The Indonesia’s economy, which is measured by the amount of of Gross Domestic Product (GDP) at current prices registered growth from IDR 1,975.5 trillion in Q1 2012 to IDR 2,146.4 trillion in Q1 2013. Meanwhile, GDP at constant prices 2000 increased from Q1 2012 amounted for IDR 633.2 trillion to IDR 662.0 trillion in Q1 2013.

 

However, as predicted by GAMA LEI, the Indonesia’s economic growth in the Q1 2013 registered slight growth of just 6.02%, which was lower than 6.29% posted in the same period in 2012 and even lower than 6.1% in Q4 2012. This is the second time GAMA LEI has been able to predict precisely the signs of slower economic growth. On the contrary, predictions of the Indonesian government, pointed to signs of stonger economic growth. Moreover, Bank Indonesia had projected economic growth of 6.2% in the first quarter 2013 which was atrributable to strong investment and household consumption expenditure. Besides, GAMA LEI also succeeded to outperform predictions of the Asian Development Bank, which pointed to growth of 6.4 % of the Indonesian economy. The reality is that the Indonesia’s economy experienced lower growth in the Q1 2013 than predictions of economic analysts’experts, which is commensurate with results of GAMA LEI research that stressed the fact that the performance of the Indonesia’s economy in early 2013 would not be better than that posted in the previous year.

 

Subsequently, based on industrial origin, with the exception of Mining and Quarrying, which contracted by 0.43% (YoY), all other sectors posted growth in Q1 2013. Meanwhile, sectors that registered high growth in Q1 2013 on a year-on-year basis include Transport and Communication (9.98%), followed by Financial, Ownership, and Business Services (8.35%), also the Construction sector (7.19%).

 

Figure 1: Growth Rate of GDP at Constant Price 2000 by Industrial Origin,2005 – 2013* (YoY, in %)

Economic Growth in Q1 2013 was merely 6.02%, the lowest growth rate over the last three years.

Source : Central Bureau of Statistics (BPS) and CEIC (2013)

 

From the vantage point of expenditure, slow economic growth in Q1 2013 was attributable to contraction in domestic demand and a weakeaning export. Household Consumption also posted slower growth as a result of lower purchasing power caused by high prices of food commodities and inflation expectations that were genetared by uncertainty that continue to surround prices of subsidized fuel prices. Meanwhile, Government Consumption showed slow growth at the start of the year due to the low absorption rate of government expenditure in general and on goods, in particular. On the other hand, investment started to slow down due to limited domestic and international demand. Besides, as the general elections approaches, investors are expected to go into a “wait-and-see” attittude. To that end, slower growth in investment and consumption has induced contraction in imports. Based on year on year figures, Household Consumption posted in Q1 2013 grew by 5.17%, Government Consumption registered 0.42% growth, Gross Fixed Capital Formation grew by 5.90%, while Exports increased by 3.39%, and imports contracted by -0.44% .

 

As a way forward, the government can implement a number of policy alternatives to strengthen economic growth in the Q2 2013. One such policy is to accelerate the state budget absorption, which still has less contribution on Indonesia economic growth. Additionally, it is an onus on the government to maintain consumer confidence by ensuring that purchasing power on the general public is not undermined as well as providing low inflation. There is also need for the government to increase its focus on revitalizing infrastructure which is vital for improving investment. This is an issue that calls for urgent attention as slower investment is not only due to insufficient incentives but also the availability of sufficient requisite infrastructure, supporting institutions, and sound macroeconomic conditions.

 

Figure 2 : Growth Rate of GDP at Constant Price 2000 by Expenditure,2005 – 2013* (YoY, in %)

GDP growth slowdown in Q1 2013 due mainly to a moderation in domestic demand and investment amidst limited recovery of the export sector

Source: BPS and CEIC (2013)

 

Although Indonesia’s economy growth continued to slow down, the unemployment rate (TPT) by February 2013 reached 5.92%, which reprsents a decrease from 6.14% in August 2012, as well as the figures registered in Feburary 2012 (6.32%). Nonetheless, the decrease in unemployment rate, which is equivalent to 440,000 people, from 7.61 million in February 2012 to 7.17 million in February 2013, is by all accounts small. This is the more so, given the fact that the number of underemployment rose from 12.77 million in August 2012 to 13.56 million in February 2013.

 

The number of economically active population in Indonesia between February 2012 and February 2013 increased by 780,000 people, from 120.41 million people in February 2012 to 121.19 million people in February 2013. Nonetheless, there was a decrease in labor force participation rate of 0.45% during the same period of time (February 2012 – February 2013).

 

Figure 3: The Labor Participation Rate and Unemployment Rate in Indonesia, Febuary 2005 – Febuary 2013 (in %)

The labor force situation in Indonesia shows improvement in number of economically active population as well as in reducing unemployment rate, despite an increase in underemployment rate

Source: BPS and CEIC (2013)

 

The labour force participation rate in February 2013 was 69.2%, which represented a decrease from 69.66% in February 2012. Nonetheless, in comparison with August 2012 figures (67.88%), the labor force participation rate for February 2012, represented an increase.

 

Table 1: Population 15 Years of Age and Over Who Worked by Main Industry, 2011 – 2013* (in millions people)

Until February 2013, Agriculture, trade, social services, and indutrial sector, continued to be the main source of employment.

