IERO NO 1/YEAR III/MARCH 2014

No 1/YEAR III/March2014
Macroeconomic Dashboard
Faculty of Economics and Business
Universitas Gadjah Mada
Hope for Change
from the New Representatives
INDONESIAN ECONOMIC
REVIEW AND OUTLOOK

Foreword
Let me hope it is an enjoyable reading
Prof. Dr. Sri Adiningsih, M.Sc
Head of Researcher
Macroeconomic Dashboard
Indonesian Economic Review and Outlook (IERO) is a
quarterly bulletin that gives a general description of
the latest developments in the Indonesian economy
and its prospects in future, as well as an analysis of
macroeconomic conditions in South East Asian region.
IERO is published by the Macroeconomic Dashboard
in collaboration with PT Bank Mandiri, Tbk. The
Dashboard is an economy laboratory that falls under
the aegis of the Department of Economics, Faculty of
Economics and Business, Universitas Gadjah Mada.
IERO, quarter I-2014 has the theme “Hope for Change
from the New Representatives”. The year 2014 is
special because the country will hold presidential and
legislative elections. The same condition will make this year full of hope as well as
uncertainty. The process and outcomes of the general elections will have a strong
impact on the state's economy. If the conduct of elections goes on flawlessly, securely,
and peacefully, and produces the kind of representatives that have the capacity to
make the necessary improvement, it is most likely that economic stability will be
better, and the economic growth and the consumption will increase.
In the meantime, GAMA Leading Economic Indicator (GAMA LEI) in this edition,
predicts a decline in GDP cycle, of which however it will be tempered by a slight
increase in GDP growth in 2014:Q1 (y-o-y and q-t-q). GAMA LEI constitutes a model
which has been developed by the Macroeconomic Dashboard team to provide
forecasts of conditions of Indonesian economy. The outcomes of the prediction, are
expected to assist stakeholders in anticipating the future economic conditions.
The IEROof this edition, assumes a new format which has been designed to make it an
enjoyable reading. It is a hope that our suggestions are useful for public policy
makers, business community, members of academia, and the general public.

TABLE OF CONTENTS
FOREWORD....................................................................................................................... ii
EXECUTIVE SUMMARY................................................................................................ v
A. DEVELOPMENTS IN THE ECONOMY AND FISCAL POLICY
1. The economy registered improvement largely due to growth
in the services and net exports.................................................................... 1
2. International Trade continues to Face Challenges.............................. 3
3. Government Fiscal space continues to be tight and the capacity
to repay debt has weakened......................................................................... 8
4. Poverty Incidence and Employment Worsened................................... 14
B. MONETARY SITUATION AND FINANCIAL MARKETS
1. Rupiah Continues to Depreciate................................................................. 16
2. Financial markets exudes optimism as the year ended.................... 21
C. GAMA LEI AND CONSENSUS ON PROJECTION OF THE ECONOMY
1. GAMA Leading Economic Indicator (GAMA LEI)................................. 25
2. Consensus on Macroeconomic Indicator Projections........................ 27
D. ASEAN: Registers Optimum Economic Potential amidst
Global and Regional Economic Instability.............................................. 29
E. CURRENT ISSUE...................................................................................................... 35
f. ECONOMIC OUTLOOK.......................................................................................... 39
Macroeconomic Dashboard Universitas Gadjah Mada iii

List of Terms
APBN State Budget
ASEAN Association of South East Asian Nations
BI Bank Indonesia
BPS Central Bureau of Statistic
CLMV Cambodia-Lao PDR-Myanmar-Viet Nam
cq Casu Quo (In this case)
DIY Daerah Istimewa Yogyakarta
DPD Regional Representative Council
DPR House of Representatives
DPRD Regional House of Representatives
DSR Debt Service Ratio (The Ratio of Principal Loan Payment
and Interest to Export Value)
GAMA LEI Gadjah Mada Leading Economic Indicator
IDR Rupiah
IHK Consumer Price Index
IHSG Jakarta Composite Index
JISDOR Jakarta Interbank Spot Dollar Rate
LHS Left Hand Side
LPG Liquified Petroleum Gas
LPS Deposit Insurance Corporation
MAS Monetary Authority of Singapore
m-t-m Month-to-month
NAD Nangroe Aceh Darussalam
PBI Bank Indonesia's regulation
PDB Gross Domestic Product (GDP)
q-to-q Quarter-to-Quarter
RHS Right Hand Side
SUN Government's Bonds
The Fed The Federal Reserve
USD US Dollar
y-o-y Year-on-Year
Indonesian Economic Review and Outlookiv

EXECUTIVE SUMMARY
Indonesian economy registered a slight growth in Q4:2013, of which,
although it was higher than in the previous quarter, but it was far off the level
sufficient to made any significant dent into poverty incidence and
unemployment (that showed an upward trend in last September). Economic
growth is driven by the service sector by its nature not labor intensive. This is
reflected by a reduction of 6 million jobs in the agricultural sector during
2011-2013 period. With regards to GDP by expenditure, positive
performance in the export sector that marked the end of 2013 (as an
anticipation by the mineral and other extraction industries to the
implementation of the Minerals Law that came into force at the beginning of
this year) proved transient and trade account deficit plummeted back into
deficit in January 2014.
Beside the deficit in the trade account, pressure on Rupiah continued to
mount from two sides: rising inflation and depreciation of the exchange rate.
Not surprisingly, the pressure on international reserves intensified. Bank
Indonesia, as the monetary authority, responded by issuing Bank Indonesia
regulation on Swap transactions Value Protection as well as introducing
Jakarta Interbank Spot Dollar Rate (JISDOR) as an official rate for Rupiah
denominations in Singapore Money market.
In the meantime, the Government through the Ministry of Finance, in its
capacity as the fiscal authority, continued its efforts to mobilize funds from
domestic sources, such as the announcing of six strategic steps aimed at
increasing tax revenues, and from foreign sources by issuing Global Bonds
and by foreign borrowing. It is interesting to note that the debt-to-service
ratio (DSR), which is the ratio of principal and interest payments to value of
exports), shows an upward trend, which in part is attributable to the sub
optimal performance of the Indonesian export sector. As one of the
indicators of capacity to repay debt, the rise in DSR becomes the concern for
the government, especially for the Ministry of Finance.
Macroeconomic Dashboard Universitas Gadjah Mada v

After making a closer observation of various dynamics of Indonesian
economy, GAMA LEI predicts downward trend in Indonesian GDP cycle.
Nonetheless, by observing the movement and pattern of the economy, both
year-on-year and quarter-to-quarter, indicate signs of a small increase in
economic growth in 2014:Q1.
Leaving the domestic economy aside, the performance of economies in
ASEAN region tends to be mixed. Political instability that is affecting some
ASEAN economies, especially Thailand, have had adverse impact on regional
development. Nevertheless, some countries in the region show remarkable
performance such as the Philippines and CLMV (Cambodia-Lao PDR-
Myanmar-Viet Nam). This then offers optimism amidst bleak performance of
currencies of ASEAN economies in the aftermath of tapering off by the United
States.
Lastly, IERO of this edition, raises the issue of general legislative elections by
whichthe citizens face two possibilities: the likelihood that the elected
representatives will not foment change for the better or, on the contrary, will
create the much needed improvement. As a nascent democratic nation, it is
not advisable that democratic process is entrusted solely to the whims of the
government and elected representatives in the national assembly. On the
contrary, in a democracy, members of society participate actively in the
process and thereby, creating an incentive for the elected representatives to
act in accordance with public interest and expectation. Thus, without the
existence of reward and punishment from society to the elected
representatives, political rights which were gained during the reformation
will beuseless.
Indonesian Economic Review and Outlookvi

A. DEVELOPMENTS IN THE ECONOMY AND FISCAL POLICY
Macroeconomic Dashboard Universitas Gadjah Mada
1. The Economy Registered Improvement Largely Due to Growth in The
Services and Net Exports
Indonesian economy shows some slight improvements in quarter IV-
2013, registering 5.72% growth year-on-year, which was lower than
6.18% in the same period last year. This was largely attributable to the
incessant pressure on the current account and depreciation of Rupiah, coupled
with rising inflation. The deficit on the current account over the last three
quarters stoked inflation, which in turn induced an upward revision of reference
interest rate, followed by depressed investment. Thus, despite the fact that the
level of current account deficit showed a significant decline from USD 8.5 Billion
1
Notes:
Primary sector: Agricultural Sector, Livestock, Forestry and Fisheries; and Mining and Extraction Sector
Industrial Sector: Processing Industry sector; Electricity Sector, Gas and Clean Water; and Construction
Sector
Services Sector: Trade Sector, Hotel and Restaurants; Transportation and Communications Sector;
Financial, Real Estate and Company Services Sector; and Services Sector
Source: BPS and CEIC (2014)
Figure 1: GDP Economic Growth in Constant 2000 Prices by Economic
Activity, 2011 – 2013 (y-o-y, in %)
Economic growth was by and large, propped up by Communications and
Transportation Sector, as well as in primary sectors albeit at a decreasing
rate
⁰ .88 ⁰ .9² ⁰ .8³ ⁰ .88 ⁰ .77 ⁰ .78 ⁰ .65 ⁰ .5² ⁰ .47
9.¹⁰ 9.⁰7 9.¹6
4
5
6
7
8
9
⁰
¹
²
³
54
Primary Industrial Services GDP (RHS)

