March 8, 2016 edition
The tumbling of oil prices has rippled through the world economy in varying and unexpected ways. The same holds for its impact at home. Here, the government's oil revenue has shrunk and with the sluggish economy, tax revenue continues to fall below government targets. As a result, the government is reassessing its 2016 budget and is reluctantly forced to reduce its spending. Furthermore, not only is government revenue down, but the alternative funding source of issuing government bonds or borrowing is reaching its limits. The country's debt service ratio is already at 56 percent and the budget deficit to GDP is getting close to the legally mandated 3 percent. Given the lukewarm relationship with the House of Representatives, tweaking the debt limit is a step the government, understandably, wants to avoid.
So, unable to rely on exports and government spending to revive the economy, the government is forced to rely on the two remaining growth drivers, which are investments and consumption. The government has already opened the economy to foreign investment, as far as is politically acceptable, and any growth impact is still a long way down the road. This is why the emphasis now is on boosting consumption. And related to this is also why reducing bank lending rates for bank loans to grow, then spur consumption and eventually the economy, is a major priority.
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More Economy articles in other editions
March 1, 2016 edition
When the 2008-2009 global financial crisis exploded, fingers were pointed at banks. Wall Street was identified as the glutinous giant, the harbinger of disasters. Now, that feeling of animosity is starting to infect Indonesia.
Indeed, banking here is very profitable. One simple yardstick is the net interest margin (NIM), the bank's profits from the difference between interest on deposits and interest on loans. In 2015, the NIM of Indonesian banking was 5.39 percent, almost triple the NIM of Singaporean banking which was lower than 2 percent. DBS, a Singaporean bank with the biggest assets in Southeast Asia, clocked a mere 1.94 percent NIM compared to BRI's 7.8 percent.
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February 23, 2016 edition
THREE days after announcing the ninth economic policy package on the import of cattle from India, Coordinating Minister of the Economy Darmin Nasution was already fielding complaints. In a letter sent in early February, General Chairman of the Indonesian Cow and Buffalo Breeders Association, Teguh Boediyana, asked the government to cancel the policy. "India is among the countries not yet free of the hoof-and-mouth disease," he said on Thursday last week.
The government's decision to open up the market to Indian beef imports was motivated by a two-year long rise in beef prices, which have now soared to Rp120,000-130,000 per kilogram. The price is double that of Malaysia, which has fewer cows and has green-lighted Indian imports. "The government has expanded the possibility of importing cattle or beef with a more flexible approach," indicated Darmin.
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February 16, 2016 edition
While preparing to fly from Halim Perdanakusuma Airport, Jakarta, to Cilacap, Central Java, last week, Livestock and Animal Health Director-General Muladno met with Chairman of the Association of Poultry Breeders (GPPU) Krisantono. Six prominent chicken breeders were also at the meeting.
Of primary concern was a recent accusation leveled by the Business Competition Supervisory Commission (KPPU) over the existence of an alleged 'broiler chicken cartel'.
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February 9, 2016 edition
The rupiah continues to perform better than expected, hovering steady just below Rp14,000 per US dollar. The rupiah and US dollar interest rate movements, which a month ago moved in opposite directions, has yet to adversely impact the rupiah. In fact, there is enough confidence that if inflation, at its current 4.1 percent level, can be maintained, it could lead to the possibility of a second 25 basis point cut in Bank Indonesia's benchmark interest rate.
But the stock market's Jakarta Composite Index (JCI) is underperforming, dropping to 4,500 for the last six months. The bond market, though, is doing better, attracting both local and foreign investors. The question is how sustainable is this trend? Some are pointing to the negative interest rates in Japan and the low yields of other global currencies. The argument is that the resulting interest differential, between these currencies and the rupiah, is wide enough to cover the rupiah exchange rate volatility. This is why maintaining a stable rupiah becomes critical.
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February 2, 2016 edition
The sight of an empty livestock pen aboard the Camara Nusantara I caused ripples of panic in the agriculture ministry last December. Ten government agencies and state and region-owned enterprises gathered at the agriculture ministry in Ragunan, South Jakarta, early in January to discuss what to do.
Since December 11, the vessel, owned by the Indonesia National Sailing Company (Pelni), has been unable to transport cattle, with breeders and traders bristling at the government's benchmark price of Rp35,000 per kilogram of live cattle.
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January 26, 2016 edition