentals remain strong, and investors should not worry about economic prospects, says Danareksa Research Institute economist Purbaya Yudhi Sadewa.
"The GDP growth in the first quarter showed that economic fundamentals remain strong. Investors in the stock market should not panic despite the minister is replaced," he said Monday.
Finance Minister Sri Mulyani Indrawati will move to the World Bank on June 1 as a managing director, the second-highest position in the bank, just under President Robert Zoellick.
JP Morgan analyst Sin Beng Ong said Indonesia's economic fundamentals were "very strong" despite Mulyani's departure. "Too early to say the reform is stopped. Indonesia is still in very good hands," he said.
But "the market is taking a wait-and-see approach", he added.
 UBS: RI economy to expand by 6 percent in two years
Aditya Suharmoko, The Jakarta Post, Jakarta | Tue, 03/09/2010
Swiss-based bank UBS estimates that Indonesia's economy will expand by 6 percent in the coming two years, leading to a stronger rupiah against the US dollar, UBS economist Edward Teather said Tuesday.

"We forecast Indonesian real GDP growth to perform well in a global and ASEAN context, growing at 6 percent in 2010 and 2011," he said.

"On a trend basis we suspect the economy should achieve at least 5 to 6 percent real GDP growth in the context of a de-leveraging global economy, higher than our model suggests because of still-rising savings and investment to GDP. Because of this, we expect an ongoing real appreciation of the rupiah."

UBS says its greatest concern with Indonesia's economy is overconfidence as the stock market index historically loses a point every time a data release is below consensus expectations.
RI to remain attractive destination of global funds
The Jakarta Post, Jakarta | Thu, 12/09/2010
Indonesia will remain one of the world’s most attractive destinations for global portfolio investment thanks to the country’s healthy economic growth, securities analysts have said.

Matthew Brown, head of Citi’s Asia Pacific Fund Services, said at a seminar on market outlook in Jakarta on Wednesday that Indonesia’s overall economy showed a significant growth opportunity, which made it an attractive destination for foreign funds.

“The recovery will continue ... There will be a lot more capital flow to Asia. The Europe and United States are looking for new opportunities and that’s important,” he told reporters following the event.

The Indonesian Stock Exchange (IDX) is among the best performing stock markets in Asia this year. The benchmark Jakarta Composite Index (JCI) has grown about 45 percent so far this year as foreign investors continued to pump funds into the Southeast Asia’s biggest economy. On Wednesday, the index rose 1.28 percent to close at its new record high of 3,769.99.

Brown explained that approximately US$60 trillion was seeking to be invested at present, $48 trillion of which is owned by European and US’ investors. “The funds are in the process of re-evaluation and asset restructuring that’s going to result in increased capital flow, which will continue in the next two or three years,” he added.

Investors, according to Brown, always want exposure in emerging markets to some degree, and Indonesia is among them.

With near-zero rates in developed nations like the US and Japan, Indonesia’s 6.5 percent benchmark interest rate has attracted foreign investors to invest in both debt and capital markets. About Rp 115.3 trillion of foreign funds have entered the nation’s stock and debt markets so far this year, a condition that has worried regulators due to fears over a sudden reversal that could hamper economic activities.

Tigor M. Siahaan, Citi’s country business manager, estimated Wednesday Moody’s would soon upgrade Indonesia’s sovereign rating to a level below the investment grade in line with the improvement of the country’s economic performance. “Moody’s was here last week talking to the government. So in several weeks we expect them to come up with an upgrade,” he told attendees at the same seminar.

