The Indonesian economy: “as delicate as walking on eggshells”

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Anthony Budiawan Managing Director of Political Economy and Policy Studies (PEPS)

IO – Statistics Indonesia (Badan Pusat Statistik – “BPS”) has just announced Indonesia’s import-export data for September 2019. It is a disappointment, as expected, but it is still a disappointment nonetheless: Indonesia’s economy is still so vulnerable. Our condition is like walking on eggshells – it can shatter at any moment. We are really helpless.

Trade balance in September 2019 remains in a USD 160.5 million deficit. Exports in September 2019 went down 5.74% from those of September 2018. Exports in the January-September 2019 term fell 8%. Data on non-petroleum and natural gas exports is also disappointing: these exports in September 2019 went down 2.7% from those of the same month in 2018. Overall, non-petroleum and natural gas exports January-September 2019 dipped 6.22% from those over the same period the previous year, i.e. from USD 134.96 billion to USD 124.17 billion. That’s a big drop.

Trade balance this year seems to be continuing along last year’s deficit trend: until the end of September 2019 it recorded a deficit of USD 1.9 billion. This deficit rate did decrease from that of the same period in 2018, but it was only caused by petroleum prices being below those of the previous year. Therefore, petroleum and natural gas deficit until the end of September 2019 went down USD 3.01 billion against that over the same period in 2018. In other words, deficit went down from USD 9.45 billion to USD 6.44 billion. This trade balance deficit increases the current transaction balance liability, which has been in deficit for 8 consecutive years so far. Current transaction deficit in Quarter II of 2019 has again exceeded the deficit psychological threshold of 3% of the GDP. This deficit strongly presses down the Rupiah exchange rate, which is currently being desperately saved using excessive State debt taken simply to offset the exchange rate. 

Gloomy economic news comes not just from exports and imports. Actual sales data of several other sectors have also shown a disappointing result, indicating that our economy is still vulnerable. Wholesale car sales until August 2019 dropped 13.4%, a major crash from 763,444 units (2018) to 660,286 units (2019). Furthermore, domestic cement sales (January-September 2019) also dropped, by 2.2%. This data implies that our infrastructure development is stagnant. The Government has run out of fuel (i.e. cash) to prime economic growth by spending on infrastructure. This is because Government tax income has dropped: actual tax income until the end of August 2019 was only 51.51% of the target – which is a horrifying shortfall that is big enough to trigger a State Budget crisis.

The above condition shows that our Government no longer has the strength to support economic growth and prevent our economy from going into a downward spiral. There is nothing to do but endure and wait until the economic cycle goes back up, and we do not know when or if that will happen. On the contrary, we must face a bitter reality in a short time: one where our economy sinks even deeper. The threat of global economic recession is not an illusion, but a reality that hits several advanced countries already. For example, Germany is officially in recession, and England is at a high risk for it. We can only hope that the European Union can be strong enough to handle the progress of recession and support global economic growth.

Other data showing the stagnation of Indonesia’s economy is related to electricity consumption. The growth of electricity consumption in the industrial sector until the end of September 2019 was only 1.13%, i.e. from 56.26 TWh (Terawatt hour) to 56.9 TWh. This increase already includes the amount of electricity used by new industrial customers. In other words, electricity consumption by old industrial clients is stagnant, or even negative.

Any economic policy we take in the future will be critical for our survival and growth. Unfortunately, current economic policies are moving in the wrong direction. They do not support the interest of the common people and are highly unprofessional: the focus is to cutting deficits and increasing State income by cranking up levies and tariffs – a tactic that makes it hard for the people to spend, especially the lower classes. These include cigarette taxes, health social security fees, 900 VA electricity fees, and toll fees. Depressed spending of the people will negatively impact economic growth, making it slower and causing recession and crisis to come faster.