Indonesian Economic Review and Outlook
in the previous quarter to USD 4 Billion in quarter IV-2013, the economic growth
of 5.78% registered in 2013 was lower than 6.23 % recorded for 2012.
The services sector continues to underpin economic growth in quarter IV-
2013. Nonetheless, this sector also experienced slower economic growth, while
primary and industrial sectors, showed a gradual upward trend. The services
sector posted lower growth of just 6.48% than 7.66% in quarter IV-2012. In the
meantime, economic growth in the primary sector was 3.86% (y-o-y), which
was attributable to 3.91% growth in mining and extraction sector (y-o-y).
Despite the fact that the primary sector registered a growth, the rate of the
growth shows a downward trend. Meanwhile, the industrial sector registered
growth of 5.60% (y-o-y), which was in line with rate of growth in exports,
especially non-oil and gas category. Overall, transportation and
communications sector registered the highest growth (10.32%, y-o-y), followed
by financial, real estate and company services (6.79%, y-o-y) and construction
sector (6.68%, y-o-y).
With respect to expenditure, economic growth in quarter IV-2013 was
largely attributable to the increase in net exports, which therefore served
as an offset to the downward performance of domestic expenditure. The
increase in net exports in quarter IV-2013 was partly because of 7.40% (y-o-y)
2
Figure 2: GDP growth rate, Indonesia in Constant 2000 Prices by Economic
Activity, 2011 – 2013 (y-o-y, in %)
The increase in Indonesian economic growth in the fourth quarter in 2013 is
attributable to the increase in net exports
-5
0
5
10
15
20
Consumption Expenditures: Household Consumption Expenditures: Government
Gross Fixed Capital Formation Exports of Goods and Services
Imports of Goods and Services

in value of exports and a decline in the value of imports -0.60% (y-o-y). This was
largely due to an increase in non-oil and gas exports to main trading partners
such as China, United States and Japan. Meanwhile, household consumption,
government consumption and investment, registered lower growth rates,
5.25% (y-o-y), 6.45% (y-o-y) and 4.37 (y-o-y), respectively. To that end,
household consumption, government consumption, and investment, in quarter
IV-2013, was lower than 5.48% (y-o-y), 8.91% (y-o-y) and 4.54% (y-o-y),
respectively, registered in quarter III-2013. Slower investment growth, was in
part as a consequence of Bank Indonesia policy that raised reference interest
rate from 7.25% in October 2013 to 7.50% in November 2013, which was
coupled with political uncertainty in the run-up to the general elections.
2. International Trade Continues to Face Challenges
In January 2014, the trade account fell back into deficit after three
consecutive months of surplus (October – December 2013). During 2013,
Indonesia balance of trade showed a deficit of USD 4.06 Billion, which
constituted a deterioration from a trade deficit of USD 1.66 Billion in 2012.
Rising trade deficit in Indonesia in 2013, is largely attributable to the fact that
3
Developments in The Economy and Fiscal Policy
Figure 3: Indonesian Balance of Trade, January 2012 – January 2014
(USD Billion)
Indonesian Balance of Trade fell back into deficit at the beginning of the
year
-20
-15
-10
-5
0
5
10
15
20
Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14
Export Import Balance of Trade

the surplus on trade balance of non oil and gas was smaller than the deficit on
trade balance of non oil and gas. On a month-to-month basis, balance of trade
registered a decline of 128% from a surplus of USD 1.53 Billion in December
2013 to a deficit of USD 0.43 Billion in January 2014. The condition was by and
large caused by a decline in Indonesian exports that was larger than a decline of
imports, 14%, and 3%, respectively.
The trade balance of oil and gas deteriorated during 2013. Trade balance of
oil and gas which registered a deficit of USD 5.6 Billion in 2012, increased to USD
12.6 Billion in 2013. The deterioration in trade balance of oil and gas in 2013,
was largely due to smaller oil and gas exports and higher oil and gas imports in
2013 than in 2012. In the meantime, in December 2013, oil and gas recorded a
trade account deficit of USD 0.82 Billion, which increased slightly to USD 1.06
Billion in January 2014. The increase of deficit in trade balance of oil and gas was
as a result of a decline of USD 0.9 Billion in oil and gas exports and a smaller
decline of oil and gas imports (USD 0.7 Billion).
Oil and gas exports in January 2014 declined. On a month-to-month basis, oil
and gas exports declined from USD 3.41 Billion in December 2013 to USD 2.5
Billion in January 2014. The largest decrease (42.1%) affected crude oil exports,
followed by exports of oil and gas products, which declined by 23.28% and
16.66%, respectively. Overall, oil and gas exports registered a decrease of 26.7%
4
Figure 4: Trade Balance of Oil and Gas, January 2012 – January 2014 (USD
Billion)
The Trade Balance of Oil and Gas recorded a deficit
-20
-15
-10
-5
0
5
10
15
20
Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14
Export: Oil and Gas Import: Oil and Gas Export
Import Trade Balance: Oil and Gas

in January 2014. In December 2013, Indonesian oil and gas imports were valued
at USD 4.22 Billion. Nonetheless, in January 2014, the value declined to USD 3.56
Billion (the value of imports declined by 15.7% between December 2013 and
January 2014).
Overall, the performance of trade balance of non oil and gas in 2013 is
better than in 2012. In 2013, the non-oil and gas surplus was USD 8.57 billion,
far larger than USD 3.93 billion registered in 2012, and represented a rapid
increase of 118.9%. The rise of trade balance of non oil and gas surplus was
largely attributable to a 5.21% decline in non-oil and gas imports or in absolute
values, USD 7.78 billion. As regards exports, Indonesian non-oil and gas exports
in 2013 showed a decline of USD 3.12 billion compared to the value registered
for 2012.
Like was the case with the oil and gas trade account (Trade Balance of Oil
and Gas), the performance of non-oil and gas trade account (Trade
Balance of Non Oil and Gas) deteriorated. At quarter IV-2013, the
performance of Trade Balance of Non Oil and Gas had shown a positive trend.
But deteriorated later as the decline of non oil and gas exports set in, coupled
with an increase in non-oil and gas imports. Consequently, non-oil and gas trade
account registered a decline of 73.1% in January 2014. The deterioration is
reflected in the dramatic decline in the oil and gas trade account surplus from of
5
Figure 5: Trade Balance of Non Oil and Gas, Indonesia, January 2012 –
January 2014 (USD billion)
Trade Balance of Non Oil and Gas surplus declined in January 2014
-20
-15
-10
-5
0
5
10
15
20
Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14
Export: Non Oil and Gas Import: Non Oil and Gas
Export Import
Trade Balance: Non Oil and Gas

USD 2.34 billion in December 2013, to just USD 0.63 billion in January 2014.
The decline in non-oil and gas exports was as result of a decrease in
mineral exports. Non-oil and gas exports declined by 11.6% from USD 13.58
billion in December 2013 to USD 11.99 billion in January 2014. Based on
month-to-month, BPS data shows that the drastic change affected ores, slag, and
ash commodities, which registered a decline of 70.13% during December
2013–January 2014 period, which was in contrast to an increase of 40.18%
posted during November-December 2013 period. The same applied to mineral
fuels and mineral oil products commodities which declined again by 17.13% in
January 2014, larger than 1.27% decline registered in December 2013. Based
on Bank Indonesia quarterly report, the decline that affected mineral
commodities was in general as a result of the coming into effect of the Act on
Minerals and Coal in January 2014. In the meantime, imports of non-oil and gas
increased from USD 11.24 billion to USD 11.36 billion in January 2014, which
represented an increase of 1.13% from the position in December 2013.
Commodities of Elect. machinery, sound react.,tv etc. registered the largest
increase of 24.64% (m-t-m).
The surplus on goods trade balance registered a drastic increase in
quarter IV-2013. The surplus increased from USD 0.2 billion in quarter III-
6
Figure 6: Balance of Trade and Income, 2010:Q1-2013:Q4 (USD billion)
The deficit on the Current Account shows some improvement
Source: Bank Indonesia and CEIC (2014)
-15
-10
-5
0
5
10
15
2010:Q1 2010:Q4 2011:Q3 2012:Q2 2013:Q1 2013:Q4
Trade Balance Good Trade Balance Service Income Account
Current Transfer Current Account

2013 to USD 4.9 billion in the next quarter. The drastic increase in the surplus on
goods trade balance is attributable to an increase in the surplus of trade balance
of non oil and gas and a decline on the deficit of trade balance of oil and gas. In
quarter III-2013, the surplus on the trade balance of non oil and gas, which stood
at just USD 2.8 billion, shot up to USD 7 billion in quarter IV-2013. Meanwhile,
the deficit of trade balance of oil and gas increased from USD 0.5 billion in the
previous quarter to USD 2.2 billion. The increase in the surplus of trade balance
of non oil and gas was as a result of Rupiah depreciation during November-
December 2013 period, which had an augmenting effect on non-oil and gas
commodity exports that saw an increase of USD 4.3 billion in quarter IV-2013.
The implementation of Law No. 4/2009 on Mining Minerals and Coal and the
Ministerial regulation Permen ESDM No. 7/2012 in January 2014, increased the
surplus on goods trade balance. The decline in the deficit of trade balance of non
oil and gas was attributable to two things, namely, an increase in the surplus on
the gas trade account and a decline in the deficit on the oil trade account.
On year-on-year basis, current account position shows some
improvement. In the same period in 2012, Indonesian current account
registered a deficit of USD 7.8 billion. In quarter IV-2013, the deficit on the
current account declined by 48.7% to USD 4 billion. In quarter IV-2013, the
performance of current account position registered some improvement. This is
reflected in the decrease in the level of the deficit from USD 8.5 billion in quarter
III-2013 to USD 4 billion in quarter IV-2013. Improvement in the current
account position is attributable to a surplus of goods trade balance and current
transfer that was larger than the deficit of service trade balance and income
account.
There was no significant change in the balance of service trade balance,
income account, and current transfer. In quarter IV-2013, the position of
service trade balance, income account, continued to register deficit of USD 2.9
Billion and USD 7.1 Billion, respectively. Compared with the position in the
previous quarter, the service trade balance and income account, registered an
increase of 7.6% and 3%, respectively. Meanwhile, current transfer account
posted a slight improvement from a surplus of USD 0.9 billion in quarter III-
2013 to USD 1.6 billion, which represents an increase of 19.6%.
7

