Selasa, 26 Agustus 2014

JOKOWI WARNED OF ECONOMIC "TIME BOMB" THREAT

 By Andi Abdussalam   
          Jakarta, Aug 26 (Antara) - The next government will face various issues in improving people's welfare and in developing the country's economy amid low economic growth and high rates of poverty and unemployment.
         "The next government under President-elect Joko Widodo, better known as Jokowi, must take bold steps such as conducting a budget 'revolution', removing economic distortions, and raising economic growth," Thomas Ola Langoday, dean of the Economic Faculty of the Widya Mandira Catholic University (Unwira), East Nusa Tenggara, said on Monday.
         He noted that the next government should focus on increasing economic growth to about seven percent in order to prevent the emergence of time bomb threat.
         If economic growth remains at only about five percent, as at present, the new government will encounter a vicious circle, which will be difficult to overcome, Thomas Ola Langoday warned.
         "It should focus on maintaining annual economic growth at over seven percent," he added.

 
         The government had recently unveiled its budget plan for 2015, in which economic growth was set at 5.6 percent. According to Finance Minister Chatib Basri, the economic growth assumptions established in the Draft 2015 Budget by 5.6 percent has been optimistic and in accordance with the development of the global economic trend next year.
         "Economic growth of 5.6 percent has been set based on predicted improvement of the situation globally," he noted.
         According to the Bank Indonesia (BI/central bank), the impact of external factors remains determinant on Indonesian economic development in 2015.
         Governor of BI Agus Martowardojo said one of the external factors was normalization of the policy of the US Central Bank.
         He explained that the improvement of global economic condition is attributable mainly to advanced countries with their accommodating monetary policy and relaxation of fiscal pressure.
         Agus noted that for this year Indonesia's inflation has remained under control within the target of the central bank. 
    The trend of inflation is even declining recorded at 6.7 percent year-on-year (yoy) in the second quarter down from 7.32 percent yoy in the previous quarter. 
    In July 2014, the country's inflation was only 0.93 percent month-to-month or 4.53 percent yoy.

         The current account deficit had also declined to US$9.1 billion in the second quarter or 4.27 percent of the gross domestic product (GDP) from US$10.1 billion a year earlier or 4.47 percent of the GDP.
         For 2015, however, the potential risk is still existent. The government should be aware, particularly associated with increased geopolitical risks that could raise oil prices, of the economic slowdown in China as well as of the normalization of the policy of the United States Central Bank (The Fed).
         Under these conditions, the government has set macro assumptions, such as inflation of 4.4 percent, SPN state treasury bill rate of 6.2 percent, rupiah value of 11,900 per dollar, price of oil ICP $105 per barrel, oil lifting about 845,000 barrels per day, and gas lifting 1,248,000 barrels per day.
         According to Thomas Ola Langoday, with a 5.6 percent economic growth, while other macroeconomic variables, such as inflation, are also at about five percent, Indonesian people could only benefit from one percent of the GDP.
         Langoday said, under that condition, absorption of workers could not be increased, and the poverty rate will remain the same as its current level of 28 percent of the population.
         Further, if distortions take place in other macroeconomic variables, such as weakening of the rupiah against foreign currencies or against the US dollar, it will increase the poverty rate.
         Moreover, if the poverty indicator, namely US$1.25 worth of daily expenditure, changes to US$2, it could be assured that the number of people living under the poverty line will increase.
        "This will have a consequence, and the new government will encounter a new problem. The number of poor people and unemployed persons will increase due to scarcity of job opportunities," he said.
         Fuel subsidy problem, which continues to burden the state budget, also exists. If the subsidy is reduced or even abolished 100 percent, it will affect the people. "This will lead the new government to encounter the problem of vicious circle, which will be difficult to overcome," Langoday explained.
         So, he suggested that the new government should take bold steps, including budget "revolution" at the beginning of its administration. 
    The entry of the budget "revolution" is rescheduling the drafting time of the revised state budget (APBNP) from the usual October in the current year to March beginning in 2015.

         If the new government has no guts to reschedule the drafting time of the APBNP, the people will face different economic problems, which will serve as a time bomb, Langoday emphasized.
         In the meantime, President-elect Jokowi has set a seven percent economic growth target for 2014-2019, according to Akbar Faizal of the Jokowi-Jusuf Kalla pair's transitional office.
         "To achieve the target, an infrastructure investment worth at least Rp6,500 trillion is required," Faizal, the transitional office's deputy in charge of infrastructure, public housing, and transportation, said.
         He explained that 25 percent, or Rp1,638 trillion, of the money required for infrastructure investment will be funded by the State Budget (APBN). The remaining 75 percent must be collected from other parties, such as state-owned enterprises and private companies.
         Indonesia's economic growth over the last five years has been five percent annually, with the budget allocation for infrastructure development hovering at four to five percent of the GDP, Faizal added.***2***
(T.A014/INE/B003)
EDITED BY INE
(T.A014/A/BESSR/Bustanuddin) 26-08-2014

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