IERO NO 3/YEAR III/SEPTEMBER 2014

INDONESIAN ECONOMIC
REVIEW AND OUTLOOK
No 3/YEARIII/September2014
Macroeconomic Dashboard
Fakultas Ekonomika dan Bisnis
Universitas Gadjah Mada
Hope Amidst Challenges and Opportunities
for the New Government

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
scientific quarterly bulletin which discusses latest
developments and prospects of Indonesian economy.
The bulletin is published by the Macroeconomic
Dashboard, which is a macroeconomic laboratory
facility managed by the Faculty of Economics and
Business (FEB), Universitas Gadjah Mada (UGM), and
has since 2012 forged collaboration with PT Bank
Mandiri (Persero) Tbk.
To come up with the prospects of Indonesian
economy, the bulletin uses consensus that is drawn
from expert projection on macroeocnomic indicators
conducted by FEB UGM academician, which is
supplemented by Gadjah Mada Leading Economic Indicator (GAMA LEI). GAMA LEI is
an instrument that is used in making projections of the economy which was originally
initiated and developed by the Macroeconomic Dashboard team. GAMA LEI, which
has been proven in making correct and accurate predictions on the cycle of
Indonesian economy over the last six quarters, continues to make improvements in
each edition to ensure that the instrument has what it takes to make accurate
predictions of Indonesian economy cycles in the future. Thus, thanks to its track
record so far, GAMA LEI has won the trust and confidence of its readers.
With an outreach that hovers around a thousand readers per week and nearly half a
million in totals both on its online and printed form, this edition of IERO bring out the
theme: “Hope Amidst Challenges and Opportunities for the New Government”.
Rationale behind the theme constitutes effort to channel high expectations of the
largest parts of Indonesian society about the challenges which the Indonesian
economy is likely to face especially in the lead to the establishment of ASEAN
Economic Community 2015. What makes it more challenging is the fact that the
economic trend is tending toward weakening economic growth. Let us hope that the
new government will have the ability to reverse such momentum to set the
Indonesian economy toward strong and economic growth path.

TABLE OF CONTENTS
EXECUTIVE SUMMARY................................................................................................ 1
A. FISCAL AND ECONOMIC DEVELOPMENTS
1. Contraction in Government Expenditure Has Had Adverse
Impact on the Economy.................................................................................. 4
2. Subsidies Continue to Drain Government Finances............................. 6
3. The Decline in Poverty Incidence Has Not Been Accompanied
by Decrease in Regional Income Disparity............................................. 10
B. MONETARY SECTOR AND FINANCIAL MARKETS
1. There Are Not Many Developments in Indonesian Monetary
Sector...................................................................................................................... 11
2. Indonesian Foreign Debt Continues to Rise.......................................... 18
3. Improvement in The Balance of Payments Position Is Not
Followed by Improvement on the Balance of Trade Position......... 21
C. GAMA LEI AND CONSENSUS ON ECONOMIC PROJECTIONS
1. GAMA Leading Economic Indicator (GAMA LEI)................................. 25
2. Consensus on Projections of Macroeconomic Indicators................. 26
D. REGIONAL ECONOMY DEVELOPMENTS.................................................... 29
E. ASEAN: Entering ASEAN Economic Community 2015 Amidst
Shadow of Challenges Hanging over The Regional Economy....... 34
F. CURRENT ISSUE...................................................................................................... 40
G. ECONOMIC OUTLOOK.......................................................................................... 44
Macroeconomic Dashboard Universitas Gadjah Mada iii

List of Terms
AEC ASEAN Economic Community
APBN State Budget (Anggaran Penerimaan dan Belanja Negara)
ASEAN Association of South East Asian Nations
BI Central Bank of Indonesia (Bank Indonesia)
BPS Indonesia Statistic Bureau
bps Basis Point
ECB European Central Bank
EUR Euro
FFR Fed Fund Rate
FOMC Federal Open Market Operation Committee
GAMA LEI Gadjah Mada Leading Economic Indicator
GDP Gross Domestic Product
GST Goods and Service Tax
HDI Human Development Index
IDIC Indonesia Deposit Insurance Corporation
IDR Indonesian Rupiah
IDX Jakarta Composite Index
LHS Left Hand Side
m-t-m Month to Month
OJK Indonesia Financial Services Authority (Otoritas Jasa
Keuangan)
RHS Right Hand Side
RI Republic of Indonesia
SBI Bank Indonesia Certificate (Sertifikat Bank Indonesia)
SBN Government Securities (Surat Berharga Negara)
SCR Special Capital Region
SR Special Region
SUN Government Bond (Surat Utang Negara)
The Fed The Federal Reserve
US United States of America
USD U.S. Dollar
VAT Value Added Tax
y-o-y year on year
Indonesian Economic Review and Outlookiv