Indonesian Economic Review and Outlook8
3. Government Fiscal Space Continues to be Tight and the Capacity to
Repay Debt Has Weakened
As per January 2014, revenue and grant realization had reached 5.5% of
the target of IDR 1,667.1 trillion set in the state budget 2014, while
government expenditure realization was 5.3%. Target of revenue and
grants consist of IDR 1,665.78 trillion and IDR 1.36 trillion, in domestic revenues
and grants, respectively. To date, tax revenues have reached 6.5% of the target
set in state budget 2014 of IDR 1,280.4 trillion, were just 2% of the target of IDR
385.4 trillion. Total government expenditure in state budget 2014, is set at IDR
1,842.5 trillion, which comprise IDR 1,249.9 trillion in central government
expenditure and IDR 592.6 trillion in regional government transfer. By January
2014, realized central government expenditure has reached 3.2%, while
transfer local governments was 9.6%. Debt repayment and social contributions
constitute the largest percentage of realized government expenditure,
registering 10.8% and 10.1%, respectively.
Transfer to the regions, includes funds transferred within the framework
of special autonomy and adjustment which in the 2014 annual budget
registered an increase of 24.8% compared with the previous year. In fact
the percentage of funds transferred within the framework of special autonomy
and adjustment to the total funds transferred to the regions, increased by
17.66%. One of the new developments, is the budget allocation of IDR 520
billion for special administration purposes, which was officially earmarked for
Figure 7: Government Revenue & Grant and Expenditure Realization as
per January 2014 (%)
Revenue and grant realization is 5.5%, whereas expenditure is 5.3%
Source: Ministry of Finance (2014)
(a) Revenue and Grant (b) Government Expenditure
5.5
94.5
Realization Total
5.3
94.7
Realization Total

Yogyakarta special administrative region (DIY). Nonetheless, compared with the
budget allocation for other special autonomy in the country, the amount
allocated for DIY is still very small.
The government still relies heavily on tax revenues to pay for government
expenditure. Over the last three years, tax revenues have contributed more
than 75% of government revenues. In other words, despite the fact that the
contribution of tax revenues to the national budget shows a downward trend,
realized tax revenues continue to be an important component that supports
fiscal policy sustainability.
In an attempt to ensure that the target set for tax revenue is achieved, the
Directorate General of taxation has put in place optimization efforts. The
steps have been translated into six strategic programs: (i) improving tax
administration system; (ii) expansion of tax eligible individuals; (iii) expansion
of tax base, including small and medium size enterprises (SMEs); (iv) optimizing
the use of data and information from other institutions; (v) strengthening law
enforcement for tax evaders; and (vi) improving tax regulations through the
formation of the harmonization team.
Figure 8: Special Autonomy and Adjustment Fund (IDR trillion)
Special autonomy and adjustment fund increased by 24.8% in 2014 (y-o-y);
DIY received IDR 520 billion in special autonomy funds
Source: Directorate General of Budgeting and CEIC (2014, processed)
9
6.78

2.55

6.82
0.52
-
1
2
3
4
5
6
7
8
Special Autonomy and DIY Privilege
Fund
14.97% 15.86%

17.66%

20.06%
19.04%

24.80%
0%
5%
10%
15%
20%
25%
30%
0
50
100
150
2012 2013 2014
Special Autonomy and Adjustment
Fund
Total (LHS)
Percentage from Total Regional
Transfer (RHS)
Growth (RHS)

Besides, other programs to increase tax revenues which are still in the
works include the intensification of financial tax and setting final tax rate.
The idea of intensifying financial tax entails the imposition of tax on monetary
transactions such as stocks/shares, bonds, and futures. The reason for that is
that the financial sector generates a lot of profits, and the financial sector was a
beneficiary to government bailouts during the financial crisis. Meanwhile,
setting final tax rates, is one of the solutions for increasing the effectiveness of
self-assessment system without increasing the number of tax officials.
In an attempt to increase funds required to meet domestic expenditure,
the Ministry of Finance issued IDR 50.5 trillion in Global Bonds in January
2014. The increase initially led to a rise in the level of outstanding government
securities in January 2014. However, total government securities (SBN) in
February 2014, decreased by IDR 3.45 trillion from the January 2014 level to
IDR 1,459.29 trillion, which represented an increase of IDR 339.22 trillion from
the level in February 2013 (see Fig. 13). Interest on fixed bonds registered an
increase of IDR 22.25 trillion to IDR 793.07 trillion and increased by IDR 153.47
trillion from February 2014. Government sharia bonds declined by IDR 5.98
trillion to IDR 77.15 trillion from January 2014, and increased by IDR 4.63
trillion from February 2014. In February, 2014, government bonds
denominated in foreign currency, registered a decline of IDR 21.72 trillion to IDR
Figure 9: Tax Revenue Target and Percentage of Tax in the State Budgets
2012-2014
Despite retaining its importance as the main source of government revenue,
the role of tax revenues in the annual budget shows a slight decline over time
Source: Directorate General of Budgeting and CEIC (2014, processed)
10
QLPSS QLQYS QLRXP
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WWNYYE
WVNXPE
VYE
WQE
WSE
WUE
WWE
WYE
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P
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VPP
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RPQR RPQS RPQT
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ĔÏ Ŏ ËĮ ÖĮ ŃÕĮ ÊĮ ÒĬĮ ŃÔÏ Ĵ Į ĲÒŇĿ ĔŇÔÏ Ł ËĮ ÖĮ ŃÕĮ Ï Ńİ ĆÒÏ ŃÔ HËĈĒI

428.26 trillion compared with the position in January 2014, which however
represented an increase of IDR 164.57 trillion for the position in February 2013.
The increase affected government treasuries that shot up by IDR 2 trillion from
the position in January 2014 to IDR 38.5 trillion. The increase represented an
increase of IDR 16.53 trillion from the position in February 2013.
In general, Indonesian total external debt increased, with private sector
debt contributing most to the gain. The ratio of private external debt to total
external debt reach 53.21%, while the ratio of government and Bank Indonesia
external debt to total external debt was 46.79%. Indonesian total external debt
in December 2013 raised by USD 2.6 billion to USD 264.06 billion compared to
the position in November 2013 (an increase of 1%); increased by USD 12.6
billion (5%) from the position in January 2013 and USD 11.17 billion (4.6%)
compared to the position in December 2012. Meanwhile, private external debt
in December 2013 increased by USD 2.3 billion to USD 140.5 billion compared to
the position in November 2013 (an increase of 2%).
Government external debt in December 2013 increased by USD 212
million to USD 114.29 billion compared to the position in November 2013
which gain 0.2%. It was decreased by USD 914 million (-1%) compared to the
position in January 2013 and USD 1.8 billion (-1.6%) compared to the position in
December 2012. Short-term private external debt by original maturity in
Figure 10: Government and Private Sector External Debt, September
2011 – December 2013 (USD billion)
Private sector external debt increased
Source: The Ministry of Finance and CEIC (2014)
11
SP
SR
ST
SV
SX
TP
TR
TT
P
UP
QPP
QUP
RPP
RUP
SPP
ÆŎÔĮ ÒŃÏ Ł ĄĮ Ī Ô
ĆŇÖĮ ÒŃĿ Į ŃÔ Ï Ńİ
ǺĮ ŃÔÒÏ Ł ÅÏ ŃĻ HĎĈĒI
ÊÒĹÖÏ ÔĮ ÆŎÔĮ ÒŃÏ Ł
ĄĮ Ī Ô HĎĈĒI
ĔŇÔÏ Ł ÆŎÔĮ ÒŃÏ Ł ĄĮ Ī Ô
HĎĈĒI
ĒĶŇÒÔMĔĮ ÒĿ ÊÒĹÖÏ ÔĮ
ÆŎÔĮ ÒŃÏ Ł ĄĮ Ī ÔZ
ÉÒĹĴ ĹŃÏ Ł ĐÏ ÔÕÒĹÔŐ
HËĈĒI
ĒĶŇÒÔMĔĮ ÒĿ ÊÒĹÖÏ ÔĮ
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ËĮ Ŀ Ï ĹŃĹŃĴ ĐÏ ÔÕÒĹÔŐ
HËĈĒI

December 2013 increased by USD 1.9 billion to USD 40.67 billion compared to
the position in November 2013 (an increase of 4.9%). The increase continued in
January 2013, when short-term private external debt shot up by USD 4.84 billion
(14%) compared to the position in January 2013 and USD 3.8 billion (1.04%)
compared to the position in December 2012. Meanwhile, short-term private
external debt by remaining maturity in December 2013 declined by USD 338
million to USD 41.159 billion compared to the position in November 2013 (a
decrease of -0.8%); increased by USD 2.3 billion (6%) compared to the position
in January 2013 and USD 1.09 billion (2.7%) compared to the position in
December 2012.
Debt Service Ratio which shows an upward trend, rose sharply in quarter
IV-2013. In the last quarter of 2013, Indonesia DSR reached 52.7%, which
reflects weakening capacity of the Indonesian government to repay its debt from
one quarter to the next, which in turn has stoked up risk for the Indonesian
economy.
Foreign ownership of securities increased. Foreign ownership of
government bonds in January 2014 raised by IDR 4.8 trillion to IDR 328.65
trillion compared to the position in December 2013, and increased by IDR 55.45
trillion compared to the position in January 2013. This followed the issuing of
Global Bonds in January 2014. Meanwhile, foreign ownership of equity in
December 2013 stood at IDR 1,475.45 trillion, and increased to IDR 1.7 trillion
Figure 11: Indonesia Debt Service Ratio, December 2007 – December
2013 (%)
Debt Service Ratio increased sharply
12
RPNQY
TQNPP
URNWP
P
QP
RP
SP
TP
UP
VP

