http://asiasentinel.com/index.php?option=com_content&task=view&id=1738&Itemid=226
National or Global Interest?
Written by Terry Lacey
Monday, 23 February 2009
Indonesia'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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