EXECUTIVE SUMMARY
The implication of the government policy of adopting economic austerity
that entails cutting down on government expenditure by as much as IDR 43
trillion, is the reduction in the contribution of the public sector toward
economic growth. In quarter II-2014, government consumption registered
contraction of -0.71% (y-o-y), while the economy posted growth rate of
5.12% (y-o-y). The same can be said to apply to the multiplier effect of the
general elections, which fell far short of expectations. Meanwhile, with
respect to international trade, a decline in exports, which was among other
factors attributable to the implementation of the Law on Mineral and Coal
Mining that imposed restrictions on exports of unprocessed minerals.
Economic growth, which is lower than assumptions in the 2014 annual
national budget (APBN), implies a decline in government tax revenues.
Moreover, this bad news is compounded by rising government expenditure
for fuel subsidies. Pertamina, as the state owned enterprise that is charged
with distribution of fuel, initially took the initiative to control the sale of
subsidized diesel and premium fuel, a policy that was rescinded amid public
outcry. However, what is crystal clear is that unless measures are taken to
tackle the rising government expenditure on this poorly targeted subsidized
fuel, the government's fiscal burden will become even harder. It is worth
noting that fuel subsidies constitute a huge opportunity cost, which is
reflected in infrastructure and poverty alleviations developments programs
that are not as a result. Statistics for March 2014 show that the number of
poor hovers around 28.28 million, with highest incidence in outer Java
islands such as Maluku and Papua (23.15%), Bali and Nusa Tenggara
(14.42%), and Sulawesi (11.71%).
Developments in monetary and finance sector continue to show good
prospects as reflected in Indonesia composite shares index that continues to
post positive growth. The same applies to foreign exchange reserves, which
increased in part due to the issuing of RI Eurobonds, which was
oversubscribed to the magnitude of 6.7 times. Despite depreciation of
Macroeconomic Dashboard Universitas Gadjah Mada 1

Rupiah, Bank Indonesia policy shows its consistency in leaving BI Rate
unchanged at 7.5%. It is not farfetched to draw a tentative conclusion that
unless there is significant change in internal conditions (balance of trade,
economic growth) as well as improvement in external conditions (regional
instability, the phasing out of quantitative easing in the US next year), the
current level of Rupiah exchange rate is going to be the new equilibrium that
will remain in place for the foreseeable future. Nonetheless, domestic
inflation continues to be under control post-lebaran holiday.
GAMA LEI prediction points to downward trend in the economic cycle of
Indonesian economy (GDP) in quarter III-2014. Meanwhile, based on
consensus outcome, economic growth is predicted to be 5.22% in quarter III-
2014 or 5.68% for the entire 2014. Nonetheless, it is worth noting that the
conduct of the Presidential elections that relatively went smoothly, has
contributed to rising optimism about the performance of Indonesian
economic in future. The optimist is expected to continue in the wake of the
inauguration of the newly elected President, who will be sworn in on October
20, 2014.
In this edition, Macroeconomic Dashboard covers the premier coverage of
regional economic developments. An analysis of economic growth of 33
provinces shows that only 12 of them posted economic expansion in quarter I
and II 2014. The Law on Mineral and Coal Mining comes into the spotlight
once again due to the fact its implementation at the local government level
faces formidable obstacles that are attributable to absence of requisite
infrastructure and private sector investment in mineral processing activities
(which include smelters). Inflation remains under control especially in
Sumatra and Sulawesi, but worrying signs are clearly evident in rising
regional income disparity in general and between Java and Sulawesi, in
particular.
In the months in the lead up to the coming into force of ASEAN economic
community (ASEAN 2015), conditions in ASEAN continue to show
vulnerability in the structure of economic fundamentals due to inadequate
diversification of economic structure and problems in government finances.
Some of the challenges which ASEAN nations face include efforts to
Indonesian Economic Review and Outlook2

rationalize fuel subsidies in Indonesia and Malaysia, impending plan to
implement new Goods and Service Tax (GST) in Malaysia in 2015, the plan to
increase Value Added Tax (VAT) by 10% and salaries of civil servants by 8% in
Thailand in 2015, and domestic political stability that continues to be elusive
in Cambodia and Thailand. Another challenge facing the region is the reversal
of capital flow in the aftermath of an increase in the Fed Funds Rate which
casts a shadow over capital markets and currency exchange rates in the
region. Nonetheless, ASEAN-5 countries (with the exception of Indonesia)
have been able to register high economic growth rate in quarter II-2014 that
exceeded expectations.
Executive Summary