compared to the position in November 2013. However, it suffered a sharp
decline of IDR 87.4 trillion compared to the position in January 2013 and IDR
71.6 trillion compared to December 2012. Foreign ownership of Bank Indonesia
Certificates (SBI) increased by IDR 3.9 trillion in January 2014, and increased by
IDR 180 billion compared to the position in December 2013 and increased by
IDR 3.7 trillion compared to the position in January 2013.
Figure 12: Foreign Ownership of Securities, October 2011 – January 2014
(IDR trillion)
Foreign ownership of Indonesian securities increased
Source: Ministry of Finance, Bank Indonesia, OJK, and CEIC (2014)
Figure 13: Composition of Government Securities, 2011 – February 2014
(IDR trillion)
Government securities outstanding declined slightly
Source: DMO Ministry of Finance and CEIC (2014)
13
P
U
QP
QU
RP
RU
SP
SU
P
RPP
TPP
VPP
XPP
QLPPP
QLRPP
QLTPP
QLVPP
QLXPP
RLPPP
ÉĬÔMQQ ĊÏ ŃMQR ĂÑÒMQR ĊÕŁMQR ÉĬÔMQR ĊÏ ŃMQS ĂÑÒMQS ĊÕŁMQS ÉĬÔMQS ĊÏ ŃMQT
ǼŇÒĮ ĹĴ Ń ÉŌŃĮ ÒÓĶĹÑ ŇĲ ÆŅÕĹÔŐ HĎĈĒI
ǼŇÒĮ ĹĴ Ń ÉŌŃĮ ÒÓĶĹÑ ŇĲ ĆŇÖĮ ÒŃĿ Į ŃÔ ÅŇŃİ Ó HĎĈĒI
ǼŇÒĮ ĹĴ Ń ÉŌŃĮ ÒÓĶĹÑ ŇĲ ǺĮ ÒÔĹĲĹĬÏ ÔĮ ŇĲ ÅÏ ŃĻ ČŃİ ŇŃĮ ÓĹÏ HËĈĒI
QLTUY
WYS
QRS
TUP
P
UPP
QLPPP
QLUPP
RLPPP
RLUPP
SLPPP
SLUPP
ÈŇÖMQQ ǼĮ Ī MQR ĐÏ ŐMQR ĂÕĴ MQR ÈŇÖMQR ǼĮ Ī MQS ĐÏ ŐMQS ĂÕĴ MQS ÈŇÖMQS ǼĮ Ī MQT
ĆŇÖĮ ÒŃĿ Į ŃÔ ÅŇŃİ Z ÉÕÔÓÔÏ Ńİ ĹŃĴ ĢĮ ÒŇ ǺŇÕÑŇŃ ÅŇŃİ
ǼĹŎĮ İ ËÏ ÔĮ ÅŇŃİ ĘÏ ÒĹÏ Ī ŁĮ ËÏ ÔĮ ÅŇŃİ
ĔÒĮ Ï ÓÕÒŐ ÅĹŁŁ ĆŇÖĮ ÒŃĿ Į ŃÔ ČÓŁÏ Ŀ ĹĬ ĒĮ ĬÕÒĹÔĹĮ Ó HĆČI
ǼŇÒĮ ĹĴ Ń ǺÕÒÒĮ ŃĬŐ ĄĮ ŃŇĿ ĹŃÏ ÔĮ İ HǼǺI

4. Poverty Incidence and Employment Worsened
Despite the fact that the economy showed slight improvement in
quarter IV 2013, unemployment increased in August 2013. Open
unemployment rose to 6.3% in August 2013 from 6.1% during the same
period in the previous year. Besides, based on BPS publication, the number of
people in Indonesian work force increased by 150,000 from 118.05 million to
118.19 million. Viewed from the vantage point of gender, the participation of
men and women in the work force declined from 84.42% and 51.39%,
respectively, in August 2012, to 83.58% and 50.28%, respectively, in August
2013. In general, the participation of women in the work continues to trail
that of men.
In the meantime, based on the structure of employment, in accordance
with the position in August 2013, the contribution the population
working in the agricultural sector continues to decline. In August 2012,
agricultural sector contributed 35.09% of the work force, but by August
2013, it has declined to 34.36%. The decline in the workforce in the
agricultural sector is in part attributable to the high wage differential
between wages offered in agricultural sector and other sectors such as
industry and trade. Nonetheless, the agricultural continues to be the largest
source of employment in Indonesia, followed by trade, social services, and
industry in that order. Nonetheless, workforce in the construction and
Industry sectors also declined to 5.67% and 13.43% in 2013, from 6.13%
14
XTNXV XTNSP XUNVW XTNTR XUNQR
XSNUX
UUNQS URNTT USNWQ UQNSY USNSV UPNRX
VNX
VNV
VNS
VNQ
UNY
VNS
P
R
T
V
X
P
RP
TP
VP
XP
QPP
ǼĮ Ī MQQ ĂĴ ÕÓÔMQQ ǼĮ Ī MQR ĂĴ ÕÓÔMQR ǼĮ Ī MQS ĂĴ ÕÓÔMQS
ĐÏ ŁĮ ĎÏ Ī ŇÕÒ ǼŇÒĬĮ ÊÏ ÒÔĹĬĹÑÏ ÔĹŇŃ ËÏ ÔĮ HĎĈĒI
ǼĮ Ŀ Ï ŁĮ ĎÏ Ī ŇÕÒ ǼŇÒĬĮ ÊÏ ÒÔĹĬĹÑÏ ÔĹŇŃ ËÏ ÔĮ HĎĈĒI
ĖŃĮ Ŀ ÑŁŇŐĿ Į ŃÔ ËÏ ÔĮ HËĈĒI
Figure 14: Workforce Participation Rate by Gender and Open
Unemployment in Indonesia, February 2011 – August 2013 (in %)
Open unemployment increased

and 13.87% in 2012, respectively.
Inevitably, the increase in open unemployment, has led to higher
poverty incidence. People who were categorized as poor increased from
28.07 million (11.37% of total population) in March 2013 to 28.55 million
(11.47% of the total population) in September 2013. The drastic increase in
poverty is in part attributable to the rise in inflation as a direct consequence
of government policy to raise fuel prices in June 2013. Meanwhile, open
unemployment in August 2013, was 6.3%, which represented an increase
from the position in February of 5.9%. The increase in poverty in 2013 was
aggravated by rising income inequality reflected in the Gini Ratio, which
increased from 0.410 in 2012 to 0.413 in 2013. This attests to ineffectiveness
of income distribution programs. Rising income inequality continues to grow
amidst rising economic growth. To that end, there is need for the government
to increase its focus on equitable development rather than pursuing
economic growth for its sake.
Table 1: Population 15 Years Old and Above by Main Source of
Employment, 2011-2013 (in %)
Contribution of population to workforce in the agricultural sector continues
to decrease, while that in the industry shows an increase
15
ǼĮĪ Aug Feb Aug Feb Aug
Agriculture 38.17 35.86 36.52 35.09 35.05 34.36
Manufacturing Industry 12.31 13.26 12.6 13.87 12.96 13.43
Construction 5.02 5.78 5.41 6.13 6.04 5.67
Trade 20.88 21.34 21.29 20.9 21.76 21.43
Transportation, Storage, and Communication 5.01 4.63 4.61 4.51 4.59 4.55
Financing 1.85 2.4 2.46 2.4 2.64 2.63
Community, Social, and Personal Services 15.29 15.18 15.4 15.43 15.37 16.44
Others 1.45 1.55 1.7 1.67 1.59 1.51
TOTAL 100 100 100 100 100 100
Đ Ï ĹŃ ČŃİ ÕÓÔÒŐ
2011 2012 2013
Table 2: Developments in Poverty and Inequality in Indonesia, 2011-2013
Poverty incidence and Income Inequality in Indonesia have increased
(in million people) (in %)
Mar-11 30.02 12.49
Sep-11 29.89 12.36
Mar-12 29.13 11.96
Sep-12 28.59 11.66
Mar-13 28.07 11.37
Sep-13 28.55 11.47
Number of Poor People in Indonesia
Gini Index
0.41
0.41
0.413
Year

B. MONETARY SITUATION AND FINANCIAL MARKETS
1. Rupiah Continues to Depreciate
High inflationary pressure in Indonesia is often attributable to non-
monetary factors such as poor infrastructure, floods, and natural
disasters. Such events have often ended up sending prices of food prices
higher, which in turn fuels inflation. Inflation in January 2014 rose sharply
compared to the position in December 2013 (8.08%, y-o-y). Besides, the
increase in prices of commodities that are under government direction and
control—such as the increase in liquefied petroleum gas which occurred at
the beginning of the year—also contributed to the drastic rise in inflation.
In February 2014, the government succeeded in depressing inflation to
7.75% (y-o-y), which is lower than the previous month, 8.22% (y-o-y).
Control over inflation in February 2014 is in part attributable to adoption of
government policy that imposed import quotas based on closed system
which is still underway. Imposition of import quotas is still underway, until
prices are deemed relatively stable. In the event food supplies are deemed
sufficient, the imposition of import quotas will be put into effect once again.
Figure 15: Inflation, February 2011 – February 2014 (y-o-y, in %)
Inflation in February 2014 was 7.75% (y-o-y)
0
2
4
6
8
10
12
14
16
18
20
02/2011 08/2011 02/2012 08/2012 02/2013 08/2013 02/2014
Inflation, 2012=100 Core Administered Volatile

