“Triumph Over Crisis through Innovation Towards Efficient and Environment Friendly Technology”
Jakarta, 23 July 2009 - It is truly a pleasure to be part of this Indonesia International Automotive Conference in the thick of the current global financial crisis which is forecasted to last for some years ahead. Indeed, it is even more interesting that we proceed with the Conference only days after the Mega Kuningan bomb explosion. This Conference is the token of solid public confidence to Government, to our economic fundamentals and to viability of our legal system.
Goverment use this opportunity to communicate the main indicators of Indonesian macro economy condition, and Government’s policies to ease the impact of current global financial slump. To respond effectively, it is important to understand that the financial crisis was not occurred overnight; it has been the result of combination of policies on macro economy, financial and regulation being implemented over a number of years, yielding consequences beyond our control.
It is no secret that unregulated financial global market breeds financial innovations upon which, the majority of them, were not subjected under proper assessment. At the same time, years of implementation of less than stringent monetary policy and sustained global financial imbalances promoted ever increasing supply of liquidity which in turn causing bubbles in the financial sector. As the bubbles burst, the mediating function of financial institutions is severely impacted. Their balance sheets show capital erosion as liquidity drained, exchange rate volatized, and non performing loan soared.
Pervasive collapse of financial institutions caused panic which later on escalated globally as perception of increasing risk dominated. Developing countries suffer the most as cost of their obligation hiked, while domestic currency and financial market index plummeted.
This global financial crisis in turn curtailed aggregate demand as consumption damped down and real sector activity were cut down due to liquidity drainage, increasing payment default, price volatility and possibility of order cancellation.
- Issuance of Perpu (Government Regulation in Lieu of Law) on the establishment of deposit guarantying body (Lembaga Penjamin Simpanan/LPS): guaranted deposit to Rp.1.2 billion/depositor from Rp.100 million/depositor.
- Issuance of Perpu so that Bank Indonesia (BI) allows the use of credit portfolio as collateral to secure financing from BI.
- Issuance of Perpu on the Jaring Pengaman Sistem Keuangan/JPSK) stipulating legal measures in coping and preventing crisis in the financial sector.
- Establishment of Financial Sector Assement Program (FSAP).
In addition, in stabilizing our foreign currency reserve, the Government signed bilateral swap arrangement with China for the amount of US$ 15 million and with Japan for the amount of US$ 10 million. Further, the Government is engaged in sustained communication members of ASEAN+3 aiming to speed up the implementation of Chiang Mai Initiative Multilaterisation.
Policies to secure real sectors consist of three instruments:
- Issuance of regulations and mobilize implementation to stabilize domestic markets through:
- Disciplinary measures against flow of imported goods (on certain import commodities, safeguard and harmonization of import duty tariffs);
- Promoting the use of local products, and
- Strengthening export through penetration of new markets, improvement of efficacy in conflict resolutions related to exportation and international cooperation.
- Fiscal stimulant for infrastructure development, funding in education and health to achieve Millenium Development Goals (MDGs), creation of job opportunities and poverty reduction. Tax incentives are also provided for food, agriculture and manufacturing/industrial sectors, through:
- Provision of portion of value added tax being absorbed by the Government (Pajak Pertambahan Nilai Ditanggung Pemerintah/PPN DTP) for cooking oil (in bulk and small packages) sold in local markets, for non-subsidized agricultural based renewable energy, and
- Provision of portion of import duty being absorbed by the Government (Bea Masuk Ditanggung Pemerintah/BM DTP) for 14 industries, which include automotive component industry.
- Policies in financing includes extension of Kredit Usaha Rakyat (KUR) and export draft rediscount program. To provide export credit, guarantee and export insurance, the Government established Lembaga Penjaminan Ekspor Indonesia/LPEI. In addition, in order to support the real sector, Bank Indonesia gradually lowers the interest rate, losseing of loan limitation, and availability of credit of less than Rp. 1 billion for Micro, Small and Medium Enterprises/MSME, which credit worthiness evaluation is being based only on payment punctuality performance.
The above articulated policies and measures are expected to bring speedy recovery to our economy.
