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Indonesia Current Economic Review (Mid Q3)

Indonesian economic on Q2 has been disappointing, perhaps this is what the government is focusing on, to pace the growth on slower rate due to a deficit on the current account balance by USD 300mio. The Indonesian government is tightening its monetary policy in order to keep the current account positive by targeting the current account to 2.5% from GDP, but otherwise it is showing a deficit of 3.5% from GDP with main driver of the deficit by oil and gas sector.
GDP was short by 0.32% from analyst forecast, and it is mainly due to a negative result on Balance trade account due to a weak export during the second quarter of the year.

After a shortfall on GDP during the second quarter, Indonesia is having difficulties on distributing the amount of petrol nationally. The subsidize petrol have been wasted for approximately 48% while there’s still four months in the year 2014, and many debate have risen whether it is ok to distribute the petrol normally, with consequence of wasted petrol by the end of October or November, or it’s better to distribute it via quota on each region in Indonesia.
According to Kompas newspaper, people don’t care if the government will have to increase the price of the petrol since it is already a scarce resource to them. On the other hand government is still debating because the increase in price of petrol will trigger a higher inflation rate for Indonesia. Many analysts speculate that it will not affect the inflation rate, if the government can boost the growth on other sector of the economy which I think it is easier said than done. The people of Indonesia already cried for a higher price of petrol rather than not having any because the issue is already interfere with other resources that are being distribute around the country, such as fish and other seafood. What will the government do? Will they execute a wise action for this matter?

My speculation would be that Indonesian government will increase the price of subsidize petrol and will continue to lower the growth rate of the economy in order to balance the trade deficit account. The risk of demonstration and riot might be in affect due to the higher price, but it will not last for a long time, and it might interfere with other businesses around the city of Jakarta. Q3 is coming into a close in one month and hopefully we will see a slight positive change on the current account balance, if the result is positive then GDP may increase accordingly to analysts’ forecast (5.58%). If not, Indonesian government will have to figure out other way to balance the current account in order to maximize the export and minimize the import.
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Comments

  1. 달밑August 28, 2014 at 7:43 PM

    Good, bro. I have a question, though. The last 4th q constantly shows negative grow in qoq GDP growth rate. why does it happen?

    ReplyDelete
    Replies
    1. adrityaSeptember 1, 2014 at 11:59 PM

      Hi Lee, last year (whole year) Indonesia had a problem with their account balance. The government have been trying to decrease the flow of import since last year, and decrease the growth rate - until now. Indonesia have had a problem with subsidize oil for quite a while, which resulting a deficit on the account balance.

      Delete
    2. 달밑September 2, 2014 at 5:53 PM

      its not just last yr issue but almost every year. if you see the qoq growth rate almost every 4th q shows negative growth. if we can find it constantly, there must be an economic or industrial flaw.

      anyway how is everything going?

      Delete

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