Indonesian Economic Review and Outlook
1. Contraction in government expenditure has had adverse
impact on the economy
Indonesia posted slower economic growth rate in quarter II-2014.
According to data released by BPS, Indonesia registered economic growth of
5.12% (y-o-y) in quarter II-2014, which is far lower than 5.76% (y-o-y)
posted in the same period the previous year. Indonesian economic growth
has shown a downward trend over the last several quarters, which has
complicated government efforts to achieve economic growth target of 5.5%
(y-o-y) in 2014. To that end, this will remain a formidable challenge for the
new government.
4
A. FISCAL AND ECONOMIC DEVELOPMENTS
Figure 1: Indonesian GDP growth at 2000 Constant Market Prices by
Industrial Origin, 2012 - 2014 (y-o-y, in %)
Indonesian economic growth posted in quarter II-2014 was lowest in the
last 3 years
Notes:
Primary Sectors: Agricultural, Livestock, Forestry and Fisheries; Mining and Quarrying;
Industrial Sectors: Manufacturing; Electricity, Gas and Water Supply; and Construction
Services Sector: Trade, Hotel and Restaurants; Transport and Communication; Finance, Real Estate and
Business Services; and Services
Source: BPS and CEIC (2014)

Macroeconomic Dashboard Universitas Gadjah Mada
Based on economic sector, weakening economic growth in quarter II-
2014 was largely attributable to the decline in the performance of the
Mining and Quarrying Sector, which contracted by -0,15% (y-o-y). This
was as a direct consequence of the decline in exports of coal and the impact of
the implementation of Law on Minerals. Since the implementation of the Law
on Mineral and Coal Mining on January 12, 2014, the Mining and Quarrying
sector has suffered contraction (in quarter I-2014, Mining and Quarrying
Sector contracted by -0.26% (y-o-y)). However, Primary Sectors (which
comprises Agricultural, Livestock, Forestry and Mining and Quarrying
Sectors) were able to post growth rate of 2.13% (y-o-y) in quarter II-2014,
which is higher than 1.93% (y-o-y) registered in quarter I-2014.
The growth registered by Primary Sectors was largely attributable to
the performance of the Agricultural, Livestock, Forestry and Fisheries,
which posted higher growth in quarter II-2014 of 3.39% (y-o-y). This
was in part, a direct consequence of the harvesting season during April-June
2014. Subsequently, the growth posted by Industrial Sector and Services
Sector declined, albeit slightly. In quarter II-2014, Industrial and Services
Sectors posted growth of 5.37% (y-o-y) and 6.19% (y-o-y), respectively,
which represented a decline compared with growth of 5.44% (y-o-y) and
6.44% (y-o-y), registered in quarter I-2014.
In the meantime, with regards to expenditure, nearly all sectors
registered weakening growth in quarter II-2014. Based on BPS data,
economic growth in quarter II-2014 was propped up by household
consumption, which posted stable growth (4.84%, y-o-y), which in part was
attributable to the conduct of the general elections. This is reflected in the
growth registered in paper industries (6.70%, y-o-y), food (11.27%, y-o-y)
and beverages (2.96%, y-o-y) in quarter II-2014. Nonetheless, the conduct of
the general elections did not make significant contribution to the economy, a
fact that is discernible from figures on growth achieved in quarter II-2014
(5.41%, y-o-y), which fell short of that registered in quarter I-2014.
In addition, weakening economic growth was in quarter II-2014 is also
attributable to the contraction of -0.71 % (y-o-y). This is very much due to
the request of the Corruption Eradication Commission to delay the
distribution of Social Assistance Funds in April 2014. That means that once
elections were over, the government continued to strengthen efforts to cut
expenditure as well as economize on expenditures of ministries and other
public institutions. Besides, net exports sector continued to decline in
quarter II-2014. Thus, the contraction of imports in quarter II-2014 of -
5.02% (y-o-y), the sluggish performance of exports that declined by -1.04%
5
Fiscal and Economic Developments

