Fri, 27 Feb 2009
From: Asia Times
By Terry Lacey
ImageIndonesia's macro performance doesn't look that bad – but keep protectionism at bay

Indonesian Industry Minister Fahmi Idris and Trade Minister Mari Pangestu are having a row about shoes. Neither of them wants to be in the other one´s shoes but both are treading on each other's feet. He wants Indonesian civil servants to be ordered to buy local shoes. She wants to sign and implement ASEAN Free Trade Agreements with Australia, New Zealand and India. Which is right?

After a joint press conference with United States Secretary of State Hillary Clinton on last Wednesday, Indonesian Foreign Minister Hassan Wirajuda confirmed that the United States was expected to provide up to US$5 billion to Indonesia in bilateral swap and contingency funds to be used if necessary help bolster the economy along with support from the World Bank, Japan and others.

He added that "We hope that during the crisis the US and the rest of the world will avoid protectionism".

But if they are to avoid it, then so must Indonesia. Last Friday, the government tightened regulations on the import of 202 iron and steel items in a bid to protect local producers caught in the economic slump, requiring importers to obtain licenses and file reports of shipments to state-appointed surveyors. Because currently importers are required to pay import taxes but many don't, thus avoiding the taxes, the new regulations skirt protectionism. The government has promised not to exercise the decree against countries that have signed bilateral agreements including Australia, Japan, China and others.

Despite the emphasis on potential support Indonesia might need if the global crisis hits harder, Indonesia is not doing so badly. Economic growth in 2008 still averaged 6 percent despite a downturn in the last quarter, with 2009 growth forecast at 4.5 to 5.5 percent.

The powerful state budget for 2009 is about US$83 billion dollars, 30 percent of it being pumped into regional infrastructure and development to make up for shortfalls in exports and associated job layoffs. Imports will fall as well as exports, so there may even be a net gain on trade. The budget deficit might reach $11.6 billion or about 2.6% of Gross Domestic Product. Indonesia already has standby loans of $6 billion not counting the $5 billion from the US and can issue bonds into a fairly robust bond market to help cover the gap.

Indonesian private sector news is not all bad. The PT. Tambang Batubara Bukit Asam coal firm plans for a 20 percent increase in revenue in 2009. Garuda Indonesia expects a 15 percent increase in air cargo revenue with its new door-to-door parcel service, and has reduced its debt from $700 million to $400 million. The oil and gas industry just increased its inward investment projection for 2009 from $13.15 billion to $14 billion, compared to $11 billion last year. State investment company PT Danareksa announced a 49 percent profit on a $2.2 billion turnover in 2008 with assets up 53% from 2006 to 2007.

The Indonesian banks are holding up. Some big loans are still coming from outside while regional state banks are being pulled into the battle to keep liquidity up, alongside the national state banks.

Indonesian consumer confidence is high. Credit card transactions rose 45% in 2008 on an 11.5 million card customer base, reaching $9 billion turnover.

But 2009 will be the year of hard knocks. Plus there are general elections in April and Presidential elections in June. So the state has to show what it can do. To move faster and optimize what Indonesia has. And minimize economic damage from the Western recession.

Singapore is in serious recession. So is Japan. Indonesia is not.

The reason is the Indonesian economy is less integrated into the global system. It is propelled 70 percent by its own consumption, plus the impact of inward investment and of the net balance of trade, usually in its favor, from exporting commodities as well as manufactures.

Even now Sharp is moving refrigerator and air conditioning factories from China to Indonesia. And Chinese goods being smuggled into Indonesia are more expensive than the Indonesian goods they compete with. Their only chance is to bribe corrupt officials so illegal goods can avoid taxes.

The government should focus on catching these traitors who are guilty of economic treason, rather than Fahmi Idris, Minister of Industry and Mari Pangestu, Minister of Trade fighting it out over economic nationalism versus free trade. ASEAN Governments must balance optimizing local resources with mutual support at ASEAN level. Indonesia needs her closest friends and vice versa.

More South-South trade and investment with Muslim and Arab states, including more emphasis on shariah banking, will help balance the future global system. This means a fairer sharing of global economic power in relation to UN, World Bank, IMF and WTO, also reducing future risks of another Western-led global crisis.


Terry Lacey is a development economist who writes from Jakarta on modernization in the Muslim world, investment and trade relations with the EU and Islamic banking.



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