Macroeconomic Dashboard Universitas Gadjah Mada 17
In order for the government to succeed in putting inflation under
control, there is need for ensuring that distribution of food supplies
runs smoothly which requires carrying out repairs on national
infrastructure. In February 2014, year-on-year, core inflation was 5.26%,
while administered price component stood at 16.76%, and volatile
component was 8.73%. Meanwhile, based on month-to-month trend,
inflation in February 2014 was 0.26%, which was lower than 1.07%
registered in the previous month.
The composition of inflation in February 2014 was relatively even for all
item categories, compared with the previous month, which was
dominated by food stuffs. Processed food, beverages, and tobacco,
contributed most to inflation in February 2014. The expenditure category
contributed 0.08% of total inflation in February 2014 which stood at 0.26%.
Meanwhile, inflation of that category is 0.36% (m-t-m) or 9.62 % (y-o-y).
Food items contributed the largest proportion to inflation in January 2014,
Table 3: Inflation by Type of Expenditure, 2011 – 2014
(2012=100, m-t-m, in %)
Food prices continue to be very high; inflation for February 2014 was 0.26%
Notes: (1) Food stuffs; (2) Processed foods, Beverages, Tobacco; (3) Housing, Electricity, Gas, and Fuels;
(4) Clothing; (5) Health; (6) Education, Recreation, and Sports; (7) Transportation, Communications,
and finance
(1) (2) (3) (4) (5) (6) (7)
15.64 6.96 4.08 6.51 2.19 3.29 2.69
3.64 4.51 3.47 7.57 4.26 5.16 1.92
5.68 6.11 3.35 4.67 2.91 4.21 2.2
Jan 3.39 0.46 0.56 0.25 0.29 0.05 -0.28
Feb 2.08 0.47 0.82 -0.59 0.56 0.19 0.08
Mar 2.04 0.4 0.21 -0.7 0.24 0.12 0.19
Apr -0.8 0.3 0.41 -1.13 0.22 0.15 0.1
May -0.83 0.35 0.75 -1.22 0.23 0.06 0.05
Jun 1.17 0.67 0.21 -0.29 0.23 0.04 3.8
Jul 5.46 1.55 0.44 -0.09 0.4 0.69 9.6
Aug 1.75 0.68 0.66 1.81 0.37 1.36 0.95
Sep -2.88 0.78 0.61 2.99 0.27 0.71 -0.79
Oct -0.62 0.55 0.26 -0.56 0.33 0.31 0.53
Nov -0.47 0.27 0.68 -0.03 0.34 0.11 0.02
Dec 0.79 0.73 0.44 0.17 0.16 0.06 0.56
Jan 2.77 0.72 1.01 0.55 0.72 0.28 0.2
Feb 0.36 0.43 0.17 0.57 0.28 0.17 0.15
2014
Tahun
2010
2011
2012
2013
Monetary Situation and Financial Markets

0.56% of inflation in February 2014 of 11.43% (y-o-y) or 2.77% (m-t-m).
Besides, expenditure on housing, water, electricity, Gas, and fuels also
contributed 0.25%, to inflation of 7.63% (y-o-y) or 1.01% (m-t-m), in January
2014.
Meanwhile, based on inflation in 82 largest cities Indonesia, most cities
in Indonesia registered inflation in January and February 2014. Based
on data released by BPS in February 2014, 55 cities experienced inflation.
Pontianak recorded the highest inflation of 2.73% (m-t-m). However, 27
cities in Indonesia experienced deflation in February 2014. Sibolga recorded
the highest deflation of 2.43% (m-t-m). Meanwhile, in January 2014, 78 cities
registered inflation, with Pangkal Pinang posting the highest figure of 3.79%,
while four cities experienced deflation, with Sorong registering the highest
0.17%.
High inflation, coupled with lower level of international reserves than
in previous years, stoked rupiah depreciation. The level of Indonesia
international reserves in January 2014 was USD 100.651 billion or increased
by USD 1.265 billion compared with the position in the previous month.
Figure 16: Indonesia International Reserves (billion USD) and
Developments in the Rupiah Exchange rate (IDR/USD), February 2011 –
February 2014
In February 2014, Indonesian registered the highest level of International
reserves over the last 9 months
6,000
7,000
8,000
9,000
10,000
11,000
12,000
13,000
60
70
80
90
100
110
120
130
International Reserve (billion), LHS IDR/USD, RHS

Meanwhile, in February 2014, international reserve rose to USD 102.74
billion, or increased by USD 2.09 billion. The positive trend has continued
since August 2013. Nonetheless, the level of international reserves put
Indonesia in a position that could be regarded as more than sufficient. The
increase in international reserves in January and February 2014 was in part
due to Bank Indonesia efforts to improve the country's trade account position
by implementing Bank Indonesia regulation (PBI) No.15/17/PBI/2013 on
Protecting the Value of Swap Transactions, and government bonds auctions
in the end of January and in mid February 2014.
Besides, Bank Indonesia regulation on protection of swap transactions,
Bank Indonesia also implemented rupiah exchange rate stabilization
efforts by deepening foreign exchange market. The effect of such efforts is
visible in improvements in exchange rate of Rupiah which appreciated by
4.84% to IDR 11,643/USD in February, which in brought to a stop the
depreciation of the currency that begun in November 2013. In January 2014,
the exchange rate of Rupiah stood at IDR 12,226/ USD, which represented a
depreciation of 0.3% compared with the position in December 2013. The
appreciation of Rupiah is in part attributable to the implementation of
government policy that involved the issuing of USD 4 billion of government
bonds denominated in US dollars, which was aimed at attracting inflow of
global investors. The selling of bonds is also aimed at strengthening Rupiah in
the wake of US Fed's decrease in level of quantitative easing that took effect in
January 2014. The debt securities issued by the government consisted of
bonds with 10 year maturity, coupon rate of 5.95%, and 20 year bonds with
coupon of 6.85%, USD 2 billion in each category.
In relation to efforts to control rupiah exchange rate, Bank Indonesia
through JISDOR (Jakarta Interbank Spot Dollar Rate) succeeded in
achieving international recognition. Singapore Monetary Authority
(MAS) with effect from 27 March 2014 started to adopt JISDOR as the official
exchange rate for Rupiah denominations in Singapore money market. This
was very much in line with the goal of Bank Indonesia of launching JISDOR in
20 May 2013, which had the main goal of ensuring that Rupiah exchange rate
Rupiah was a fair one. As a consequence, financial deepening is bound to
occur due to improvement in market efficiency.

Despite inflationary pressure and weakening Rupiah, Bank Indonesia
decided to leave BI rate unchanged. Based on minutes of Bank Indonesia
council meeting that convened on 13 February 2014, BI rate remained
unchanged at 7.5%. The policy underscores Bank Indonesia's intention to
continue to control inflation and improve Indonesian balance of payments
position. It is worth noting that, the last time BI rate changed was in
November 2013 which at the time was raised by 0.25 basis points.
In general, interest rates have not shown significant movements in
January and February 2014 compared with the position in December
2013. Interest rate on LPS guaranteed loans, increased by 0.25 basis points to
7.5% (rupiah denominated) and by 1.5% (on foreign currency denominated)
in January 2014, which remained unchanged in February 2014. The increase
was aimed at ensuring that LPS continued to guarantee people's savings
amidst rising interest rate that occurred in December 2013. On the other
hand, interest rate on time deposits 3 months showed an upward trend, and
rose above interest rate on loans as well as BI rate. In December 2013,
interest rate on time deposits 3 months was 7.61%, but rose to 7.95% in
January 2014. This may be potential sign that banks are facing liquidity
problems.
Figure 17: Developments in BI Rate, February 2011 – February 2014 (in %)
BI rate remained unchanged at 7.5% in February 2014
3
4
5
6
7
8
9
02/2011 08/2011 02/2012 08/2012 02/2013 08/2013 02/2014

2. Financial Markets Exudes Optimism as the Year Ended
Financial markets, Jakarta composite index (IHSG) showed positive
movements, while government bonds (SUN) showed some fluctuation
in January and February 2014. IHSG increased by 3.38% to 4,418.757
(December 2013 – January 2014), and continued that trend by posting
another increase of 4.56% to 4,620.216 (January – February 2014). The
strengthening of IHSG in January and February 2014 may signal that foreign
investors have started returning to Indonesia. On the other hand, the
movement of the yield on government bonds in the market, indicated
fluctuation that hovered around 8.6% (December 2013), 9.01% (January
2014), and 8.4% (February 2014). This is because yields follow inflation.
Yield increase whenever inflation increases, as was the case in January 2014,
and decline when inflation recedes which is also what happened in February
2014. SUN bearing medium term maturity such as 10 years is the favourite
for investors as it is considered a safe and secure investment. It serves as a
good investment in countering the potential for negative sentiments in the
financial markets, and it is sufficiently liquid in the secondary market.
Figure 18: Developments in Interest Rate on LPS Guaranteed Loans and
Deposits, 2011 – 2014* (in %)
LPS raised interest rate on guaranteed loans, 3 month deposit rate is
higher than BI rate and LPS interest rate
*= January 2014 (time deposits) dan Februari 2014 (LPS guaranteed loans)
4
5
6
7
8
9
10
Deposit Rate Max Guarantee (IDR, 1 Month) Time Deposit Rate 3 Months

After initially registering a decline in quarter III-2013, capital and
financial account begun to show an upward trend in IV-2013. The
surplus on the capital and financial account increased from USD 5.6 billion
to USD 9.2 billion, which represents an increase of 65.4% quarter-to-
quarter. The increase in the surplus is attributable to the drastic change in the
components of other investments that occurred in quarter III-2013, which
initially was in deficit but moved into a surplus in the following quarter.
Direct investment and portfolio investment continued to register a surplus.
The value of direct investment and portfolio investment declined in
quarter IV 2013. The largest decrease in direct investment was USD 5.7
billion in quarter III-2013 to USD 1.6 billion in quarter IV-2013. Meanwhile,
portfolio investment experienced slight decline from a decrease of USD 1.9
billion to USD 1.8 billion. In percentage terms, the value of direct investment
and portfolio investment declined by 71.9% and 9.6% during the period,
respectively. The decline in direct investment was a result of an increase in
the deficit on direct investment abroad to USD 2.5 billion in quarter IV-2013,
far larger than USD 87 million deficit in the previous quarter. Besides, the
surplus on foreign direct investment in Indonesia also decreased by USD 1.7
billion compared with the position in the previous quarter.
Figure 19: Movement of IHSG and Yield on SUN 10 Year Maturity,
February 2011- February 2014 (in %)
IHSG continued to strengthen right from December to February; yield on
SUN decreased in late February 2014
Source: IDX, CEIC, and Bloomberg (2014)
0
1
2
3
4
5
6
7
8
9
10
0
1,000
2,000
3,000
4,000
5,000
6,000
IDX Composite, LHS Yield SUN 10 Year (%), RHS