(y-o-y), meant that balance of trade continued to deteriorate. Meanwhile, the
conduct of presidential elections also contributed to uncertainty as investors
adopted wait and see attitude prior to making any investment decisions.
Consequently, investment in quarter II-2014 grew at a lower rate of 4.53% (y-
o-y) than 5.41 % (y-o-y) registered in quarter I-2014.
2. Subsidies continue to drain Government Finances
The latest report on budget absorption released by the Ministry of
Finance shows that in quarter II, January-June 2014, expenditure on
fuel subsidies reached a staggering IDR 100.7 trillion (43.9% of the
2014 revised state budget allocation ceiling), and a drastic increase
from IDR 20.0 trillion which was level of expenditure registered during
the same period in quarter I-2014. Besides, the government and the
national assembly reached an agreement that reduced the volume of
subsidized fuel from 48 million kiloliters to 46 million kiloliters.
Consequently, the government faces the risk of dealing with limited fiscal
capacity to undertake development programs. Doubtless, unless there is
change in fuel subsidies there is little doubt that the level of fuel subsidies will
not be sufficient until the end of the year.
6
Figure 2: Indonesia GDP Growth at 2000 Constant Market Prices by
Expenditure, 2012 - 2014 (y-o-y, in %)
Contraction in government consumption coupled with weakening
household consumption in quarter II-2014 attests to the reality that the
general elections has not yet had significant impact on economic growth

The decline in economic growth has had adverse impact on tax
revenues. Indonesian economic growth was 5.12% (y-o-y) in quarter II-
2014, which is lower than the assumption of 5.5% that underpinned the
revised annual budget for 2014. Consequently, tax revenues declined as well.
Tax revenues declined by IDR 34.3 billion from the target set in 2014
state budget. Domestic tax revenues target in 2014 budget of IDR 1,226.2
billion was revised downwards to IDR 1,189.6 billion. The downward
revision of the target of tax revenues was necessitated by the fact that target
set for tax revenues for 2013 was not achieved, which had the implication
that the basis of the calculation of the tax revenue target for 2014 was even
lower than that set for the previous year. On the other hand, the decline in
economic growth, coupled with sluggish export performance, also
contributed to the drop in tax revenues on commodity export companies.
The percentage of revised state budget absorption as per July, in
quarter II-2014 was lower than the level achieved in the same period
under revised annual budget for 2013. In quarter II, July 2014,
government expenditure was merely 47.3%, which is lower than 48.6%
during the same period in 2013. Nonetheless, in nominal terms, budget
realized budget expenditure in 2014 is higher than the level achieved at the
same time in the previous year. Meanwhile, realized revenues in quarter II-
2014 is higher than the level achieved in the same period in the revised
annual budget 2013. State budget revenues was 50.2% of the target for
revised annual budget 2014, which is higher than 49.5% achieved during the
same period in state budget 2013. To that end, there is an improvement in the
government revenues in 2014 compared with the performance in the
previous year.
7
Table 1: Domestic Tax Revenues, 2013-2014 (IDR billion)
Tax Revenue Target based on approved revised state budget 2014
registered a decline

Government expenditure in 2014 experienced a reduction of IDR 43
trillion. The above condition has not contributed to spurring economic
growth. While the target of government expenditure had been set at IDR 100
trillion, cutbacks in expenditures in ministries and non-ministries agencies
were just IDR 43 trillion. The reduction in government expenditure was
largely made on the procurement of goods but make as little cutbacks in
expenditures of capital goods as possible. Based on the circular issued by the
Ministry of Finance No. S-3347/MK.02/2014 on details of changes in
expenditures in ministries and agencies in 2014 annual budget, reduced
budget allowance for the Coordinating Ministry of Social Welfare from IDR
218.3 billion to IDR 194.3 billion or less than IDR 24 billion. Moreover, the
2014 budget allocation earmarked for the Coordinating Ministry for Political,
Legal, and Security Affairs which had initially been set at IDR 514.3 billion
was chopped by IDR 66 billion to IDR 448.3 billion, while budget allocation
for the Coordinating Ministry for Economic Affairs, which had initially been
set at IDR 324.9 billion experienced a reduction of IDR 33.6 billion to IDR
291.26 billion.
8
Figure 2: Realized Budget Expenditure 2014, July 2013:Q2 – July 2014:Q2
The percentage of realized budget expenditure in revised state budget
2014:Q2 declined, but realized budget revenues posted an increase in the
same period
Source: Ministry of Finance, I-account (analyzed, 2014)
Table 3: Comparison of Macroeconomic assumptions in state budget
2014, revised budget 2014, and state budget plan 2015
The economy which shows signs of instability has the potential to
influence the realization of macroeconomic assumptions set in state
budget plan 2015
Source: Ministry of Finance (2014)