Economic growth for Quarter II/2009 is expected to be 3.7%, lower than the growth in Quarter I/2009 of 4.4%. This lower growth is due to slower growth in some economic sectors:
a. Agruculture: 4% growth in Q-2/2009, compared to 4.9% in Q-1/2009,
b. Mining: 0.4% growth in Q-2/2009, compared to 2,2% in Q-1/2009,
c. Transportation and Communication: 10,7% growth in Q-2/2009, compared to 16.7% in Q-1/2009.
Sectors with higher growth include:
a. Manufacturing: 1.9% in Q-2/2009, compared to 1.6% in Q-1/2009,
b. Financial: 6.4% in Q-2/2009, compared to 6.3% in Q-1/2009, and
c. Trade, Hotel and Restaurant: 2% in Q-2/2009, compared to 0.6% in Q-1/2009.
Export grew negatively, 14.4% during the second quarter of 2009 and import minus 20.4%. However, export and import growth for quarter II is better than that of quarter I which reached negative 19.1% and import by negative 24.1%
In the meantime, macro economy estimations are as follows:
- Economic growth, Jan-June 2009: is 4.4%,
- Inflation: 3.65%,
- Interest rate of three month SBI: 8.53%,
- Exchange rate: Rp. 11,082/US Dollar,
Related to this Conference, the performance of automotive industry in 2009 is also being impacted by the global financial crisis. Sales during Q-1/2009 were about 100,000 units, down about 26% compared to Q-1/2008.
The Government, however, is confident that its policies will lessen the impact of the global financial crisis against the automotive industry, because:
- Automotive is unseparable from human activities and development, thus, it is only natural that demand for automotive will always rebound;
- Automotive trade statistics indicate the increase of market size and locations, and
- Within ASEAN, in particular, largest sales of automotives take place in Malaysia, Thailand, Indonesia and in the Philippines.
Industrial capacities in design engineering for goods and for engineering services design need to be supported continually, so that later on, Indonesia will become a product base and production base at the same time. This Conference is expected to boost interaction among automotive producers yielding nes foreign investments in the automotive support, machinary and electronics industries. Export opportunity of automotive components to Japan is now higher as both countries signed the Indonesia-Japan Economic Partnership Agreement. The Government is highly committed in the development of automotive industry as reflected in the Presidential Regulation No.28/2008 which classified automotive industry as industry of the future. In strategical development, the Government strengthens the inter-relation of the entire industrial chain in order to establish strong, efficient and competitive automotive industrial structure.
Our various economic and institutional reforms have yielded improvement of Indonesia’s global competitiveness, from 51th to 42nd among 57 countries as reported in the IMD Competitive Center, entitled World Competitiveness Yearbook 2009. Indonesia is categorized emerging countries together with Brazil and better than the Philippines, Mexico, South Africa and Russia, but lower than India, Thailand, China and Malaysia. Under the stress test, to evaluate the country’s performance to cope with economic crisis, Indonesia is ranked 33rd. Indonesian economic resiliency has been reflected since the beginning of the crisis in ASEA; Indonesia is one of the three countries in Asia that experience positive economic growth, and together with the Philippines in the Southeast Asia.
The Government is fully aware that the Country has yet to emerge from the onslaught of the global financial crisis. The Government realizes that many tasks need to be executed. Although signs of recovery are also seen in the horizon, global economy is still fragile. We need to strive hard to maintain growth and to dampen inflation. Government’s intervention in the form of counter cyclical policies may proven to be successful in the short term but, in a sustained manner, we have to improve business sectors’ activity for the long term growth.
In the coming years, the Government will keep improving ways to accelerate economic growth; with sign of recovery of global economy in 1 or 2 years time, our economy is expected to reach growth of 7% as what we’ve achieved prior to the crisis, the unemployment rate to lower to 5 to 6% and the poverty rate down to 8 to 10%. To achieve all of these, the Government will encourage private sector investment through improved investment climate, improvement of infrastructure, higher house-hold consumption and Government expenditure, and to maintain macro economy and financial sectors stabilities. |
