A further downward revision of Indonesia’s forecast economic growth by the central bank shows the economy is under stronger pressure from the global financial crisis, the Indonesian Chamber of Commerce and Industry (Kadin) says, urging the government to take more rapid steps to mitigate the crisis.
Bank Indonesia (BI) has revised downward the bank’s economic growth forecast to between 3 percent and 4 percent from their previous estimate of between 4 percent and 5 percent, as investment and exports have plummeted, BI senior deputy governor Miranda S. Goeltom said last week.
“The revision by BI shows that our economy is getting worse. The government and the House of Representatives need to take swift measures by focusing on implementation of projects in the economic stimulus package,” Bambang Soesatyo, the head of domestic trade committee at the Indonesian Chamber of Commerce and Industry (Kadin), said on Sunday.
Bambang cited the latest data from the customs and excise office showing that export growth in the first quarter of this year had already dropped 30 percent, compared to the same period last year, while investment will probably also slide further as compared to earlier estimates, due to the continued drying up of financial liquidity.
According to the Central Statistics Agency, exports in January contracted by 36 percent from a year earlier as demand fell. BI has estimated exports would contract by as much as 28 percent during the whole of this year, compared to 2008, while Kadin is predicting that there may be a far worse drop, of up to 50 percent.
These drops in exports and investment, coupled with a decline in domestic demand, will cause the economy to expand at less than the government’s latest hoped for target rate of about 4.5 percent this year.
In the banking sector, the rate of non-performing loans will likely increase significantly as revenues fall. According to BI, loans under special surveillance rose by Rp 9.14 trillion in January to Rp 84.72 trillion.
“The economy is not only declining. The growth quality may not be so good, with increases in the number of people unemployed and living in poverty,” said Bambang.
The government has yet to fully implement its stimulus package for infrastructure projects, which is expected to be launched in March. That may further undermine the economy, he added.
“We are worried that the government has not acted in a crisis framework ... We expect the government to remain focused (in mitigating the impact of the crisis) even in the pre-election period,” he said.
The government has allocated Rp 12.2 trillion of the stimulus package towards infrastructure and rural development projects out of a total Rp 73.3 trillion budgeted for economic stimulus purposes.
However, according to the Finance Ministry, the Agriculture Ministry, the Trade Ministry, the Transportation Ministry and Manpower and Transmigration Ministry have all requested more time to plan the stimulus spending, confirming the views of some experts that bureaucratic slowness might be the weakest link in the stimulus plan.
The Agriculture Ministry, for example, has difficulties planning the building of roads linking agricultural areas with processing and marketing areas, and highways connecting villages with cities.
The Transportation Ministry has difficulties in project spending relating to railways and the construction of a strategic national highway.
Aside from the stimulus, Indonesia is hoping to obtain some financial or economic support from the decisions of the world’s 20 largest economies grouped under the G-20.
Finance Minister Sri Mulyani Indrawati recently flew to London for a pre-summit G20 meeting to discuss how to restore and maintain flows of funds to emerging countries and to help restore global demand.