Some of the macroeconomic assumptions of Indonesian economy that
underpinned the 2014 revised state budget have changed. On 18 June
2014, the revised budget for 2014 was approved, along with change in
macroeconomic assumptions. The assumption of the exchange rate was
raised to IDR 11,600 from initially IDR 10,500. Depreciation of the exchange
rate has the potential to contribute to higher government expenditure on
government subsidies on electricity and fuels.
The government has submitted the draft of the state budget plan for
2015, and deliberations are already underway in the national assembly.
Government revenues in the state budget plan 2015, are estimated to reach
IDR 1,762.3 trillion, while government expenditures are estimated to hover
around IDR 2,019.9 trillion. To that end, the state budget plan for 2015 is
expected to post a deficit of IDR 257.3 trillion, which is 2.32% of GDP.
Meanwhile, the level of subsidies on energy is set at IDR 363 trillion, which
leaves the government with very limited fiscal space. Viewed from
standpoint of prevailing economic conditions, some of the macro
assumptions in the state budget plan, 2015, are overly optimistic. Besides,
such limited fiscal space will hamper efforts of the new government to
allocate funds toward areas it considers to be priorities in realizing pledges
made during campaigns.
In 2015 the government must work very hard if it is to fiscal space that is
needed to obtain requisite funding to realize its vision and mission. The
state budget plan 2015, sets the budget deficit at IDR 257.4 trillion (2.32% of
GDP), which is higher than the level set in revised budget, 2014 of IDR 241.3
trillion (2.4% of GDP). Government expenditure estimates registered an
increase from IDR 1,635.5 trillion in revised budget 2014 to IDR 1,762.3
trillion in the draft budget, 2015. Nonetheless, the current government has
budgeted for all expenditure slots. Moreover, central government
expenditure was 7.8% of revised state budget 2014. Such conditions will, no
doubt, will complicate efforts of the new government to finance programs
9
Table 4: Budget Deficit in revised state budget 2014 and state budget plan
2015 (IDR Trillion)
Budget deficit in state budget plan 2015, is set at 2.32%
Source: Financial Note on the Draft Budget (2014)

and projects that are required to realize its vision and mission. Thus, there is
need to control over sources of government revenue and expenditure
including subsidies on energy which constitute 18% of government
expenditure.
3. The decline in poverty incidence has not been accompanied
by decrease in regional income disparity
In March 2014, the number of people who are categorized as poor
registered a slight decline compared with the level in September 2013.
The number of poor people in March 2014 was 28.28 million, which
represented 11.25% of total population. Based on data released by BPS,
several factors are responsible for the decline in the number of poor people in
Indonesia in March 2014. Such factors include, among others, inflationary
pressure which has diminished, falling prices of some basic commodities
such as broiler chicken, sugar, pepper and eggs as well as improvement in
farmer output which contributed to an increase of 4.52% in wages of farm
workers during September 2013 to March 2014 period.
However, income disparity among provinces continues to be widened.
Based on BPS publication, poverty incidence in descending order is Maluku
Island and Papua (23.15%), Bali and Nusa Tenggara (14.42%), Sulawesi
(11.71%), Sumatera (11.21%), Java (10.83%) and Kalimantan (6.57%). As if
that is not enough, most of the poor people live in rural areas. Based on the
same sources, the number of poor people in rural areas in March 2014 was
17.77 million, while urban areas were home to just 10.51 million of people
categorized as poor in the same period.
10
Table 5: Developments in Poverty Incidence and Inequality in Indonesia
2011 - 2014
Number of people categorized as poor in Indonesia has declined

1. There are not many developments in Indonesian monetary
sector
During the closing session on 29 August 2014, Indonesian Stock
Exchange (IDX) continued to show positive albeit flat trend. Despite
posting a slight increase (0.94%) compared to the position in the previous
month, IDX reached 5,136 levels in August 2014. Besides, IDX reached a new
benchmark when it broke 5000 points price level. In fact, on 21 July 2014, IDX
closed at 5,206, which is the highest level for IDX, which occurred at a time
when the outcome of the Presidential elections were announced.
Nonetheless, in late June 2014, IDX suffered a correction of -0.31% compared
with the previous month. This was attributable to restrictive liquidity, as well
as a continuation of the “wait and see” attitude of investors. The hope is that
such a condition will not come to end sooner than later, as a result of flawless
conduct of the general elections, which induced high market optimism in the
newly elected government. Meanwhile, during quarter II-2014 foreign
investors bought IDR 19.5 trillion in securities, which is lower than the
11
B. MONETARY SECTOR AND FINANCIAL MARKETS
Figure 3: Movements in Indonesia Stock Exchange (IDX) and SUN Yield
Index 10 year maturity, August 2011 – August 2014 (%)
IDX has posted modest growth, yield SUN yield shows an upward trend
once again
Source: IDX, CEIC, and Bloomberg (2014)