Meanwhile BNP Paribas said Indonesia’s benchmark index may increase 20 percent within a year on an expected upgrade on the country’s sovereign debt rating. “Despite outperforming its peers in the region this year, we do not believe that the benefits of the re-rating have been fully priced in,” analyst Elvira Tjandrawinata told Bloomberg. “Other catalysts could include a continued pick up in investment, which would feed consumption, making it stronger and sustainable,” Elvira said. (est)

RI vows to remove barriers on creation of common market
Rangga D. Fadillah, The Jakarta Post, Jakarta | Wed, 01/12/2011
We have a dream: Indonesian Chamber of Commerce and Industry (Kadin) chairman Suryo Bambang Sulisto (from left), Trade Minister Mari Elka Pangestu and Foreign Minister Marty Natalegawa chat after they attended ASEAN Economic Community (AEC) meeting in Jakarta on Tuesday. Indonesia aspires to become a dominant economic player in the region. JP/Nurhayati
As the new chair of ASEAN, Indonesia said it would remove all legal barriers toward the establishment of the ASEAN Economic Community (AEC) and would ensure all member countries were ready for broader integration in 2015.
Trade Minister Mari Elka Pangestu said Tuesday that currently the realization of the blueprint to establish the AEC faced stumbling blocks due to the late ratification of agreed regulations by ASEAN member states, including Indonesia.
“All ASEAN members should ratify agreements after they are made, but the processes are impeded by different domestic procedures and adjustments to prevailing national laws,” she said at a press conference at the Indonesian Chamber of Commerce and Industry (Kadin) in Jakarta.
Utilizing its strategic position as the new chair of ASEAN, Mari said Indonesia would encourage ASEAN member to increase efforts to combat constitutional, legislative and regulatory limitations that could hinder the realization of the AEC, which would be similar in structure to the European Economic Community or the European common market.
“We also recommend that each country strengthens the institutions coordinating and supervising the implementation of the blueprint,” she said.
In her speech, Mari highlighted several possible economic breakthroughs ASEAN may achieve in 2011, such as the completion of an information exchange system on recalled unsafe products, the establishment of the ASEAN Small- and Medium-Scale Enterprises Service Center as well as strengthening economic ties with China, Japan, Korea, India, the US and other economic partners.
The AEC blueprint states four major targets: Establishing a single market and production base, creating a competitive economic region, promoting equitable economic development and encouraging full integration into the global economy.
Kadin chairman Suryo Bambang Sulisto vowed his organization would work harder to combat all constraints hindering the development of business and industry in the country.
“We’ll improve cooperation with the government because improving competitiveness is our shared responsibility. We can’t succeed without the government’s assistance,” he said after meeting with Mari and Foreign Minister Marty Natalegawa.
The vision to establish an integrated economic system among ASEAN members dates back in 1992 when the first ASEAN free trade agreement was signed. In 2010, ASEAN-6 members (Brunei, Indonesia, Malaysia, Philippines, Singapore and Thailand) lifted 99 percent of import and export tariffs on trade between each other.
State bodies keep doors closed on budget documents
Bagus BT Saragih, The Jakarta Post, Jakarta | Tue, 01/11/2011
An NGO lodged a complaint to the Central Information Commission (KIP) on Thursday regarding the rejection of 37 state bodies to disclose documents on budget allocations.
The Indonesian Forum for Budget Transparency (FITRA) filed information requests to 65 state institutions, but only 28 had provided proper documents on the 2010 Approved Budget Allocation List (DIPA).
“Because they rejected our requests to provide the DIPA documents, which are public domain according to the 2008 Law on Freedom of Information, we reported the institutions to the commission,” FITRA investigation and advocacy coordinator Uchok Sky Khadafi said.
Among the 37 state bodies were the Trade Ministry, the Forestry Ministry, the National Education Ministry, the Religious Affairs Ministry and the State-Owned Enterprise Ministry, as well as non-ministerial bodies such as the Constitutional Court, the Attorney General’s Office, the National Police, the State Intelligence Agency, and the Supreme Audit Agency.
“Ironically, the House of Representatives, which endorsed the Freedom of Information Law, also rejected our request,” Uchok said.
FITRA found that only five ministries provided budget information, including the State Secretariat,
