Indonesia - Time running out for Indonesia to avoid economic crisis

The Centre for Strategic and International Studies (CSIS) is warning the Indonesian government that it has a fast-closing window of opportunity to implement policies to avoid the global economic crisis.

Two realities were shaping the terrain for policy makers, according to the CSIS: growing uncertainty on economic recovery in the US and Europe and domestic politics in the run up to the 2014 elections.

"This year is the last year for us to maximally execute development policies. In 2013, the concentration of the nation will be on how to face the elections," CSIS researcher Yose Rizal Damuri said on Thursday.

Yose said Indonesia was not fully immune from the global economic crisis, despite the strong GDP growth in 2011, and that the government needed to be more decisive in implementing policies.

The impact of global economic uncertainty has been felt in Indonesia since the third quarter of 2011, as shown by the weakening rupiah and a drop in stock prices.

After reaching its highest level of 8,460 rupiah (US$0.93) per US dollar, the rupiah dropped to 9,068 rupiah ($0.99) in 2011. The Jakarta Composite Index, which almost topped 4,200 in August, opened at 3,820 in the beginning of 2012.

"The slowdown in global economic growth has also affected the demand for Indonesian commodities, which reduces the pace of our export growth," Yose said.

Export growth started slowing in September, growing 3 per cent a month after touching an all-time high of $18.6 billion in August.

The CSIS offered three scenarios for Indonesian export growth, based on three possible developments in the global economy.

The first scenario assumes that the global economy will recover, commodity prices will remain high and China and India can maintain their current growth rates. Under those circumstances, Indonesia’s exports might grow 21.73 per cent to $230.03 billion, according to the CSIS.

In its second scenario, global economy would recover at a slow pace, commodity prices would weaken and China and India’s growth rates would be less than 6 per cent, leading the CSIS to estimate that local exports would grow only 4.21 per cent to $196.92 billion.

The think tank’s last scenario assumes that the global crisis worsens and that China’s and India’s growth slumps to very low rates, leading to a sharp drop in demand for Indonesian commodities. Under that scenario, exports would drop 5.79 per cent to $178.02 billion.

Another CSIS researcher, Deni Friawan, advised the government to speed up implementation of existing plans, particularly for a financial safety-net system to protect the poor and the economy as a whole from the fallout from a worsening global crisis.

"We recommend that the government prepare better financial crisis protocols by passing the financial safety-net system [JPSK] bill, accelerating bureaucratic reform and improving infrastructure," Deni said.

Rangga D. Fadillah

The Jakarta Post

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