Maintain Spending to Support National Economy

Th economy must be strengthened in the face of global conditions. Spending must also be maintained.

KOMPAS/PRIYOMBODO

A fashion brand advertises a storewide sale in the display window of its outlet at a South Jakarta shopping mall on 20 Dec. 2019.

JAKARTA, KOMPAS –The economy must be strengthened and its potentials optimized. Space to boost economic growth must also be utilized optimally.

Spending– as the main driver of economic growth – must be maintained to stop it from weakening. The government must be careful in issuing policies to prevent them from having a negative impact on people’s purchasing power.

These various steps are needed to face global economic risks, expected to increase in early 2020. Despite the declining risks of the Sino-American trade war, the world is increasing its vigilance over the global health emergency brought about by the new coronavirus spreading from Wuhan, China. Other additional risks including the US-Iran conflict and the Brexit development.

“Looking at global conditions and current uncertainties, we must immediately strengthen our economy. We must maximize our domestic potentials as we do not have much hope on uncertain external conditions,” Center of Reform on Economics (Core) Indonesia executive director Mohammad Faisal said in Jakarta on Thursday (6/2/2020).

Statistics Indonesia (BPS) data shows that Indonesia’s economy grew at 5.02 percent in 2019. Of this figure, spending contributed 2.73 percent and investment 1.47 percent.

We must maximize our domestic potentials as we do not have much hope on uncertain external conditions.

Household spending grew 5.04 percent in 2019, slightly lower than the 5.05 percent in 2018 but still higher than the 4.94 percent in 2017. In the fourth quarter of 2019, spending grew 4.97 percent year-on-year (yoy), compared to 5.01 percent (yoy) in the year’s third quarter.

Faisal said he was concerned spending growth in the first quarter of 2020 would be lower than 5 percent.

“There is a push and pull with regard to the state budget. However, under current conditions, I believe we must prioritize household spending as this will have a bigger impact on the economy,” Faisal said.

Core Indonesia research director Piter Abdullah Redjalam said he also warned about weakening household spending carrying capacity on the economy.

Government spending growth also slowed from 4.8 percent in 2018 to 3.25 percent in 2019. This condition is due to the declining realization of operational and non-operational spending as well as service spending.

BPS chief Suhariyanto said the household spending growth slowdown had been triggered by changes in spending patterns. For instance, the middle-income segment has not been purchasing new clothes regularly.

KOMPAS/TOTOK WIJAYANTO

Workers install external panels at a building site on Sunday (2 Feb. 2020) in Setiabudi, South Jakarta. Bank Indonesia has estimated economic growth of 5.1 percent for 2019.

Protect purchasing power

Deputy of macroeconomy and finance at the Office of the Coordinating Economic Minister, Iskandar Simorangkir, said that, in the short term, the government would focus on protecting purchasing power of the 40 percent poorest and almost-poor group. Apart from distributing social spending, purchasing power will also be boosted through empowering micro, small and medium enterprises. Tax and interest rates for smallholder businesses will also be reduced.

Meanwhile, Indonesian Food and Beverage Producers Association (GAPMMI) chair Adhi S Lukman said that he suggested the government to encourage spending with direct impact to consumption. “Another move is to aim it at infrastructures in densely-populated areas for the time being,” he said.

On the contrary, head of macro research at the University of Indonesia’s Institute of Economic and Social Research (LPEM UI), Febrio Kacaribu, said that he believed consumption would grow gradually in 2020. This is achievable as long as inflation rate is under control.

Therefore, inflation control in early 2020 must be supported by prudent monetary policies.

This problem must be taken care of one by one until we can execute them all.

“In the future, lower commodity prices as well as external and domestic uncertainties contribute to weakening investment and consumption,” Febrio said.

Inflation rate was 2.72 percent in 2019. This year, Bank Indonesia targets inflation rate to be at between 2 percent and 4 percent. In the 2020 state budget’s macro assumption, inflation rate is projected at 3.1 percent.

Meanwhile, economic growth in the 2020 state budget’s macro assumption is 5.3 percent. The central bank projects that Indonesia’s economy grows by between 5.1 percent and 5.5 percent this year.

Brawijaya University economy professor Ahmad Erani Yustika said that the government had three options to push for economic growth. First is to optimize credit distribution that has been approved but is not yet realized, namely at Rp 1.6 quadrillion (US$117.26 million).

“This is twice the amount of national annual investment. This problem must be taken care of one by one until we can execute them all,” Erani said.

The next option, Erani said, would cover licensing, contracts, property registration, taxation issues and border efficiency. These issues have obstructed investment and must be resolved.

The last option is integrating tourism, manufacturing, creative economy, energy and food sectors with information technology. This must be done soon to yield the added-value economy.

Investment

With regard to the hope of boosting growth through investment, Faisal said that investment issues exist in the system and will not be solved merely through omnibus laws.

In 2019, investment grew 4.45 percent yoy. This is lower than 6.15 percent in 2017 and 6.64 percent in 2018.

Investment Coordinating Board (BKPM) data shows that investment realization in Indonesia was Rp 809.6 trillion in 2019.

Related to industries, Industry Minister Agus Gumiwang Kartasasmita said that his ministry projected industries to grow by 5.3 percent in 2020.