Other Investments increased drastically in quarter IV-2013. In quarter
III-2013 the value of other investments registered a deficit of USD 2 billion,
but moved back into surplus of USD 5.9 billion in the following quarter.
According to the data from Bank Indonesia, The drastic increase in the
surplus on other investments is attributable to withdrawal of bank deposits
held offshore and net surplus on private sector liabilities.
Compared with quarter–IV, 2012, the performance of capital and
financial account, registered a decline. This is reflected in the value of
surplus which was higher in quarter IV-2012 (USD 12 billion), than USD 9.2
billion registered in quarter IV-2013. On year-on-year basis, capital and
financial account position posted a 23.1% decrease.
Balance of payments position in quarter IV-2013 improved. This is
indicated by the balance of payments position that registered a surplus of
USD 4.4 billion in quarter IV-2013. On the contrary, in quarter III-2013,
Indonesian balance of payments position plummeted into a deficit of USD 2.6
billion. Improvement in balance of payments was a result of surplus on
capital and financial account, and the decline in the deficit on the current
account.
Figure 20: Capital and Financial Account Position, 2010:Q1-2013:Q4
(USD billion)
Surplus on the capital and financial account, increased
-15
-10
-5
0
5
10
15
2010:Q1 2010:Q4 2011:Q3 2012:Q2 2013:Q1 2013:Q4
Direct Investment Portfolio Investment
Other Investment Capital and Financial Account
Current Account

Compared with quarter IV-2012, balance of payments position showed
slight improvement. In quarter IV-2012, due to a surplus of USD 3.2 billion
on the balance of payments, which increased in the same period in 2013 to
USD 4.4 billion. On year-on-year basis, the surplus on the balance of
payments registered an increase of 36.8%.
Figure 21: Balance of Payments 2010:Q1-2013:Q4 (USD billion)
Balance of payments continued to be in Surplus in quarter IV-2013
-15
-10
-5
0
5
10
15
2010:Q1 2010:Q4 2011:Q3 2012:Q2 2013:Q1 2013:Q4
Transaksi Berjalan Transaksi Modal dan Finansial
Selisih Perhitungan Neraca Pembayaran

C. GAMA LEI AND CONSENSUS ON
PROJECTION OF THE ECONOMY
1. GAMA Leading Economic Indicator (GAMA LEI)
GAMA Leading Economic Indicator (GAMA LEI) is a model, which was
developed by Macroeconomic Dashboard team, of FEB, UGM, which has
the ability to undertake state of the art forecasting. Prediction results
generated by GAMA LEI model have the ability to predict the direction of
movements of Indonesian economy in future long before the event. The
prediction of the direction of movement of Indonesian economy is done by
observing the movement or change in direction, which is produced by the
GAMA LEI model for a certain period of time. GAMA LEI is compiled on the
basis of stringent quantitative and qualitative tests and using a selection of
certain variables, deemed to have the ability to produce the best prediction.
GAMA LEI has the ability to predict the economic cycle of Indonesian
economy (GDP) with impeccable accuracy long before the event. This far,
GAMA LEI model has already shown its accuracy in predicting the direction of
that the economy cycle takes. In this time, GAMA LEI predicts improvement in
the performance of several key indicators in Indonesia which in turn will
continue to feed into better improvement of the economy as a whole. In this
edition, GAMA LEI predicts the direction of the economy cycle as the year of
politics, 2014, takes shape.
GAMA LEI is compiled from various indicators which must pass through
stringent statistics tests. An indication of improvement in the performance
of certain variables such as exports to economic regions (China and Europe),
international reserves position (from the vantage point of macroeconomic),
market capitalization and IHSG (in relation to capital markets), are quite
influencial in macroeconomic conditions. Nonetheless, it is worth noting
that other macroeconomic indicators can change quickly in just a couple of
weeks in future.

The uniformity with respect to the pattern of economic growth
trajectory of Indonesian economy, coupled with results of the
projection of the direction of cycle of Indonesian economy produced by
GAMA LEI model, generate comprehensive prediction. The prediction of
the business cycle focuses on determining whether, the movement of the
economic cycle falls within an expansion phase or contraction in several
weeks in future. GAMA LEI 2013:Q4 cycle stands in the expansion phase
(above the point of origin) although there is a tendency toward declining. An
example: economic growth in Indonesia in 2013:Q4 based on year-on-year, is
showed to increase. However, GDP cycle that is generated by the model shows
a downward trend, albeit during the expansion phase.
GAMA LEI in this fifth edition predicts a downward trend in Indonesian
economic cycle (GDP). Nonetheless, based on the movement and pattern of
the movement of the economy both year-on-year and quarter-to-quarter,
portends possibility of slight increase in economic growth in 2014:Q1. In
other words, if the government does not take full advantage of the potential
for economic growth which is shown to increase year-on-year in 2013:Q4,
such a momentum to improve the performance of the economy is likely to be
lost.
GAMA LEI in this fifth edition, predicts a downward trend in Indonesian
economy (GDP). Nonetheless, based on the movement and pattern of the
Figure 22: GAMA Leading Economic Indicator
GAMA LEI predicts a downward trend in the Indonesia economy cycle
-8
-6
4
6
8
⁰
²
Q5 Q7 Q5 Q7 Q5 Q7 Q5 Q7 Q5 Q7 Q5 Q7 Q5 Q7 Q5 Q7 Q5 Q7 Q5 Q7
6448 6449 644⁰ 644¹ 644² 644³ 6454 6455 6456 6457
-54
-9
4
9
54
59
64
PDB Cycle(LHS) GAMA LEI (RHS)
Growth YoY (RHS, ± ) Growth Q to Q (RHS, ± )

movement of the economy both year-on-year and quarter-to-quarter,
portends possibility of slight increase in economic growth in 2014:Q1. In
other words, if the government does not take full advantage of the potential
for economic growth which is shown to increase year-on-year in 2013:Q4,
such a momentum to improve the performance of the economy is likely to be
lost.
2. Consensus on Macroeconomic Indicator Projections
Outcome of consensus shows that the value of three key Indicators for
Indonesia, interalia: economic growth, inflation, and exchange rate are
moving toward improvement from 2014 to 2015. The consensus was
achieved based on results of a survey conducted by the Macroeconomic
Dashboard team with respondents who were drawn from lecturers and
researchers in the Faculty of Economics and Business, Universitas Gadjah
Mada.
In general, real GDP growth in 2014 will not differ markedly from 2013.
Real GDP (y-o-y) is predicted to growth within the range of 5.85% ±
0.14% in quarter I-2014 and 5.86% ± 0.14% in quarter II-2014. On a
year basis, real GDP for 2014 and 2015, is predicted to growth within the
range 5.91% ± 0.14% and 6.3% ± 0.3%, respectively.
The Rupiah exchange rate is predicted to improve and become more
stable in 2014. In quarter I-2014, Rupiah exchange rate is predicted within
the range IDR/USD 11,680 ± IDR/USD 363. In the following quarter, rupiah
exchange rate is predicted to experience slight appreciation to the level
IDR/USD 11,510 ± IDR/USD 404. On a yearly basis, rupiah exchange rate in
2014 is predicted to be IDR/USD 11,550 ± IDR/USD 447 and will appreciate
in 2015 to IDR/USD 11,130 ± IDR/USD 589.
Inflation in Indonesia in 2014-2015 is predicted above 5 percent. In
2014, prediction outcomes of Indonesian inflation show that it will be within
the range of 5.58% ± 3.19%, while in 2015, inflation will be tamed somewhat
reaching the range of 5.22% ± 3.17%. Meanwhile, on quarterly basis,
Indonesian inflation in predicted within the range of 4.33% ± 3.46% and
4.25% ± 3.26%, in quarter I-2014 and II-2014, respectively.
GAMA LEI and Consensus on Projection of The Economy

Table 4: Estimation of real GDP Growth (y-o-y, in %)
Source: Primary Data, calculated (2014)
Table 5: Estimation of Rupiah Exchange Rate (IDR/USD)
Quarter-I 2014 Quarter-II 2014 Year 2014 Year 2015
Exchange rate 11.68 11.51 11.55 11.13
Range± 363 404 447 589
Table 6: Estimation of Inflation (y-o-y, in %)
Inflation 4.33 4.25 5.58 5.22
Range ± 3.46 3.26 3.19 3.17
Growth 5.85 5.86 5.91 6.3
Range± 0.14 0.14 0.14 0.3

D. ASEAN: Registers Optimum Economic
Potential amidst Global and Regional
Economic Instability
In general, as the year 2013, came to an end, economies in ASEAN
(Association of South East Asian Nations) economic region were able to
register slower economic growth hence have not yet to reach their full
potential. Sub optimal regional economy, was largely attributable to the
performance of Indonesia and Thailand in 2013, which are key players in the
region, which fell below the level achieved in 2012. Based on year on year
growth, in 2013, Indonesia and Indonesia registered economic growth of
5.8% and 2.9%, respectively, which was lower than 6.2% and 6.4%, in 2012,
respectively. Such a situation is cause for concern considering the fact that
one of the engines of growth in Asia, ASEAN only registered anaemic growth
of 5% over the last decade, which falls far short of economic potential amidst
formidable economic challenges associated with the formation of ASEAN
Economic Community 2015.
Potential economic growth in the region faces both internal and
external challenges. In addition to the global situation that continues to far
below normal, volatile political stability in the region, is another major
challenge facing ASEAN region. The latest challenges ASEAN nations face
emanate from problems in Thailand and Myanmar and dynamics in the
relations between Indonesia and Singapore. Moreover, another challenge
ASEAN nations face today is internal in nature, and relates to the need to seize
the economic opportunity which is being created by changing economic
structure of economies in the region. Based on a publication released by
ASEAN Secretariat in October 2013, there were indications of significant
shifts in structures of economies in ASEAN region, especially with the decline
in the contribution of agricultural sector to economies in the region and the
development of service based economy. This is attributable to the
emergence of large cities that are becoming metropolitan in nature with
attendant growth and development of financial services in the region, as well
as increasing tendency of some economies such as the Philippines to become
important source of foreign workers. The Philippines will in the foreseeable
future replace India as the largest supplier of foreign workers.
29

Governments in ASEAN nations still face stiff obstacles in creating
sufficient job opportunities to meet the burgeoning unemployment
which is attributable to demographic boom and inability to provide
sufficient requisite infrastructure to support economic productivity. As
an example, the Philippines, Malaysia, Vietnam, Indonesia, Myanmar and
Cambodia, are countries that face high growth of productively active
population while the dependency ratios are falling , which will translate into a
boon for development the potential of their economies. Such economic
capital, unless managed well, by ASEAN governments poses the danger of
undermining the performance of economies in the region.
Philippines registered the highest growth in the region in 2013, posting
a staggering 7.2% toward the end of 2013. Such a staggering growth was
not only the highest in ASEAN region, but also the highest in ASIA in general.
Philippines economy has achieved such rapid economic growth thanks to its
success in being rated as Investment Grade by Moody's in 2013, high
proportion of private investment and government expenditure in the
structure of the economy compared with other economies in the region, low
proportion of exports and imports in GDP which makes it possible to mitigate
adverse effect of global economic instability on the domestic economy.
The achievement of economies in ASEAN was also driven by growth in
CLMV countries (Cambodia, Lao PDR, Myanmar, and Viet Nam).
Members of CLMV countries were able to register higher economic growth
than ASEAN+6 (initial ASEAN countries), which are considered to have
Table 7: GDP Growth in ASEAN, Constant Price, 1998–2013 (y-o-y, %)
Philippines and CLMV are the main drivers of economic growth in the region
Note: Average growth for 1998-1999, 2000-2007, and 2008-2009
Source: IMF and CEIC (2014)
30
QYYXMQYYY 2000-2007 2008-2009
Asia's Crisis ĒÔÏ Ī ŁĮ ĆÒŇŌÔĶ Global Crisis
Brunei Darussalam 1.25 2.24 -1.85 2.6 2.20 1.60 1.00
Cambodia 8.50 9.93 3.40 6.1 7.10 7.20 7.20
Indonesia -6.15 5.04 5.30 6.2 6.50 6.20 5.78
Lao PDR 4.25 6.75 7.65 8.1 8.00 8.10 8.00
Malaysia -0.65 5.50 1.65 7.1 5.10 5.60 6.80
Myanmar 8.35 12.88 4.35 5.3 5.40 6.30 6.50
The Philippines 1.25 4.89 2.65 7.6 3.90 6.50 7.20
Singapore 2.05 6.36 0.50 14.8 5.10 1.20 3.70
Thailand -3.05 5.05 0.10 7.8 -0.10 6.40 2.90
Viet Nam 5.30 7.64 5.80 6.8 5.9 5.00 5.42
ASEAN -1.90 5.56 3.85 8.3 4.9 5.20 5.10
COUNTRIES 2010 2011 2012 2013

economies that are more modern. In 2013, CLMV countries registered
economic growth of 6.8% on average, which is higher than average growth of
ASEAN+6 nations (Brunei Darussalam, Indonesia, Malaysia, The Philippines,
Singapore, Thailand), which registered just 4.57%. High economic growth
registered by CLMV nations is attributable to the fact the economies still have
huge unexploited potential, which coupled with improvement in political
stability and strong commitment of national governments to develop
facilities and infrastructure networks, in fulfilment of their commitment to
support regional Master Plan on ASEAN Connectivity 2015.
High inflation in ASEAN economies is one of the major obstacles the
economies face in achieving optimal economic growth requisite for
making significant improvement in social welfare of their citizenry.
During 2013, Indonesia was the country that registered the highest inflation
in the region, leading her to fall into the category of countries with high
inflation in the region such as Lao PDR and Vietnam. Unlike other countries
in the region which have succeeded in putting inflation under control (below
3%), the Indonesian government, Lao PDR and Vietnam have so far failed to
Figure 23: Consumer Price Index (CPI) in ASEAN Nations, 2000-2014*
(y-o-y, %)
Inflation level that continues to be high poses a threat to economies in the
region
44
46
48
4⁰
4²
54
56
58
5⁰
5²
64
6455 6456 6457 Jan©58 (YoY)
Brunei Darussalam
Cambodia
Lao PDR
Malaysia
Myanmar
The Philippines
Singapore
Thailand
Viet Nam
Indonesia
*= Data for Brunei Darussalam, Cambodia, and Myanmar relate to December 2013 position (y-o-y). Data
for Indonesia, Lao PDR. Malaysia, The Philippines, Singapore, Thailand, Viet Nam related to the position
in January 2014 (y-o-y)
Source: Bloomberg (2014)
31
ASEAN

emulate examples of their counterparts in redressing high inflation in their
economies.
The latest developments which are based on inflation figures for
January 2014, released recently, show that Indonesia continues to have
the highest year on year inflation in the region. Indonesia registered CPI
of 8.22% which is significantly higher than LAO PDR, with the second highest
inflation of (5.99%) and Viet Nam (5.45%). Inflationary pressure on
economies in the region should therefore assume more importance among
ASEAN nations as it significantly affects collective preparations leading to the
formation of ASEAN Economic Community 2015.
Thus, demographic boom phenomenon puts ASEAN Nations in a
position to register high economic growth. High growth of actively
productive population coupled with improvement in social welfare have the
potential to promote high industrial and household consumption.
Nonetheless, it is regrettable that most of the consumption constitutes of
imported which do not only pose potential danger to stoke exchange rate
fluctuation but also increase the likelihood of imported inflation.
Capital markets in region show mixed results. Some countries registered
drastic decline in 2013 for example Cambodia (-17.74%) and Thailand (-
11.58%), others registered drastic growth for example the Philippines
(62.30%) and Viet Nam (23.06%), while others recorded slight gains such as
Table 8: Growth in Capital Market Indices in ASEAN, 2009 – 2014 (y-o-y, %)
The Performance of Capital Markets in ASEAN is mixed
Note: Data for the position on 28 February 2014 is growth based on year-to-Date
32
ǺÉĖÈĔËČÆĒ 2009 2010 2011 2012 2013 Feb 28th 2014
Brunei Darussalam
Cambodia -17.74 MQNUW
Indonesia 87.9 46.9 3 13.3 0.25 6.77
Lao PDR 35.1 3.86 3.09
Malaysia 45 19.5 0.8 10.3 10.54 -1.68
Myanmar
The Philippines 60.3 55.7 1.9 21.1 62.3 7.36
Singapore 64.5 10.1 -17.1 19.7 0.24 -2.01
Thailand 66.1 39.2 -0.9 35.9 -11.58 7.68
Viet Nam 56.6 -2.8 -20.9 7.7 23.06 16.25
Does not have Capital market

Indonesia, Lao PDR and Singapore.
Capital market growth in the region reflect optimism of market
practitioners about the ASEAN economies but also are wary of the
potential vulnerability of the financial systems in the region. The deluge
of foreign capital inflow which falls into what pundits describe as hot money
poses the danger of an almost instantaneous drastic withdrawal of funds
from economies which in turn can undermine stability of financial systems in
the region at a time when they are facing growth momentum. Another
potential danger to financial systems of ASEAN member nations is the
increase in household debt which is attributable to rising consumption of
luxuries and contemporary goods by the middle class. The increase in flow
capital flows to ASEAN region, which hovered around USD 144 billion in
2013, which is not significantly higher than China that received USD 121
billion.
Some investment analysts and market practitioners expressed
optimism that the inflow of foreign capital into ASEAN economies will
not reverse course in the near future. Such optimism is based on the belief
that investors have yet to find a better investment destination that can offer
as an attractive and safe an environment for their funds as long as high
uncertainty in global economy persists. Moreover, analysts content even if
investors were to withdrawal their funds in an instant in large amounts, the
effect on the economies in the region will not be as devastating as was the
case during Asia financial crisis in 1998 as the experience in 1998 have since
led to improvement in financial system regulation as well as the relatively
high level of international reserves which can avert the drastic plunge in the
value of currencies in the region.
Balance of trade in ASEAN region is facing pressure from various angles.
This has much to do with the impact of economic recession that continues to
affect Western European nations and weakening economic growth in China
over the last few years, which have led to a decline in exports as global
demand took a hit. In fact trade among developing countries which often
offsets decline in demand in developed nations, seems impotent at the
moment given weakening economic growth in Brazil-the largest economy in
the South as well as problems that are bedevilling other developing
countries.
33
ASEAN

