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Latest Economic Developments 2014:Q3
1. Contraction in government expenditure has had adverse impact on the economy
Indonesia posted slower economic growth rate in quarter II-2014. According to data released by BPS, Indonesia registered economic growth of 5.12% (y-o-y) in quarter II-2014, which is far lower than 5.76% (y-o-y) posted in the same period the previous year. Indonesian economic growth has shown a downward trend over the last several quarters, which has complicated government efforts to achieve economic growth target of 5.5% (y-o-y) in 2014. To that end, this will remain a formidable challenge for the new government.
Prospects and Challenges for the New Government
By: Insukindro1
In August, two dates turned out to be very important and interesting to the general public: the first, 17 August 2014. It marked 69th anniversary of Indonesia’s proclamation of Independence, as well as marked by the issuing of New Unitary Republic of Indonesia currency. Second, August 21 2014, marked the issuing of the decision by the constitutional court which in effect signaled approval and recognition of the newly elected President and Vice President (Joko Widodo and Jusuf Kala). The issuing of NKRI currency is not only a manifestation of the implementation of Act No.7/2011 on currency, but also marks an important change in the concept of money in Indonesia from Bank Indonesia currency to the NKRI currency (UNKRI). Bank Indonesia currency (UBI) –which has served as a medium of exchange, medium of payment, and unit of measurement for a long time—BI legal tender, constitutes the obligation/liability of the monetary authority (BI) to society. In other words, Bank Indonesia as merely an independent state institution, is vested with enormous authority. On the other hand, the coming to the fore of NKRI (UNKRI) currency means that the monetary obligation has been shifted to the state, the Unitary Republic of Indonesia (NKRI) represented by the government (Minister of Finance)and Bank Indonesia. UNKRI is not only legal tender but also represents the existence of the state in all elements and sections of life and economic activities of society living in the Unitary Republic of Indonesia. Indeed, the issuing of UNKRI may indicate a decrease in authority and an independence of Bank Indonesia after the establishment of the financial services authority inflation target setting by the government (Insukindro, 2009). However, such a step is important and must be done to ensure that it is not only Bank Indonesia that has the knowledge about the cost and the quantity of currency that is minted, but also the government and representatives of the general public in the national legislative assembly. In the future, it would be better if the quantity of NKRI currency that is minted and circulated is linked well to the government development plan as entailed in the national medium term development plan and the draft of national revenue and expenditure proposals. The last two issues mentioned, will definitely be reflected in the internal balance such as inflation, economic growth, employment opportunities, financial system stability, and external balance, such as balance of payments. Needless to say, realizing all the foregoing will require institution changes in the Bank Indonesia Act.
ASEAN: Global Economic Pressure and National Instability Challenging The Pathway for ASEAN Economic Community 2015
As the incoming of ASEAN Economic Community (AEC) 2015, a pressure emanating from the global economy is still overshadowing economies in the region. Since The Fed considers the US economy already gain their momentum of stability, it then decided to implement the tapering off policy which constitutes a restrictive monetary policy. Consequently, the policy ‘dries up’ capital flow from the US to ASEAN economies, which in turn has led to deeper depreciation of local currencies that has been experienced over recently (Indonesian Rupiah exchange rate is expected to hover around a new equilibrium level). Meanwhile, European Union which has to a certain extent been able to overcome the worst part of the crisis is still accompanied by the variation of economy performance among economies in the region. Economic growth in European Union has yet in turn support domestic consumer demand growth for global goods, including ASEAN products. While China, as the prominent trading partner for ASEAN economies is currently undergoing ‘cooling’ phase of growth, impacting on the performance of international trade of ASEAN economies.
National Instability is becoming formidable challenge in affecting economic performance in ASEAN economies. Instability that happened in ASEAN economies takes into various forms such as political challenges, economic challenges and security challenges. The impact of natural disaster that struck the Philippines in 2013, the removal of various subsidy schemes and adoption of various social security policies in region economies, political transitions that is underway in Indonesia, political crisis that occur in Thailand, implementation of sharia law in Brunei Darussalam, open military conflicts between Viet Nam and China, disputes over Islands in South China Sea between China and six member nations of ASEAN and the slow pace of infrastructure development are some of the examples. Some of the examples cited above attest to the fact that the region’s uncertainty will be a future serious challenge that ASEAN economies will face if they are seriously aiming to maintain the economic momentum that is currently underway. National stability is an essential aspect for ASEAN economies to keep global investor interest in investing into the national manufacturing sector. Nurturing political stability, economic stability and global public confidence is an important paperworks for ASEAN economies amidst various challenges that are rooted in the increasingly intensive national instability.
Maintaining competitiveness amidst global uncertainty and domestic instability is crucial for the region toward AEC 2015. Competitiveness is vital to ensure that economies in the region have requisite readiness to enter AEC 2015. Amidst various challenges, both external and internal, the government must have the ability to enhance and even building their economies competitiveness so that when the AEC 2015 take into force, every parts of the society have the ability and capacity to reap the attendant benefits.