CAN INDONESIA ESCAPE A MIDDLE INCOME TRAP THIS YEAR?

by Andi Abdussalam

Jakarta, May 9 (Antara) - After a slow economic growth of 5.78 percent in 2013 and showing a favorable trend in 2014, early this year, the government was optimistic of achieving its growth target of 6.0 percent.          The government hopes that the positive economic trend will continue and the 6.0 percent growth target set in the state budget will be achieved to help the country get rid of the middle income trap.          A country can escape the middle income trap only if it has an economic growth of about 6-8 percent. Indonesia's 5.78 percent growth in 2013 was far below its 6.5 percent and 6.33 percent achieved in 2011 and 2012, respectively.          Therefore, it hopes that the country's economic growth in 2014 will begin to rebound.          Last February, Finance Minister Chatib Basri expressed optimism that Indonesia's economic growth this year will reach the target of six percent set in the state budget, particularly due to an increase in domestic consumption.          "I am optimistic that the 5.8-6.0 percent range of economic growth will be achieved because with the low inflation, the people's purchasing power will increase and boost growth," the finance minister claimed on February 5.            He pointed out that the other factor which will boost the economic growth was the fact that Indonesia was organizing legislative elections in April and presidential election in July this year.          "People will spend money to buy items necessary for the election, such as T-shirts and food. This is an additional income to help boost consumption spending. This is a big consumption for the Gross Domestic Product (GDP)," Chatib affirmed.          However, based on the data recently furnished by the Central Bureau of Statistics (BPS), Indonesia's economy grew only 5.21 percent in the first quarter of 2014, year-on-year, down from 5.72 percent in the fourth quarter of 2013.          In response to the BPS data, Bank Indonesia (BI/the central bank) revised down its forecast of economic growth for 2014 from its initial 5.5-5.9 percent to 5.1-5.5 percent.         "The factor that had made us revise down the economic growth target is the revision of export performance," BI Governor Agus Martowardojo remarked at a press conference on Thursday.          He explained that initially, the BI had forecast that real exports, such as goods and services will grow 8.1-8.5 percent, but in reality, the growth of real exports in the first quarter dropped by 1.5-1.9 percent.          "The drop in real exports was caused by three factors, such as slow domestic demand, low price of export commodities, and impact of the implementation of the law on minerals and coal," he pointed out.          Yet, the government is still optimistic that the targeted growth set in the state budget will still be achieved, even though the economy slowed down in the first quarter of 2014.          In order to achieve the target, the government hopes that investment will increase in keeping with the certainty of political developments at home.          "It is a challenge for us to increase growth. Although the five percent growth is below the target, the figure remains good in terms of the global scale," Lukita Dinarsyah, the deputy minister for national development planning, stated on Wednesday as quoted by the Finance Ministry on its official website http://www.kemenkeu.go.id.          According to Lukita, globally, the Indonesian economic growth in the first quarter of this year is still good as reflected in the World Bank's report, which included Indonesia on the list of the world's 10 biggest economies.         "We are proud of the fact that we have managed to achieve this," Lukita reported.          He remarked that the government was convinced that Indonesia's economy will grow at a range of 5.7-5.8 percent. This can be achieved by relying on investment in the second to fourth quarters.          Lukita claimed that investors in the first quarter were still adopting a wait-and-watch approach with regard to the implementation of the general elections.         "Investment in the first quarter actually increased, but it was not as fast as expected. Hopefully, in the remaining months of the year we can expect higher achievements than that made in the first quarter," he stated.          In the meantime, National Development Planning Minister Armida Alisjahbana noted that the Indonesian economy is expected to rebound in the next three years after its slightly slower growth recorded this year.          "It (the slowdown) is just short term because the economy will rebound in the next two or three years," she remarked on Tuesday.          According to Armida, the national economy only grew 5.21 percent in the first quarter due to weak export performance following a ban on the export of unprocessed minerals.          "Only mineral exports plunged. The slump will be temporary while non-oil/non-gas exports may rebound," she added.           Minister Chatib Basri concurred that the lower than expected economic growth in the first quarter of this year was caused by a fall in exports. The country's economic growth was 5.21 percent in the first quarter of 2014, year-on-year.          "The cause of the decline in the economic growth was shrinking exports. Hopefully, the improved US economy will result in an increase in exports," Basri pointed out.          However, the government is still set to reach the economic growth target of 5.5 percent for the entire year.         "The growth is expected to exceed 5.5 percent, as we would not want a rather low growth," he asserted.          He stated that with only 5.21 percent growth in the first quarter, the government is considering to revise its growth target of 6 percent set in the state budget.          Weak export performance hampered Indonesia's first-quarter economic growth rate.         "The source of decline was exports, instead of investments. With the US economy recovering, our exports will hopefully start to rebound," Chatib Basri remarked.          The economic slowdown was part of the government's efforts to improve the current account balance. Yet, the government will always work to keep the year-end economic growth at above 5.5 percent, he added.         "Hopefully, the growth can be maintained at above 5.5 percent because we do not want it to be too low," he stated.          According to Chief Economic Minister Hatta Rajasa, Indonesia's economy will grow more than five percent considering its current potential.          "Indonesia has promising opportunities, thus its economic growth can reach over 5.5 percent," the minister informed reporters after his lecture on the popularization of the national entrepreneurship programs to the students of the University of Sriwijaya (Unsri) on Wednesday.          Hatta Rajasa earlier noted that despite a fall in exports due to a ban on mineral ore exports, household consumption and investment are expected to be strong enough to sustain economic growth.          "Investment is still growing amid the general elections. This indicates that interest in investment is still strong. The government and domestic consumption is fairly good and so is the people's purchasing power," Hatta claimed.          He was hopeful that exports will improve in the coming months, especially after the United States and Japan recorded good progress in economic recovery.         "We need to work hard to prevent a further fall in exports. I am optimistic that in the second quarter, we will gain in line with the improvement recorded by other advanced economies despite a setback in China," Hatta pointed out. ***2*** (T.A014/INE/B003) EDITED BY INE (T.A014/A/BESSR/Bustanuddin) 09-05-2014 19:00: