Indonesian economic slowdown : should we push the panic button?

Havidz Ibrahim
Program Diploma IV Akuntansi Kurikulum Khusus Tahun Akademik 2015-2016,
Politeknik Keuangan Negara - STAN, Jakarta
Abstract - Indonesia, as a part of the international economic activity, had been recorded to got an impact of the
global financial crisis at least six times .two heavy crisis in 1960s, two medium crisis in 1980 and the last two
crisis has been recorded in 1998s as an impact of an Asian economic crisis (AFC) and in 2008 as an impact of
the Global Financial Crisis (GFC).Nowadays, just seven years after the last crisis, Indonesia still got no
imunity of being impacted by the global financial condition. As recorded along 2014 untill 2015 period,
Indonesia had been affected by the global economic slowdown. As 2015 already came to it ends, the global
economy remains week. With few signs that 2016 will bring any improvement, policymakers would be wise to
understand the factors underlying the global economys anaemic performance and the implications of
continued feebleness. The most important thing we should learn is, how big will the global economic slowdown
impacts Indonesia,what is the underlying factors of the Indonesian economic performance, what have we done
and what do we have to do next to make a preparation of facing that problem. Should we take some
anticipation action, or should we just stay relax like the former minister of finance, Mr. Chatib Basri, said
sitting on the bench and enjoying our part of the international economic activity that will lead us whereever
the global economic situation go. In this paper, I am trying to quantitatively compare the global economic
condition and the indonesian economic condition in 2015 using the available and widely used economic
indicators. Then, I am trying to qualitatively make a conclusion about the indonesian economic condition and
make any necessarry sugestion to anticipate another crisis in the future.
Keywords : world economic, economic slowdown, indonesia economic slowdown

1. Introduction
Indonesia founding purpose, among others, is to promote the general welfare and educating
the nation. Meanwhile, Welfare and intelligence in today's era often refer to the financial
problems. In other words, economic conditions conduciveness is required to support the
country in order to provide the welfare and intelligence for all citizens. Therefore it is
incumbent upon the government to provide a conducive economic conditions. In creating the
favorable economic conditions, there are several threats and obstacles, one of which is the
economic crisis. The economic crisis could have broad impact on a country. The weakening
of the currency, rising inflation, increasing unemployment along with the increasing poverty
even rising crime to cause regime change that essentially lead to failure to achieve the
establishment of a state according to Indonesia founding purpose in UUD 1945. In the era of
the international economy, the economic condition in such a country certainly will have an
negative or positive impact on other countries, including the global economic slowdown
would also affect the economic slowdown in Indonesia. Continued and not properly treated
economic slowdown can lead a country to a deeper economic recession or even a depression.
1 Indonesian economic slowdown : should we push the panic button?

Learning about the economic slowdown and the causes become important considering that
Indonesia, as part of the international economic world, is not immune or can even be said to
be highly vulnerable to the risk of contracting the impact of the international economic
slowdown. How is the readiness of a country to mitigate the risk of economic crisis, how
attitudes and policies taken by the government in the face of economic crisis affects the
durability of these countries to the effects of the international economic slowdown is really
things that should be discussed at this time. In this paper, I will discuss some of the following
topics:
- Facts and conditions about global economic slowdown
- Analysis of the economic slowdown in Indonesia
- And in the end, conclude how is the current economic condition affect Indonesia, and
what do the government and all other parts have to do considering the economic
slowdown
2. Methodology
In this paper, I will present quantitative and qualitative data related to the economic
conditions in the world at the time of economic slowdown such as economic growth rates, the
level of exports in developed countries, the poverty rate, unemployment rate, employment
growth and the opinion of some experts about global economic conditions currently. I will
also present quantitative data regarding the condition of the Indonesian economy at the time
of economic slowdown in 2015 that reflected in indicators that are common to measure the
economic performance of a country such as growth rates, government spending, monetary
policy, unemployment, poverty and the weakening of the rupiah. Then, I will provide a
qualitative description and opinion of the experts regarding the efforts made by the
government considering the international economic slowdown so we can conclude about the
risk control measures in order to face the impact of the international economic slowdown.
Public finance theories relevant to this paper is the theory of the international economic
crisis. In general, the economic crisis can be defined as an event in which all economic
sectors world markets collapsed and affect other sectors around the world. The economic
2 Indonesian economic slowdown : should we push the panic button?

crisis could theoretically occur for several reasons, such as the economic slowdown of the
great powers in the world, strengthening of currencies of certain countries or even caused by
conditions and political climate of a country. The economic crisis also may have an impact on
a few things such as the reduction of the balance of payments, the pressure on the currency
exchange rate and even boost the rate of inflation.

3 Indonesian economic slowdown : should we push the panic button?

3. Discussion
3.1. The IMFs World Economic Outlook
The International Monetary Funds World Economic Outlook (WEO) is a flagship publication
explaining recent trends in the global economy and the outlook for the months and years
ahead. These are two steps form the building blocks to understanding the 2016 economic
condition according to the IMF, and why the world economy is stalling :
a. Recent and forecasted Development
According to a literature in the financialtimes.com, global economic activity is explained
to be remained subdued in 2015. Growth in emerging market and developing economies
while still accounting for over 70 percent of global growthdeclined for the fifth
consecutive year, while a modest recovery continued in advanced economies. Three key
transitions continue to influence the global outlook: (1) the gradual slowdown and
rebalancing of economic activity in China away from investment and manufacturing
toward consumption and services, (2) lower prices for energy and other commodities,
and (3) a gradual tightening in monetary policy in the United States in the context of a
resilient U.S. recovery as several other major advanced economy central banks continue
to ease monetary policy. Overall growth in China is evolving broadly as envisaged, but
with a faster-than-expected slowdown in imports and exports, in part reflecting weaker
investment and manufacturing activity. These developments, together with market
concerns about the future performance of the Chinese economy, are having spillovers to
other economies through trade channels and weaker commodity prices, as well as
through diminishing confidence and increasing volatility in financial markets.
Manufacturing activity and trade remain weak globally, reflecting not only developments
in China, but also subdued global demand and investment more broadlynotably a
decline in investment in extractive industries. In addition, the dramatic decline in imports
in a number of emerging market and developing economies in economic distress is also
weighing heavily on global trade. According to the IMFs WEO data, growth in emerging
4 Indonesian economic slowdown : should we push the panic button?

market and developing economies is projected to increase from 4 percent in 2015the

lowest since the 200809 financial crisisto 4.3 and 4.7 percent in 2016 and 2017,
respectively. Growth in China is expected to slow to 6.3 percent in 2016 and 6.0 percent
in 2017, primarily reflecting weaker investment growth as the economy continues to
rebalance. India and the rest of emerging Asia are generally projected to continue
growing at a robust pace, although with some countries facing strong headwinds from
Chinas economic rebalancing and global manufacturing weakness. The weakening of
the Chinese economy as the largest country in the ranks of developing countries also
influence economic conditions in ASEAN, overall growth in ASEAN grew 0.1 percent at
a rate of 4.6 percent but still lower than the initial estimate should reach 4.7 percent and
still remains below the level of economic growth in overall Asian countries. The growth
rate in ASEAN countries is also estimated to grow only to 4.8 percent in 2016 and 5.1
percent in 2017. This reflects the stagnation of growth rates tend to lead to a recession.
Recent and forecasted economic growth in emerging market and developing country
8

7 7.3
6.8
6

7.3
6.9
6.6

7.5

7.5

6.3

4.7

4.8

6.2
6
5.1

4.6

Emerging and
Developing Asia
China
India

ASEAN

2
1
0
2014

2015

2016

2017

Chart 1 : overview of the emerging and developing country economic adapted from the 2016 IMFS W.E.O

b. Oil, Commodity and consumer price

According to an analysis prepared by the financial times team, oil prices have stated to
be declined markedly since September 2015, reflecting expectations of sustained
increases in production by Organization of the Petroleum Exporting Countries (OPEC)
members amid continued global oil production in excess of oil consumption. One
5 Indonesian economic slowdown : should we push the panic button?

Futures markets are currently suggesting only modest increases in prices in 2016 and
2017. Prices of other commodities, especially metals, have fallen as well. Lower oil
prices strain the fiscal positions of fuel exporters and weigh on their growth prospects,
while supporting household demand and lowering business energy costs in importers,
especially in advanced economies, where price declines are fully passed on to end users.
Though a decline in oil prices driven by higher oil supply should support global demand
given a higher propensity to spend in oil importers relative to oil exporters, in current
circumstances several factors have dampened the positive impact of lower oil prices.
First and foremost, financial strains in many oil exporters reduce their ability to smooth
the shock, entailing a sizable reduction in their domestic demand. The oil price decline
has had a notable impact on investment in oil and gas extraction, also subtracting from
global aggregate demand. Finally, the pickup in consumption in oil importers has so far
been somewhat weaker than evidence from past episodes of oil price declines would
have suggested, possibly reflecting continued deleveraging in some of these economies.
Limited pass-through of price declines to consumers may also have been a factor in
several emerging market and developing economies. Headline inflation has broadly
moved sideways in most countries, but with renewed declines in commodity prices and
weakness in global manufacturing weighing on traded goods prices it is likely to soften
again. Core inflation rates remain well below inflation objectives in advanced
economies. Mixed inflation developments in emerging market economies reflects the
conflicting implications of weak domestic demand and lower commodity prices versus
marked currency depreciations over the past year.

6 Indonesian economic slowdown : should we push the panic button?

Commodity Prices (U.S. dollars)

20
10
0
2014
-10

2015

2016

2017

-20
-30
-40
-50
-60
Chart 2 : overview of the Commodity price adapted from the 2016 IMFS W.E.O

Consumer Price
7
6
5 5.1

5.5

5.6

5.9

Emerging Market and

Developing Economies 4/

4
3
2
1

1.4

0
2014

Advanced Economies

1.1
0.3
2015

2016

1.7
2017

Chart 3 : overview of the World Consumer price adapted from the 2016 IMFS W.E.O

Finally, we can make a conclusion that Risks to the global outlook remain titled to the
downside and relate to ongoing adjustments in the global economy. A generalized slowdown
in emerging market economies, Chinas rebalancing, and the lower commodity prices. If
these key challenges are not successfully managed, global growth could be derailed.
3.2. The Economic Condition in Indonesia
To illustrate the economic condition in Indonesia, we are using some common and widely
used indicators that have been used to measure the economic condition in a country. Such as,
the growth rate, government spending, monetary policy, inflation rate, unemployment,
poverty and the weakening of the rupiah.
a. The growth rate
According to the statistics prepared by the BPS in its monthly social-economic report,
Indonesia's economy in the third quarter of 2015 compared to the third quarter of 2014
(y-on-y) grew 4.73 percent increase compared to the achievements of the second quarter
7 Indonesian economic slowdown : should we push the panic button?

of 2015 amounted to 4.67 percent. Indonesian Economy in the third quarter of 2015
compared to the previous quarter (q-to-q) grew by 3.21 percent. On the production side,
Indonesia's economic growth in the third quarter of 2015 compared to
the third quarter of 2014 (y-on-y) is supported by virtually all of the industry, except
Mining and Quarrying contraction of 5.64 percent. The highest growth was achieved by
the Information and Communication 10.83 percent, followed by Financial Services and
Insurance by 10.35 per cent and Education Services at 8.25 percent. Indonesia's
economic growth in the third quarter 2015 to the second quarter of 2015 (q-to-q) occurs
in almost all fields of business, except for Procurement of Electrical and Gas contracted
by 0.85 per cent. The highest growth achieved by the Financial Services and Insurance
by 7.03 per cent, followed by Agriculture, Forestry and Fisheries of 5.09 percent, and
construction services amounting to 4.88 per cent. Growth in the third quarter of 2015 was
marked by several seasonal business factors such as Agriculture, Forestry and Fisheries
in which in particular condition, some of its superior commodities experience harvest.

GDP Growth Rate Quarter I-2014 to the third quarter-2015 (percent)

6
5.03
5.01
5 5.14
4.92
4.73
4.72
4.67
4
3.83
3.78
3.21
3.16
3
2
1
0 0.11
-0.18
Q1-1/ 2014 Q2 / 2014 Q3 / 2014 Q4 / 2014 Q1 / 2015 Q2 / 2015 Q3 / 2015
-2
-2.06
-3

q to q
y to y

Chart 4 : GDP growth rate comparison adapted from the BPS monthly social-economic report

From the charts and explanations above, we can make a conclusion that the Indonesian
economy is growing. However, the pace of economic growth in Indonesia on the other
hand actually slowed from year to year. This can be seen in the social-economic monthly
report published by BPS in January 2016 where the pace of GDP growth rate slowed
from 2012 to 2014. Indonesian economic growth does not even reach the annual target
set by the government at 5.7 percent in 2015.
8 Indonesian economic slowdown : should we push the panic button?

GDP pace of growth rate (percent)

8
6

6.63

5.58

5.02

4.67

GDP pace of growth rate

2
0
2012

2013

2014

2015

Chart 5 : GDP pace of growth rate fully adopted from the BPS monthly social-economic report

b. The Inflation, poverty, currency rate and the foreign exchange reserve
In December 2015, we have an inflation rate of 0.96 percent. Of the 82 cities, noted that
the whole town experienced inflation. according to statistics presented by BPS, the
highest inflation rate was occured in Merauke by 2.87 percent with CPI of 131.04 and
the lowest rate of inflation occurred in Cirebon by 0.27 percent with CPI of 118.94.
Inflation in December 2015 amounted to 0.96 percent is lower than the state in
December 2014 experienced inflation of 2.46 percent. The inflation rate of calendar year
(January-December) 2015 and year-to-year inflation rate (December 2015 against
December 2014) respectively by 3.35 percent. According to the characteristics of price
changes, inflation in December 2015 amounted to 0.96 percent affected by a hike in
the index on the core components (core) for about 0.23 percent, component whose price
regulated by the government (administered prices) about 0.86 percent, and the volatile
components (volatile) for about 3.53 percent.

Chart 7 : CPI due to base effect - fully adopted from the world bank :Indonesia quarterly report 2015

9 Indonesian economic slowdown : should we push the panic button?

Rising or declining food prices contribute to determine the increase or decrease in

poverty levels. along with rising food prices, the number of residents who bear the status
of below the poverty line is increasing. Technically, the number of poor people is
strongly influenced by the poverty line, because the poor people are they who have an
average expenditure per capita per month below poverty line. During the period of
March 2015 - September 2015, the poverty line rose by 4.24 percent, from Rp330.776, per capita per month in March 2015 to Rp344.809, - per capita per month in September
2015. Poverty Line (PL), consisting of Line Food Poverty (FPL) and Non-Food Poverty
Line (NFPL). The role of the FPL is very dominant, reaching 73.07 percent in September
2015. According to the statistics provided by BPS, Number of poor in Indonesia in
September 2015 reached 28.51 million (11,13 percent), decreased 0.08 million compared
to poor people in March 2015 that as many as 28.59 million people (11,22 percent). This
condition can be achieved because nationally, the average price of rice decreased by 0.92
percent ie from Rp13.089, - per kg in March 2015 to Rp12.968, - per kg September
2015. In addition to rice, the retail price of other basic food items that has the decline is
cooking oil that is decreased 2.80 percent. But on the other hand, After decelerating
somewhat in September and October, food price inflation rose again in November in
month-onmonth terms. Although retail rice prices have increased at a more subdued pace
in the past two months, likely on the back of higher stockpiles, the prices of other food
commodities, such as meat and vegetables, picked up. The moderate to severe El Nio
conditions have adversely affected agricultural output across Indonesia this year,
increasing the volatility of food prices. However, according to the BPSs statement,
poverty is not just a problem of how the number and percentage of poor people. Another
dimension to consider is the level of depth and severity of poverty. In addition to efforts
to reduce the number of poor, poverty reduction policy is also related to how to reduce

10 Indonesian economic slowdown : should we push the panic button?

the depth and severity of poverty. This problem is compounded by the issue of
employment, as the latter rumored was about the closure of a number of large factories
and withdrawal of capital by multinational companies out of Indonesia. The global
economic slowdown and high inflation lowers the level of consumption that ultimately
led multinational companies to make an equity divestment out of Indonesia. The closure
of factories is also a threat for the Indonesian government in overcoming the problem of
unemployment who had always been a problem in this country. Hence, according to the
forex analyst, A. Muttaqina, said that IHSG is also under pressure since the beginning of
this year, to close at 4,481.28 yesterday, especially due to selling by foreign investors.
Net sell of foreign investors since the beginning of 2016 has reached a total of Rp3.08
trillion. The same thing happened the other exchanges market, the nuances of risk-off
that characterizes the current market makes investors tend to think twice.
Real world economic landscape increasingly worried by the falling price of oil breaks
down to 30 USD per barrel and continued concerns about China's economic slowdown,
which of these factors helped put Indonesia in risky conditions. The condition becoming
more difficult considering the Fed rate hike that will give a further limitation to the
ability of central banks in developing countries to stimulate the economy in terms of
monetary value. Or in other words, the interest rate will remain at a high level, as easing
could hit double the value of their currencies. On the other hand, economic growth will
be constrained by high interest rates, poses a dilemma that is not easily solved for the
government, entrepreneurs, and investors. Thats why the Rupiahs exchange rate remain
unstabble. Meanwhile, Indonesia's foreign exchange reserves continue to shrink in
October and November 2015. The latest foreign reserves report which was released on
December 7 recorded a decrease of 100.7 billion USD to 100.2 billion USD in the month
of November 2015.

11 Indonesian economic slowdown : should we push the panic button?

The explanation above, form the building blocks to understanding the 2015-2016 economic
condition in Indonesia. And lead us to a conclusion that Indonesian economic conditions,
although not too much, still affected by the global economic downturn that occurred in the
advanced and developed countries. it is becoming a challenge for the government to maintain
economic stability in Indonesia. Continued economic weakness will lead us to a recession or
even deeper economic crisis. Appropriate policies should be made, not only to overcome the
collateral damage of the economic slowdown, but also to prevent the economic downturn
occurs continuously causing a recession in the foreseeable future.

12 Indonesian economic slowdown : should we push the panic button?

4. Conclusion
The global economic slowdown, in a sense, has had an impact on the economy in Indonesia.
Evidently, from the data presented above, the decline / growth slowdown in global economic
conditions are always accompanied by a decline in the quality of Indonesian economy shown
by economic indicators that have been commonly used. But, as directed by the government,
of course we should not dissolve in panic. Excessive panic will cause new problems,
considering that the economic conditions of a country can also be affected by the global
sentiment. The excessive panicity will make economic conditions in Indonesia becomes
unstable and more vulnerable to a slowdown in economic growth that led to the recession.
However, the government and all interested parties also can not sit back waiting for the
global economy improves. Noted that some necessarry policies had been taken by the
government to mitigate the impact of global economic slowdown in Indonesia. Such as,
driving the pace of investment, infrastructure development, improving people's purchasing
power and other policies mentioned in some economic policy package (paket kebijakan
ekonomi) published by the president, Mr. Joko Widodo.
Various policies taken by the government is already on target, but need a long period to be
able to see the positive changes as a result of the policy. Some of the immediate solution need
to be made by the government, considering that the impact of the global economic slowdown
has already begin to be felt in Indonesia since 2015 untill now. The problems arising from the
economic slowdown, if not immediately and wisely responsed, will bring us into a more
serious problem. In the opinion of politicians and members of Parliament, Misbakhun, the
government should immediately strengthen the national tourism sector because we have
many attractive tourist destinations that could become an attraction in certain areas. It must
be balanced with the development of infrastructure to the tourist destinations so that public
access to these destinations is easy and it can also strengthen the economic conditions in the
13 Indonesian economic slowdown : should we push the panic button?