the Industry Ministry, the Agriculture Ministry, the Transportation Ministry and the Culture and Tourism Ministry.
The Corruption Eradication Commission (KPK), meanwhile, was the only law enforcement institution answering the queries.
“We have sent request letters since last year. However, most of the recipients completely ignored the requests, while others gave various excuses on why they wouldn’t want to provide budget information,” Uchok said.
Some ministries — the Defense Ministry, Women’s Empowerment and Child Protection Ministry and the Research and Technology Ministry — even declared that DIPA lists were not for public consumption, he added.
“The Public Works and Finance Ministries indeed responded to our requests, but they did not give us the DIPA lists as requested,” he said.
KIP chairman Ahmad Alamsyah Saragih said the commission would study the case and summon representatives from the reported institutions for clarification.
“We will decide within 14 days whether the cases should go to mediation for settlement,” he said, adding that should mediation fail, the cases would go to an adjudication hearing, similar to a criminal court hearing.
The ruling of an adjudication hearing is final with no appeal. The 2008 Freedom of Information law says any party refusing to execute such a ruling can be punished with up to three years in jail and a Rp 20 million (US$2,240) fine.
Alamsyah confirmed that any state budget-related information was supposed to be open for public.
“State bodies run their institutions using public funds, so the public deserves to know the allocation. But let us process the reports as stipulated by the law. Maybe some misunderstanding has taken place,”
he said.
Established in August 2009, the KIP, with three offices all in Java, has so far received 31 information disclosure requests from the public. Besides FITRA, the Indonesia Corruption Watch (ICW) has also filed a number of information dispute cases with the KIP. The ICW has requested the commission settle disputes with the National Education Ministry, the National Police and five state schools in Jakarta.Transparency International Indonesia (TII) secretary-general Teten Masduki said having freedom of information after 30 years of an “opaque” regime was not easy, but it was important to maintain as a means of preventing corruption among state officials.
CSIS paints grim political, economic outlook for 2011
Ridwan Max Sijabat, The Jakarta Post,
The political and economic outlook is rather gloomy for Indonesia in 2011, a think tank says.
Announcing the results of its political and economic analysis and research in 2010 on Tuesday, the Centre for Strategic and International Studies (CSIS) said 2011 would again see an orgy of transactional politics stemming from a possible Cabinet reshuffle, the debate over revisions to the 2008 legislative election, local elections and premature nominations of presidential hopefuls.
“Following the evaluation of the performance of Cabinet ministers, the President is expected to reshuffle his Cabinet and this will incite bickering among political parties seeking to keep their representatives in the Cabinet,” CSIS political analyst Nico Harjanto said.
He added that the House of Representatives’ failure to control party supporters and members’ donations in the newly endorsed political party law and the planned hike in the parliamentary threshold would only serve big parties’ thinly veiled attempt to squeeze out smaller parties and consolidate their dominance in the next elections.
“The [reformed law] leaves no room for political mavericks to be held in check or for small parties to grow. This will certainly result in the rise of political oligarchies.”
CSIS senior researcher and political analyst J. Kristiady concurred, saying the gloomy political prediction for 2011 had to do with the failure of the post-2009 election political elites to create an effective government.
“2010 was marked by increasing transactional politics among parties in the ruling coalition. After the election, almost all parties that won seats in the House were busy with political transactions, negotiations, squabbles and broke their promise to address national problems and improve public social welfare.”
Following the 2009 elections, the public was optimistic that re-elected President Susilo Bambang Yudho-yono, who won more than 60 percent of the votes in the presidential race, would be able to use his big political capital to form an effective government that would be supported by the simple multi-party system.“This expectation did not come to fruition,” Kristiady said.
CSIS economist Deni Friawan said the economy would grow, but not as strongly as expected.Apart from investments, economic growth in 2010 was supported by consumption to balance decreased government spending, he said.
“Economic growth is expected to reach 6 percent this year with hope that inflation can be held in check,” he said.