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Quadro macroeconomico

 

Quadro macroeconomico

 

a) Economical situation 
 
A difficult situation characterized Indonesia: in 2005 the new government faced a natural catastrophe (a seaquake in 2006 caused 200.000 casualties and 5 milliards Dollars damages). In 2005 events like the increase of oil prices forced the government to cut down subsidies to fuel (in March and October more than 150%); the consequence was a higher level of prices. The government, backed up by the population, kept his economical program based on macroeconomic stability, pro-poor requalification and promotion of public and private infrastructural investments.  Important entrepreneurs, members of the economical cabinet, committed themselves to promote investments (in particular, they organized an exhibition for Asian societies which somehow increased corruption) and the cabinet did a reform concerning law and taxation to discourage foreign investments. In October a reshuffling renewed the Economical Cabinet with some outstanding technicians, such as the Minister of Economy Boediono and The minister of Finance Sri Mulyani. Their objective was to restore the high inflation rate (17%) to a physiological level.  

Also, the security situation was alarming, due to the terrorism threat; Bali attacks in October 2002 had impact on tourism, the main invoice of the island. Minor regional terrorist attacks still remain; however, a positive data is the end of negotiations in Aceh Province, which ended up in the reconciliation between Jakarta and the separatist rebels.
 
    The country underwent a difficult economic crisis in the 90s which has political consequences also. Today, the country is politically stable and the growth is 5%, due mostly to internal consumption. The growth rate is still far from the objective of the government (7-8% a year). The high inflation has impact on investments (22% PIL only) and on consumption.  

Data from World Bank confirm the situation earlier described: in the last Economic and Social Update in October 2005 the growth rate was estimated over 6%). However, the economic situation reveals some positive data: the increase of internal production and import of goods and capitals; the public debt is 50% PIL (more than 130 milliards, half of which goes abroad); deficit is manageable, although it exceeds 1%); exchange rate is normally under speculative pressure but it is promoted by the Central Bank, whose reserve currency is estimated 35 milliards Dollars (January 2006).   Indonesia has been rated B+ by Standards & Poor, following the positive outlook already presented by Fitch and most probably by Moody’s.     

Although the macro economic situation is generally good, there are still some bad points: the unemployment rate is very high (11 millions unemployed, 30 millions underemployed); the public sector still controls the bank system, which is not efficient; infrastructure needs modernization. A civil service reform is needed to transfer to the basis of the public service the urgency of change which is so strong at a central and presidential level. Many elements discourage investors: an inefficient and corrupted bureaucracy, unclear administrative procedures, elusive fiscal and job regulation, uncertain energetic resources and a rushed decentralization process.   

The government headed by Yudhoyono has been aware of the critical situation and it has been committed to structural reform in many fields: justice, work regulation and relationships between the centre and a huge and composite periphery.   

During the first year, the government could not do a lot. The President built alliances to consolidate his political position (he comes from a small party and a minority coalition in the Parliament). Today he is stronger than before thanks to his determination and the support from the population (he is the first President to be elected in a direct way). The Minister of Finance Sri Mulyani, supported by the President, announced, for example, that he aims to renovate the department of  Income with a larger contributory basis and with a new structure to improve the connection between central and peripheral taxation.     

b) Opening of the country to foreign trade and foreign investments.  

Indonesia has been always considered to be open to foreign trade; however, after the economical crisis in 1997/1998 some protectionism has been used to defend national economy. Some difficulties during the WTO negotiation have been registered and the internal debate favours those who want to keep grants to strategic agricultural productions, such as rice, sugar, corn and soy. The results of the opening of Indonesian Economy are positive on monetary politics level (in 1999 the Central Bank began to be really free), on fiscal politics level (in 2000 regulations were made to ease and promote foreign investments and trade), on privatization, on integrated economic zone with tax breaks for foreign operators.  

Commercial Politics registered good results, although some restrictions still remain; on the tariffs hand, the average went from 9.34 % in 1998 to 7.2 % in 2000; competition, anti-trust and protection of consumer interest also improved. Jakarta wielded a leadership role in ASEAN; since 01 February 2006 the tariffs harmonization came into force with the aim of reaching 5% by 2010.  

Indonesia promote actively AFTA (ASEAN Free Trade Agreement), entered into force 1st January 2002; the AFTA agreement liberalizes eleven priority sectors (timber, car, rubber, textile, agricultural products, ichthyic, electronic, e-commerce, medical products, plane tariffs and tourism) and reduce non tariffs barriers within the region. AFTA counts an ASEAN Economic Community by 2020 and free circulation of goods, services, investments and capitals. The effort for ASEAN objectives prevented free trade areas to be created outside ASEAN area.  

Indonesia but also Philippines, Thailand and Malaysia –unlike Singapore- do not participate a lot to free trade agreements with countries such as USA, Japan, India, Australia and EU countries; Jakarta promotes the free trade area extension to neighbour countries, such as China (2002), Korea (2003), New Zealand (2002), India (2003) and, in future, USA.   The bank sector is still close (only 10 out of 140 banks are foreign, none of which Italian); however some positive signs are registered at privatization level with international capitals. Foreign groups participate more and more in national capital (40 %, Central Bank, one of the highest among ASEAN countries).  

Indonesian bank system has been constantly reconstructed and it starts to open up. Since 2003 banks which were under IBRA (Indonesian Bank Reconstructing Agency) have been privatized and Bank Danamon and Bank Internasional Indonesia have been sold; in the previous years Bank Central Asia and Bank Niaga have been sold. International Institutes, such as ANZ and Standard Chartered and Asian financial groups which are expanding at a regional level (the Singapore State Holding Temasek, which controls other banks and the Korean Kookmin Bank) participated to the auction, event that shows the international market attention.   

In 2004 a Swiss group, Swissasia, bought Lippo Bank, which had been involved into the financial crisis and which was controlled by IBRA; banks continued to be sold to reduce State control over the bank system and to reduce deficit. Recently, two Singapore groups (OCBC and UOB) have acquired two Indonesian banks (Bank NISP and Bank Buana) while a Malaysian group showed interest for Lippo Bank share.  

The bank system is characterized by:

  • Three State banks (Bank Negara Indonesia, Bank Mandiri, Bank Rakyat Indonesia) which control more than 40 % of bank assets. IFI and International Monetary Fund registered a high non performing loans index (NPL) related to the three previous mentioned banks.

 

  • A group of stable and active private banks (Bank Central Asia –BCA, Bank Danamon, Bank Panin, Bank Internasional Indonesia, Lippo Bank and Bank Niaga); foreign shareholders are the majority in some of these banks.

 

  • Many small banks which overcame the financial crisis and which are likely to expand in the future years, such as Hagabank and Hagakita.  

 


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