The decline in the balance of trade in the region has in turn led to the
weakening of exchange rates of all currencies in the region against
United States Dollar (USD). Moreover, with the ongoing tapering of the
quantitative easing program, the potential for even deeper depreciation of
currencies in the region is even higher due to rising instability in the financial
markets and capital markets in the region.
Capital markets in ASEAN registered slight increase, as has been
discussed in an earlier section. Nonetheless, the same can be said about
financial markets. This is reflected in the depreciation that currently affects
almost all currencies in the region during 2013. Indonesia, Rupiah suffered
the deepest depreciation of the magnitude of 26.92% and Myanmar “Kyat”
which depreciated by 14.93% , which are two key economies in the region
that have not been able to prevent the depreciation of their currencies from
hitting the under 10 % threshold , as has been achieved by other countries in
the region in 2013.
34
Table 6: Exchange Rate of ASEAN Currencies Against USD, 2009 – 2014
(y-o-y, %)
During 2013, all ASEAN currencies depreciated against USD
*= in 2012 Myanmar revalued its currency
Note: Data for the position on 28 February 2014 are based on Year-to-Date growth
COUNTRIES 2009 2010 2011 2012 2013 Feb 28th 2014
Brunei Darussalam 4.17 7.97 0 4.72 -2.48 -0.8
Cambodia -2.21 0.81 0.3 1.76 -0.33 0.25
Indonesia 14 5.79 0.36 -8.72 -26.92 4.51
Lao PDR -0.05 3.53 0.56 1.77 -2.07 0.12
Malaysia 0.59 9.17 -3.26 4.42 -8.58 0.3
Myanmar 0.32 0.16 0.48 -13360* -14.93 0.45
The Philippines 1.44 5.73 0.09 7.05 -9.03 -0.54
Singapore 3.45 8.57 -0.78 5.43 -3.28 0
Thailand 4.52 9.32 -6.26 4.25 -7.96 0.79
Viet Nam 6.7 -5.71 -7.97 2.05 -2.36 0.02

E. CURRENT ISSUE
Legislative Elections and Hope For Change
Akhmad Akbar Susamto
The general legislative elections (Pileg) 2014 is imminent. Based on phases
of the conduct of the election, which the national elections commission has
released, elections for electing members of regional representatives
assembly, national legislative assembly, and regional legislative assembly are
slated for 9 April 2014. The elections will feature individual candidates vying
for regional legislative assembly seats, 12 political parties that will contest
for seats in the national assembly and regional legislative assemblies, of
which 11 are 'old' political parties while one is a new political party.
The question is to what extent should 2014 general elections be expected to
produce good, credible and reliable representatives? Is there any possibility
that the general elections this time around will be different from previous
episodes and serve as an initial phase in the direction toward change for the
better?
Based on my contention, answers to the above questions are not easy to come
by. This has nothing to do with whether or not I disagree with pervasive
disappointment of most of the population with the performance of
representatives who came to the fore in the aftermath of previous general
elections. It is not also true that I have strong belief in the idea that change
will occur just because of the large number of young voters who have high
information literacy that based on simple calculations are estimated to be
around 40 million. On the contrary, this is because answers to the two
questions are endogenous in nature.
Like the first lecture that bears the title “10 principles of Economics”, which
lectures teach to new students, the behavior of individuals in an economy
very much depends on among others, incentives. The good performance or
the lack of it, of members of legislature who will assume their roles in the

¹ Mancur Olson mentions voting as public goods. One can still get the benefits of voting results
despite choosing not to vote. However, as a consequence (corollary), there will be well
organized special interest groups which will have a greater influence in political decision-
making. See Mancur Olson (1965), The Logic of Collective Action: Public Goods and the Theory
of Groups, Cambridge, MA, Harvard University Press.
aftermath of 2014 general elections, does not only depend on preferences of
candidates who will be elected but also a series of rewards and punishments,
which the society can address to them, right from the candidature period to
five years as members of legislature.
Unfortunately, society incentives has the tendency of giving the wrong
incentives to members of representatives. During candidature, members of
the general public are already castigating candidates who have high potential
and have brilliant track records by accusing them of trying to seize power,
engaging in dirty political practices, and corruption. It is as if the moment an
individual takes the decision to enter politics, all his/her good past records
become negative: Independence becomes partisanship, objectivity becomes
group subjectivity and common sense becomes evil. In light of that, adverse
selection gains ground, as individuals who are clean show a lot of reluctance
to join politics, while those who have shady characters, hence have little
reputation to lose, enter politics without much ado.
Polarization takes center stage as the voting day approaches. One hand, is a
section of society which chooses not to vote, perhaps because there see
nothing to differentiate all candidates and political parties that are
participating in the general elections. It is also possible that the decision not
to participate in the elections is motivated by the feeling of disappointment
with the conduct of legislative elections which to them is devoid of honesty
and fairness. On the other hand, there is a section of society which binds itself
to electing a certain candidate and certain political party without paying
consideration to the character of either the candidate or the political party or
both. It is even better if the choice is based on ideological grounds, rather
than pragmatic considerations that are based on fulfilling promises and
distribution of ill-gotten wealth and money politics, as has now become
common. In this context, what happens is not the corollary according to
Mancur Olson (1965),¹ but tests and temptations for clean candidates.

² Anthony Downs (1957), An Economic Theory of Democracy, New York, Harper and Row.
Convincing some members of society who are critical to desist from their
stance of not voting in the general elections is no simple task, while
persuading some section of society that votes on the basis of pragmatic
considerations is not also a mean feat. The choice then is to follow the
pragmatic root, which includes showering potential voters with promises to
distribute ill-gotten wealth and money politics or else one loses out in the
contest for people's votes. This is the more so given the representative
system that characterizes legislative institutions which is based proportional
representation rather than representation of plurality, makes votes from
small political parties and candidates very important.
In general, once members of the legislature are anointed, and assume their
offices, the evaluation of the general public about their performance becomes
unduly overgeneralized. For most members of society, whatever people's
representatives do in parliament is considered as bad. Thus, there is no
difference between members of the legislature who are clean and those who
are less so, or to use the local term, 'rotten'. No difference is made between
one issue and another, between one policy and another policy. “Essentially
they are all bad.” To that end, wrong incentives take shape, as clean and
diligent representatives do not get the rewards, rather punishments are
meted out to them in the same way as those representatives that are not clean
and perform poorly.
Incentives which representatives get from society can be wrong because of
pervasive rational apathy and rational ignorance. Rational apathy reflects the
tendency to ignore issues and show resignation to difficult situation that is
considered extremely difficult to change. Meanwhile, rational ignorance
relates to the tendency of not wanting to know, because one does not yet
know and does not want to make efforts to know (Down, 1957).²
The only way incentives that society gives to people's representatives can be
changed is by willingness to pay sacrifice as well as paying attention,
collecting information and differentiating between clean and tainted
people's representatives. On the elections day, registered voters can some
contribution by making slight sacrifice by electing the best candidates. In any
Current Issue

case, national elections commission regulations on determining candidates
who qualify to become elected as our representatives based on the most
votes acquired still enables us to choose carefully and meticulously between
candidates who are clean and those that are not, even within the same party.
After elected representatives are anointed and assume their offices, we
should desist from engaging in unnecessarily vitriolic criticism of legislative
assembly members, and whenever they do the right thing, there is nothing
wrong if we shower them with some praise and plaudits for doing their work.
Despite the fact that it is not easy to make distinction between good
performing members of the legislature and those that are not, creating that
difference will provide a strong and right incentive that will embolden them
in their future work.
To that end, going back to the question that was posed at the beginning of this
piece on the extent to which 2014 legislative elections will be the initial phase
toward change, the answer therefore depends on out attitude! The problem is
that are we ready to change our attitude?

F. Economic Outlook
As the year 2014 begun, Indonesian macroeconomic condition which
registered some stability continues to face potential instability as a result of
the tapering off policy implemented by US Federal reserve as well as
weakening economic growth in China, Japan and India, and the emergency of
another hotspot created by problem in Ukraine. This is the more so, given the
fact that the current level of international reserves is to a large extent
underpinned by government global bond issuing to the tune of USD4 billion
in January 2014. The same can be said about economic growth which has
registered slight performance in quarter IV-2013 of 5.72%, continues to face
formidable challenges and threats that are discernible from the change in
surplus in the balance of trade in goods account in October – December 2013,
into a deficit, which is largely attributable to government policy that forbids
exports of unprocessed minerals as well as the rising deficit on the oil and gas
trade account. This is coupled with a decline in the surplus on the non-oil and
gas trade account in January 2014. This is the more concerning considering
the fact that investment growth faced downward pressure in quarter IV 2013
in the run-up to the general elections. This is despite the fact that growth in
the processing industrial sector shows signs of improving. The conduct of the
elections will also increase consumption expenditure, which in turn will
strengthen demand.
Thus, various economic and political developments in Indonesia are likely to
continue to pose potential economic instability in future. In other words,
despite the fact that GAMA LEI predicts slight economic growth, Indonesian
economy still faces potential volatility. That said, the process and outcome of
the general elections will make a great extent influence conditions of
Indonesian economy in the future. In the conduct of general elections goes
smoothly, safely, and peacefully, and elections produce people's
representatives who are credible and have the ability to make improvements
in Indonesia, there is a lot of hope that macroeconomic instability will
39

diminish, and economic growth will increase significantly as investment
growth will pick up pace. To that end, let us pray for a flawless, safe and
peaceful conduct of 2014 general elections as well as produce
representatives who will have the ability to introduce and make
improvements in Indonesia. That way, the economy will grow and develop,
paving way for the emergence of a just, socially wealthy and advanced
Indonesia. Let's hope so.

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INDONESIAN ECONOMIC REVIEW AND OUTLOOK
MACROECONOMIC DASHBOARD TEAM
MACROECONOMIC DASHBOARD
FAKULTAS EKONOMIKA DAN BISNIS
UNIVERSITAS GADJAH MADA
Prof. Dr. Sri Adiningsih, M.Sc.
Head of Researcher
sadining@ugm.ac.id
+62 274 548 517 ext 373
Prof. Dr. Samsubar Saleh, M.Soc. Sc.
Senior Researcher
samsubar@ugm.ac.id
+62 274 548 517 ext 373
Rosa Kristiadi, M.Comm
Researcher
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Researcher
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IERO NO 1/YEAR III/MARCH 2014

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