IO – Decoupling between the real (“main street”) economy and the Stock Exchange can be witnessed in Indonesia. In the past week, the IDX Composite Index rose 4%, while economic growth (GDP) is again at a minus (-3.5%) in Quarter III of 2020 after a bigger minus of -5.3% in Quarter II. But why are share prices rising while the economy continues to wallow in a recession?
It’s very simple: The stimulus provided by the Government is given out to the wrong target. The slogan is “to save micro, small, and medium businesses”, but the ones being saved are actually the big companies. For example, only IDR 2.4 trillion in tax incentive was set aside for micro, small, and medium businesses, while that for large companies totals IDR 179.48 trillion.
Another example: Working capital underwriting set aside for micro, small, and medium-sized businesses is only IDR 1 trillion. This is outrageous! Total credit existing for micro businesses is IDR 305.9 trillion, for small businesses IDR 346.7 trillion, and for medium businesses IDR 469.7 trillion. Interest subsidies for micro, small, and medium-sized businesses are definitely only 20% of the target (with the target being IDR 35.3 trillion for 60.6 million micro, small, and medium-sized businesses), or only IDR 7.4 trillion in interest subsidies distributed to 12.6 million micro, small, and medium-sized business accounts.
Most of the IDR 30 trillion placed by Government in the State-Owned Bank Union (Himpunan Bank Milik Negara – “Himbara”) Government banks (Mandiri, BRI, BNI, and BTN) will definitely subsidize large clients, even though 97 million people work in micro, small, and medium-sized businesses and large companies will not expand production due to impaired purchasing power of the people. On the contrary, these capitalists prefer to put their money in the stock market or Government bonds, in order to take advantage of high interest rates. This is why the Composite Index and Rupiah exchange rate continue to rise.
A banker I know told me that every time the Government issues high-interest bonds, one third of banking funds drains towards these bonds. Consequently, credit growth at the end of Quarter III this year, i.e. in September, is minus 0.4%. In other words, the Government stimulus cannot increase the people’s credit “and allow them to move the economy. Instead, a good part of the Government’s funds is reinvested by these large enterprises back into high-interest Government bonds that will do nothing but add to their own profits. It is actually an additional interest subsidy for large companies that hold for bond holders, amounting exactly to the value of the coupons issued by the Ministry of Finance.
The real economy is moving extremely slowly. All of the ministers in the Economic Team must be responsible for it. Recently, Statistics Indonesia (Badan Pusat Statistik – “BPS”) revealed that annual growth of the processing industry sector is in the red, at -3.4%; vehicle trade and repair industry at -5%; construction industry at -4.5%; mining and delving industry at -4,.%; transportation and warehousing industry at -16.7%; and other industries at -5.9%. The only ones showing positive growth are the farming, forestry, and fishery industry (2.1%); the information and communications industry (10.6%); and the health and social activity industry (15.3%).
Growth of the farming industry, which should have been higher in the pandemic era, instead continues to show a downtrend from that of previous Quarters, even though the people’s food needs should remain stable. We conclude that this is caused by the flood of food imports generated by business cartels. On the other hand, the current extremely high growth of the communications industry is only natural, because the pandemic causes a massive transition of common
activities from physical to digital. It is also normal for the health and social activity industry to grow high, as they are the two priority sectors for stimulus during the pandemic.
The situation becomes even spicier with the existence of the “dynamic duo” Job Creation Omnibus Law and the Coal and Mineral Mining Law. They are like juicy “wagyu steaks” served to large domestic enterprises, especially those in extractive sectors. They have automated extension of mining permits and a guarantee of easier acquisition of lands. These very same businessmen can then put their concession lands up as collateral to domestic and foreign banks for jumbo credits for tens of trillions of Rupiah. As a bonus, the value of their shares in the Exchange rises up sky-high. Other than “wagyu steak”, these businessmen also get “fat shavings” from the Job Creation Omnibus Law in the form of lowered employment costs from unlimited outsourcing, eternally extendable employment contracts, and lowered severance pays.
On the contrary, micro, small, and medium-sized businesses only get the “cleaned out bones” from the Job Creation Omnibus Law. Ease in getting permits for small business or cooperatives is not the answer for the major issues faced by these small companies: Credit gap is more urgent for us to resolve. About 85% of banking credit always goes to the few thousand large private and State-Owned enterprises, while the remaining 15% gets to be the object of fierce competition among the tens of millions of micro, small, and medium-sized businesses throughout the country.
There is no space left for micro, small, and medium businesses to survive, let alone thrive. The stimuli of tax cuts and capitalization for them are far from being serious. On the contrary, big businesses get all the luxury facilities that they don’t need as much as the small businesses do: Reduced taxes, interest subsidies (for both bank credits and Government bonds), share “subsidies”, food import quotas, automatic permit extension, easy land for credit collateral, and lower employment costs.
And there you have it – misdirected Government stimuli and the “dynamic duo” of Job Creation Omnibus Law and Coal and Mineral Mining Law has caused capitalism to become even fiercer in Indonesia. We are getting further and further from common welfare for all citizens with these policies.