Joint press release between the Government, BI, OJK, LPS: What are they hiding?

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DR. Fuad Bawazier, MA
Economist and Former Finance Minister in Cabinet Development VII

IO – Highly irregular and abrupt, on 28 May 2018 the Minister of Finance and Coordinating Minister of the Economy, BI (Central Bank), OJK (Financial Service Authority), and LPS (Indonesia Deposit Insurance Corporation) issued a Joint Press Release (Keterangan Pers Bersama – “KPB”) concerning the strengthening of coordination and policy mix for maintaining the stability of the economy – and stating that Indonesia’s economy is in good and strong condition.

It is obvious to me that the KPB is meant to calm the people down. I think that it is a sign that the Government is aware that Indonesia’s economy is in serious condition and that the market players are uneasy about it, that it is unusual for the government to issue a Joint Press Release (KPB). However, this KPB, which its statement of a possible crisis and the invoking of Law No. 9/2016 concerning Economic Crisis, market players might become even more wary. Furthermore, the arguments and statements in the KPB are so vague and lacking full disclosure, so anyone with knowledge of basic economics will conclude that KPB is a type of propaganda disseminated to prevent panic and anticipate crisis threats. The Government has at least attempted to share responsibilities – or to be more precise, to drag down along – BI, OJK, dan LPS with the KPB.

How can we say it is not propaganda when the current most troubled issue, i.e. deficit of Current Transaction, is barely mentioned in the KPB, and then only by saying that “…deficit in Quarter I of 2018 increased to 2.1% of the GDP, but the amount is still lower than the deficit in Quarter I of 2013….”? Or is it an attempt to obscure the issue? The comparison should be made against the target deficit for the period, and with the deficit in the same Quarter in the previous year (2017). The same case occurs with economic growth in Quarter I of 2018, which is only stated to have grown 5.06% without any comparison made with the target for the Quarter (5.4%) or with the growth rate in the previous year.

The KPB states that the Current Transaction deficit for 2018 is estimated to be 2.5% of GDP, or still safe, as it does not exceed the limit set at 3% of PDB. The Government also uses such normative arguments as formality and justification for State Budget deficits, set at a maximum of 3% of GDP, and for State debts, set at a maximum of 60% of GDP according to the Law of State Finances No. 17 year 2003, without using any clear benchmarks or limits on repayment ability in order to prevent the current condition of “robbing Peter to pay Paul”.

The KPB also compares the horrible condition of Rupiah exchange rate with the currencies of Turkey and Brazil, instead of comparing with other ASEAN country currencies. The 5.98% drop of the Composite Index value at BEI is stated to be under control, and it is said to be caused by the outflow of foreign capital from the stock market. Unfortunately, there is no mention of how much foreign capital left the Indonesian economy in general, or the Indonesian stock exchange in particular. Briefly, the KPB is nothing more than the shifting of words and sentences to avoid full disclosure, in order for us not to call it a lying propaganda right out.

It is important to note that the KPB also mentions the existence of Law No.9/2016 concerning the Prevention and Mitigation of Crises. This Law gives the Government, BI, OJK, LPS special authority to act in case of crisis. The special authority is strengthened, or its use is made easier, as in the provisions of the State Budget Law of 2018. We have a similar criticism with the State Budget Law, because both of them carry a very strong moral hazard.

Therefore, it is not impossible – we have reason to – remind that any political year is synonymous with economy crisis year. For example, 1998 had BLBI scandal, 2008 had the Century Bank scandal, and this year, 2018, will have the “ask the experts/practitioners” scandal. To be honest, we are sorry and concerned about BI, OJK, and LPS. According to the current national financial system, they should be independent, but now they are being dragged in to share responsibility for the economic condition in general.