Indonesia’s current economy is at a critical point. The rupiah depreciation, the acceleration of inflation which poised the highest level since global financial crisis, coupled with rising current account deficit and the hemorrhage of international reserves attributable to capital outflow and huge short term external debt of private sector which has reached maturity have precipitated high instability of Indonesian macro economy. The Indonesian macroeconomic indicators have been deteriorating for more than a year. Besides, the high pressure of Indonesian economy is also attributable to the economic deterioration of emerging economies and an uncertain global economy. Hence, it is essential to put on alert that the aggravation of the condition may plunge the Indonesian economy into a crisis.
Starting with growth in Gross Domestic Product (GDP), Indonesian economy has posted anaemic growth over the last four quarters. In its revised state budget 2013, the government set the target of economic growth of 6.3%. However, in unstable global economy, attaining such GDP growth target is no easy feat. The difficulty is reflected in the economic growth during quarter I 2013 which was lower than expectations, registered 6.03% (yoy) and continue deteriorating in the quarter II 2013, posted 5.81% (yoy) in economic growth.
The slowdown of economic growth in the second quarter 2013 was commensurate with predictions of GAMA Leading Economic Indicators (GAMA LEI). To that end, GAMA LEI has proven to have an accurate prediction of Indonesian economic conditions. There is no better evidence of that than GAMA LEI’s predictions in the last edition, which outperformed a number of other institutions.
From the standpoint of expenditure, the slowdown of Indonesian economy as a result of weakening investment growth is reflected in deterioration of gross fixed capital formation’s growth in second quarter 2013, accounted for 4.67% from 12.47% in second quarter 2012.
Besides, government consumption has also plummeted because of low absorption of government expenditure. In the quarter II 2013, government consumption grew by 2.13 % , which is a stark contrast with grew of 8.64 % in quarter II 2012. Moreover, while exports grew by 4.78% (yoy) in the quarter II 2013, which is higher than that registered in quarter II 2012, such growth is still short of the target set in the Revised National Budget of 6.6%.
Figure 1: Growth Rate of GDP at Constant Price 2000 by Expenditure 2009 – 2013* (yoy, in %)
Over the last 10 Quarters GDP growth rate has been below 6 %
Source: BPS and CEIC (2013)
From the vantage point of industrial origin, weakening economic growth in quarter II 2013 on a year on year basis compared to previous quarter, is evident in all sectors with the exception of Transportation and Communications, which posted growth of 11.46% and Electricity, Gas, and Clean Water which registered 6.60% growth.
Figure 2: Growth Rate of GDP at Constant Price 2000 by Industrial Origin 2009 – 2013* (yoy, in %)
Achieving the Economic growth target is difficult 
Source : BPS and CEIC (2013)
As a response to an uptick in macroeconomic instability attributable to slower economic growth, the Indonesian government issued four program packages. The policy entails raising luxury tax on completely built up automotives and other imports from 75% to between 125% and 150%. In addition, the policy package involves the offering of incentives to labor intensive industries, which includes imposition of lower taxes; the government in coordination with the central bank, to ensure stable inflation and prices; and increasing the effectiveness of an integrated one stop service delivery for investment permits. The expectation is that the policy package will prove effective in staving off spillovers from deteriorating economies currently besetting emerging economies and global economic uncertainty. Nonetheless, the policy package has so far failed to mitigate macroeconomic volatility, as rupiah has continued depreciating and Indonesia composite index continue plummeting.
Despite weakening economic growth, the government continues to lay claim to the reduction in poverty, as one of its signature policy successes. On that note, it does not require a lot of thinking to realize that taking a closer look at the poverty line that is used as an indicator of poverty level, and by extension achievement in reducing the number of poverty, does in no way reflect an improvement in societal welfare of Indonesian population.
Based on BPS database, the number of poor in Indonesian decreased from 11.66% in September 2012 to 11.37% in March 2013, which is equivalent to 28.07 million people. According to BPS, the poverty line experienced an increase of 4.66% from IDR 259, 520 per capita per month in September 2012 to IDR 271 626 per capita per month in March 2013. Without harbouring any intention to discredit the government, it is extremely difficult for Indonesian population to lead decent life based on the poverty line set by the government.
That said, the government continues in its efforts to reduce poverty incidence in Indonesia. One such endeavour is reflected in the decision by the government to increase budget allocation on poverty eradication programs from IDR 53.1 trillion in 2007 to IDR 115.5 trillion in 2013. In its Medium Term Development Plan, government set the target of reducing poverty incidence by 9.5%-10.5% in 2013. Nonetheless, the only way the government can achieve that target will very depend on its success in reducing inflation, otherwise near poor people is most likely to fall into poverty level.
Figure 3: Developments in Poverty Incidence in Indonesia, 2004 – 2013*
Despite government claim that remarkable success has been achieved in reducing poverty incidence, the number of poor in Indonesia remain aplenty 
Source : BPS News No. 47/07/Th. XVI, 1 Juli 2013