Main Industry	2011		2012		2013
	February	August	February	August	February
Agriculture	42.48	39.33	41.20	38.88	39.96
Manufacturing Industry	13.70	14.54	14.21	15.37	14.78
Construction	5.59	6.34	6.10	6.79	6.89
Trade	23.24	23.40	24.02	23.16	24.81
Transportation, Storage, and Communication	5.58	5.08	5.20	5.00	5.23
Financing	2.06	2.63	2.78	2.66	3.01
Community, Social, and Personal Services	17.02	16.65	17.37	17.10	17.53
Others	1.61	1.70	1.92	1.85	1.81

Source : BPS Press Release No 35/05/Th.XVI, 6 Mei 2013

 

Based on structure of main industry, there isn’t any significant change in the main source of employment between February 2011 and February 2013. Agriculture, trade, social services, and industrial sector continued to be major sources of employment in Indonesia.

 

The number of people employed was higher in February 2013 compared with that in Fabruary 2012. The number of people employed increased by 790,000 people during February 2012 – February 2013, with trading sector contributing 3.29%. A similar trajectory is evident in the construction sector, which posted an increase of 12.95% from the previous year, as was the industrial sector, which registered an increase of 4.01% from 14.21 million people in February 2012 to 14.78 million people in February 2013. Nonetheless, some sectors showed a decrease in number of people employed in February 2013 are the agricultural sector and other sectors, which posted decrease for about 3.01% and 5.73% respectively compared to February 2012.

 

A decrease in unemployment rate makes a positive contribution in poverty reduction. Based on the latest BPS data, the number of people categorized as poor in Indonesia was 28.59 million in September 2012 (11.66%), which was decrease from 36.1 million (16.66%) registered in February 2004. If compared with the number of poor people in March 2012, the number of poor people decreased by 0.54 million.

 

However, it is worth noting that the poverty line used in September 2012 was IDR 259,520 per capita per month, which is an increase of 4.35% compared with the level used in March 2012. On closer observation, therefore, there is no significant reduction in the number of poor people. As an illustration, based on poverty line of IDR 259,520 per month, a family which comprises a husband, wife, and one kid, with a single source of income of IDR 800,000, is not categorized as poor. Nonetheless, there is little doubt that living standard of such a family is far from decent.

 

Table 2 : Number and Percentage of Poor People in Indonesia, 2004 – 2012

Number of Poor people in Indonesia shows a downward trend over the last 5 years. However, the increase in prices of subsidized fuels is likely to trigger a drastic increase in the number of poor people.

Year	Number of Poor People in Indonesia
	(in million people)	(in %)
Feb – 04	36.1	16.66
Feb – 05	35.1	15.97
Mar – 06	39.3	17.75
Mar – 07	37.17	16.58
Mar – 08	34.96	15.42
Mar – 09	32.53	14.15
Mar – 10	31.02	13.33
Mar – 11	30.02	12.49
Sep – 11	29.89	12.36
Mar – 12	29.13	11.96
Sep – 12	28.59	11.66

Source : Press Release BPS No.06/01/Th.XVI, 2 January 2013

 

Based on the area of living, the number of poor people in Indonesia living in urban and rural areas decreased by 0.14 million (0.18%) and 0.40 million (0.42%) respectively from March 2012 to September 2012. The number of people categorized as unemployed and poor decreased, as income per capita in Indonesian increased from USD 3,004.9 in 2010 to USD 3,596.27 in 2012 (CEIC, 2013).

 

Nonetheless, such rosy condition should not induce complacency by government, given the fact that in the not too distant future, prices of subsidized fuels will be raised. Undoubtedly, the hiking of prices of subsidized fuels will induce an increase in prices of gods and services including basic commodities, and consequently contribute to an increase in the number of poor people in Indonesia. The Indonesian government’s policies to mitigate the adverse impact of the increase in prices of subsidized fuels on the number of poor people will involve various compensation packages, such as a temporary direct assistance for community (BLSM), a food subsidy program (Raskin), the family of hope scheme (PKH), and scholarships for the poor (BSM). However, some questions marks surround the effectivenesss of the package of policies. In any event, not few people consider such compensation packages as political ploys and patronage to the benefit of various Ministries whose cadres assume Ministerial portfolios.

 

A review of Indonesian experience in the aftermath of an increase in fuel prices in the past can shade some light on what to expect. The Indonesian government raised prices of subsidized fuels from IDR 1,810/liter which took effect on 1 January 2003 to IDR 4,500/liter on 1 October 2005, the policy adversely affected people’s purchasing power. The drastic drop in people’s purchasing power was attributable to an increase in the cost of public transportation. Consequently, the number of people categorized as poor increased drastically to 39.3 million people (17.75%) in March 2006, which represented a significant uptick compared with 35.1 million people (15.97%) registered in Febuary 2005. This was despite temporary unconditional cash transfer (BLT), which the government implemented with the intension of mitigating the impact of the increase in prices of subsidized energy fuels on the well being of the poor. Apparently, the surge in the number of poor categorized as poor in the aftermath of the policy, attested to the fact that it was potent enough to mitigate all the adverse effects of the policy on the poor.