Update COVID-19 in Indonesia: 29,521 confirmed infections, 1,770 deaths (5 June 2020)
05 June 2020 (closed)
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Although Indonesia's economic growth in the first quarter of 2016 was below analysts' estimates, most analysts agree that the nation's economic growth in the second quarter of the year could reach 5 percent (y/y), supported by domestic consumption and capital inflows. In Q1-2016 Indonesia's economic growth climbed at a pace of 4.92 percent (y/y) - accelerating from the 4.73 percent (y/y) GDP growth pace in the same quarter one year earlier - but significantly below estimates of most analysts. For example, Bank Indonesia expected GDP growth around 5.1 - 5.2 percent (y/y).
Su Sian Lim, economist at HSBC Bank, said Indonesia's (disappointing) economic growth in the first quarter was supported by domestic consumption and investment growth. These matters managed to offset the negative impact of weakening exports (since 2012 when global commodity prices Indonesia's export performance has weakened sharply). Regarding the second and following quarters Lim expects to see a GDP growth pace of 5 percent (y/y) each quarter, particularly if the impact of the lower benchmark interest rate and the government's 12 economic policy package is felt.
In the first three monthly policy meetings this year, Bank Indonesia cut its key reference rate (BI rate) from 7.50 percent to 6.75 percent. However, Bank Indonesia also acknowledged that its BI rate is not effective enough to influence borrowing costs and market liquidity and therefore will adopt a seven-day reverse repurchase rate (reverse repo) per 19 August 2016.
The government's 12 economic policy packages, that have been unveiled since September 2015 generally aim at boosting Indonesia's economic growth. One of the key strategies is to improve the investment climate through offering tax incentives and deregulation as well as lower energy tariffs for specific industries and offering more opportunities for foreign investment. However, the government of Indonesia has a solid track record in terms of designing policies but failing in the effective and full implementation of these policies. Given Indonesia's weak Q1-2016 GDP growth the real impact of these packages is yet to be felt.
Economic Stimulus Packages of the Indonesian Government:
|• Boost industrial competitiveness through deregulation
• Curtail red tape
• Enhance law enforcement & business certainty
|• Interest rate tax cuts for exporters
• Speed up investment licensing for investment in industrial estates
• Relaxation import taxes on capital goods in industrial estates & aviation
|• Cut energy tariffs for labor-intensive industries|
|• Fixed formula to determine increases in labor wages
• Soft micro loans for >30 small & medium, export-oriented, labor-intensive businesses
|• Tax incentive for asset revaluation
• Scrap double taxation on real estate investment trusts
• Deregulation in Islamic banking
|• Tax incentives for investment in special economic zones|
|• Waive income tax for workers in the nation's labor-intensive industries
• Free leasehold certificates for street vendors operating in 34 state-owned designated areas
|• Scrap income tax for 21 categories of airplane spare parts
• Incentives for the development of oil refineries by the private sector
• One-map policy to harmonize the utilization of land
|• Single billing system for port services conducted by SOEs
• Integrate National Single Window system with 'inaportnet' system
• Mandatory use of Indonesian rupiah for payments related to transportation activities
• Remove price difference between private commercial and state postal services
|• Removing foreign ownership cap on 35 businesses
• Protecting small & medium enterprises as well as cooperatives
|• Lower tax rate on property acquired by local real estate investment trusts
• Harmonization of customs checks at ports (to curtail dwell time)
• Government subsidizes loans for export-oriented small & medium enterprises
• Roadmap for the pharmaceutical industry
|• Enhancing the ease of doing business in Indonesia by cutting procedures, permits and costs|
Lim added that Indonesia's economic growth cannot rely on the government's infrastructure budget alone, particularly as public infrastructure spending has not been optimal so far this year.
Ali Setiawan, Head of Global Market at the HSBC Bank, said one of the key parameters to assess the pace of economic growth in Indonesia is the fast moving consumer goods industry (including food and beverage products). Contrary to the situation last year when sales in the fast moving consumer goods industry tended to slow ahead of the Ramadan and Idul Fitri celebrations, this year sales are expected to rise. If indeed consumer spending improves, then a 5 percent (y/y) GDP growth pace is likely in Q2-2016.
For the HSBC Bank Indonesia is a key market in the ASEAN region as Southeast Asia's largest economy contributes 35 percent to ASEAN's total economy and accounts for 40 percent of ASEAN's population.
Indonesia's Quarterly GDP Growth 2009-2016 (annual % change):
|Year|| Quarter I
||Quarter II||Quarter III||Quarter IV||Full-Year|
Source: Statistics Indonesia (BPS)