High notes of RI’s economic performance in 2008 (by Cyrillus Harinowo)

Monday, 23 February 2009
The Jakarta Post

The report on the fourth quarter of Indonesia’s economic performance was issued recently. Not many positive comments were raised in the media, as if the report was just business as usual.

In the midst of so many bleak reports on the global economy, we may have to give a more appreciative response to what has been achieved by our economy.

The Central Statistics Agency (BPS) reported on Feb. 16, 2008 that the Indonesian economy posted a year-on-year growth of 5.2 percent in the fourth quarter of 2008. On a quarter-to-quarter basis, the economic performance declined by 3.6 percent.

 A famous analyst picked up the decline and forewarned that the Indonesian economy may suffer negative growth in the coming year. To remind us all, the Indonesian economy always runs on a seasonal pattern in which the fourth quarter always suffers a quarter-on-quarter decline.

In 2005, the fourth quarter declined by 2.18 percent but there was 6.1 percent growth on a year-on-year basis. The following years, the fourth quarter also suffered a 1.90 percent decline on a quarter-on-quarter basis in 2006 and 2.10 percent in 2007 but produced positive growth of 6.1 percent in 2006 and 6.3 percent in 2007 on a year-on-year basis.

With the performance in the fourth quarter, the economy grew by 6.1 percent in 2008.

This could make Indonesia one of the few fast-growing countries in the world that so far seem to be insulated from the rest of the world. The economy was primarily driven by two big sources, one is the sheer size of its population, and the other is the abundance of its natural resources.

These two drivers of growth sometimes work in concert. But at a time like this, the demographic power plays a more important role, while the resource-based economy plays a more supporting role.

With rising income, we saw more and more people join the middle class. In 2008, the GDP per capita surged to US$ 2,217 (Rp 26,360,000) from US$ 1,942 a year before.

The 14 percent increase in GDP per capita and the continued growth of the population made the GDP exceed half a trillion dollars for the first time in history. This figure is far ahead of the prediction by Goldman Sachs, which indicated that in 2010, GDP may reach US$ 419 billion (“N-11: Not just an acronym”). Apparently, Indonesia was able to manage a GDP that is 25 percent higher in 2008 than the 2010 forecast.

With such income, 23 million people, or 10 percent of the population, earned around US$ 7,000 per capita. This is almost the same size as the entire Malaysian population with roughly the same income per capita. Along these lines, 69 million Indonesians, or 30 percent of the population, earned around US$ 4,000 per capita.

This is larger than the entire population of Thailand with a higher income per capita. Therefore once again this gave formidable power for the economy to grow. With such a performance, it is no longer a surprise that the Starbucks and Coffee Bean counters in Indonesia keep growing rapidly at the time when our Australian neighbor just closed 61 out of a total of 84 Starbucks stores.

Similarly, it is no surprise that the ice-cream consumption in Sumatra increased by almost 100 percent in 2008 alone. The list of such products continues to grow from year to year.

With the strength of its demographic, the economy may continue to grow in 2009 through the rise of its consumption expenditure. In 2008, the growth of the consumption expenditure of the GDP was 5.3 percent, while the share of this expenditure was 61 percent of the economy. Early indications show that the first two months of 2009 continue to post positive consumption growth.

With the expected increase of bumper crops from the rice paddies in the first quarter, we are hoping that the economy will still be in positive territory in the first quarter of 2009. Once this can be achieved, it will enhance consumer confidence for the rest of the year.

The 2008 economic performance was also exceptional for capital formation. Indonesia enjoyed a high investment ratio during the years of its rapid development, before the Asian crisis in 1997.

In those years, the investment ratio usually hovered above 30 percent. But the ratio dropped significantly after the crisis and went below 20 percent. Very slowly the investment ratio has picked up and accelerated in the past few years.

In 2008, the investment ratio posted a respectable level of 27.7 percent, getting closer to the pre-crisis level. The high rate of investment was primarily driven by high expectations at the time of the economic boom. At the same time, the banking system in 2008 was also very conducive in fuelling the growth of investment. That may not be the case in 2009.

The business community will feel the pinch of the credit crunch in the coming months, even though the central bank has indicated a loosening of its monetary policy. Therefore economic stimulation from other sources is critical in compensating for private investment. While it may not have been intended, the government’s coffers seemed to be full at the beginning of 2009.

From my records, Bank Indonesia’s data showed a total of more than Rp 170 trillion in government reserves. That amount was more than double its reserves in the previous year.

Therefore, the government has the ability to frontload the economic pump-priming by promoting infrastructure developments. The recently reopened access bridge to Cakung near Tanjung Priok Port showed the capacity of the government to jump-start development by taking over the responsibility to rebuild the bridge from the Jakarta provincial government. In West Kalimantan, the Pontianak-Tayan highway, one stretch of the Trans-Kalimantan Highway, is in the midst of construction preparation. Once completed, the highway will help cut the traffic time to the hinterland, including to Entikong on the border with Malaysia. The economic benefits will be promptly enjoyed by the population as well as the business community. Such an effort has long been delayed, and therefore once completed, it will be praised by the entire population.

The outlook for 2009 may not be as good as 2008. However, it is my belief that this year will not totally disappoint us. (The Jakarta Post)