area. The development of the tourism sector must also be supported by the development of
the creative economy sector by opening more accommodative economic regulation. Those
are the things that will help us out of the economic slowdown we experienced now.
Meanwhile, according to Enny Sri Hartati, the Director of INDEF (Institute for Development
of Economic and Finance), "if we learn from the crisis in 2007/2008, the SME (Small or
Medium Enterprise also known as UMKM in Indonesia) sector is the largest business unit
in the structure of the Indonesian economy that not vulnerable to the financial crisis because
it has a relatively high local content and not overly dependent on banking financing".
Unfortunately, this time the SME sector has experienced a slowdown due to the low
purchasing power. Because of this, the government also needs to strengthen the domestic real
sector to stretched back SMEs. According to Ennys opinion, there are three ways to realize
the plan. First, expand current market access tend to be highly oligopolistic. Second, increase
access to capital for SMEs (credit), especially in the field of trade, the creative economy, and
labor-intensive industries that will maintain people's purchasing power and boost economic
growth. And the last is a commitment to improve the transfer of funds and local villages fund
(also known as Alokasi Dana Desa) accompanied by improved management systems and
transparency of budget allocation. Which obviously will be effective to provoke various
productive and competitive SMEs in accordance with the Governments Nawa Cita.
Finally, each party is responsible for the creation of stable and conducive economic condition
in Indonesia. Challenges faced by Indonesia in the future become much harder as we just
have been passing the era of international trade that demands openness of each country in
trade. So, many studies on international economic and financial crisis whould be necessarry.
Society must remain calm and trust the government, and the government should be able to
answer the trust given by the people to the policies that have an impact both on the economic
life of society.

14 Indonesian economic slowdown : should we push the panic button?

5. Reference
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Tran Van Hoa. 2004. Economic and Financial Crisis Management in Asia. University
of Wollongong Economic Working Paper Serries.
IMF. 2015. Indonesia : selected issues. IMF
IMF. 2016. World Economic Outlook : Subdued demand, diminished prospect January
2016 edition. IMF
BPS. 2016. Laporan Bulanan data sosial ekonomi Januari 2016. Jakarta. Badan Pusat
Statistik Republik Indonesia
The World Bank. 2015. Indonesia economic quarterly report : reforming amid
certainty. World Bank Group
Sentana, I Made. 2015. Five Things Analysts, Officials saying about Indonesias
Growth Slowdown. Didapat online darihttp://blogs.wsj.com/briefly/2015/05/05/5five-things-analysts-officials-are-saying-about-indonesias-growth-slowdown/
Diakses tanggal 7 Januari 2016
Chris Brummit. Rahadiana, Rieka. 2015. Indonesian Economy Shrinks a Second
Quarter
:
Rupiahs
Decline.
Didapat
online
dari
http://www.bloomberg.com/news/articles/2015-05-05/indonesian-economyshrinks-raising-risk-for-widodo-growth-goal Diakses tanggal 7 Januari 2016
Chris Mathew. 2015. Is the global economy heading for recession. Didapat online dari
http://fortune.com/2015/10/10/global-recession/ Diakses tanggal 6 Januari 2016
Raghuram Rajan. 2014. Preparing for economy slowdown. Didapat online dari
http://economia.icaew.com/opinion/global-review-2014-2015/preparing-foreconomic-slowdown Diakses tanggal 6 Januari 2016
Fahriani, Lisa. 2015. Bagaimana mengatasi perlambatan ekonomi Indonesia. Didapat
online
dari
http://www.kompasiana.com/lisanie_/bagaimana-mengatasiperlambatan-ekonomi-indonesia_55ee5d0c8f7a61e7046ca8f3 Diakses tanggal 9
Januari 2016
Chriss Gilles. 2015. Global Economic Slowdown in Six Steps. Didapat online dari
http://www.ft.com/intl/cms/s/8910c5b4-6c02-11e5-8171-ba1968cf791a Diakses
tanggal 6 Januari 2016

15 Indonesian economic slowdown : should we push the panic button?