volume of transactions made in quarter I-2014 of IDR 24.62 trillion.
Moreover, the Sharia Index contributed 60% of the performance of IDX
valued at IDR 5, 200 trillion (y-t-d) on 27 August 2014.
On the other hand, bonds markets registered an increase in the yield on
State Bonds (SUN) in late August 2014. Sun yield rose by 11 bps to become
8.28% compared with the previous month. In late July 2014, SUN yield was
8.16% lower than 8.35% posted in June, 2014. The fluctuation was
attributable to the fact that investors are still in “wait and see” mood as they
explore and project economic conditions in the wake of the presidential
elections. In the meantime, net purchases of securities by foreign investors on
government securities (SBN) registered IDR 42.68 trillion, which during
quarter II-2014 showed an increase of IDR 37.08 trillion.
Rupiah exchange rate continues to depreciate. In late August 2014,
Rupiah exchange rate was IDR 11,717 per USD, which represents a
depreciation of 1.09% compared with the position in July 2014 when Rupiah
registered an appreciation of 3.16% to IDR 11,591 per USD compared with
the position in the previous month. The depreciation of Rupiah is largely
attributable to both domestic and foreign issues. With regards to domestic
issues, parties that are long in US dollars persist with their wait and see
attitude the political developments, especially in the lead-up to the formation
12
Figure 4: Foreign exchange reserves (billion USD) and developments in
exchange rate of (IDR/USD), August 2011 – August 2014
Foreign exchange reserve position reached USD 111.2 billion; Rupiah
continues to hover above 11,500 per dollar on August 2014
Source: Bank Indonesia and CEIC (2014)

of political party coalitions (June 2014) and announcement of general
elections results (July 2014). Besides, rising deficit on the current account
which was attributable to a deficit on the balance of trade in services,
compounded with impending foreign debt repayment and distribution of
dividends in quarter II all contributed to negative sentiments that weighed
negatively on financial markets. Meanwhile, with respect to external front,
geopolitical developments in Iraq and Ukraine strengthened movement
toward speculation in international oil and gas prices, which in turn induced
investors to adopt holding positions on their dollar portfolios. Nonetheless,
outcome of the presidential elections, which were in line with market
expectations helped to strengthen Rupiah toward the end of July 2014.
To stem the depreciation of Rupiah, the government must take
measures to regulate imports, which would strengthen its ability to
control short term external payments and regulate foreign exchange
transactions. Otherwise, current account position was still in deficit in
quarter II-2014 as compared with quarter II-2013. Meanwhile, efforts to
control foreign exchange transactions have gained traction as reflected in the
issuing of instruction of the Coordinating Ministry for Economic Affairs that
obliges all transactions to be conducted in Rupiah that came into effect in
September 2014. This measure was taken in order to shore up control over
Rupiah exchange rate as mandated by Law No.7/ 2011 on Currency.
Foreign exchange reserves continues to show an upward trend. In
August 2014, foreign exchange reserves position reached USD 111.2 billion,
which represented a slight increase of USD 0.68 billion. That said, the foreign
exchange position in August 2014, despite falling short of the record that was
recorded in August 2011 (USD 124.6 billion), can be regarded as the highest
in over one and half years. Meanwhile, in July 2014, foreign exchange reserve
position surpassed the USD 110.5 billion mark by USD 2.8 billion compared
with the level in the previous month. The increase in foreign exchange
reserves in quarter II-2014 specifically in July 2014 was in part as a
consequence of positive developments on the capital and financial account,
in the wake of the issuing of the first Eurobonds RI. The issuing of the bonds
was considered a success as it was able to generate EUR 1 billion or USD 1.4
billion in raised funds. Moreover, the bond issue was oversubscribed by a
factor of seven, which was attributable to the concurrence of the issuing with
the lowering of the interest rate in Europe by European Central Bank (ECB)
from 0.25% to the lowest level so far of 0.15% in June 2014 Eurobond issuing
received relatively good rating, with Fitch giving it “BBB-”, S& P “BB+”, and
Moody's “Baa3”.
13
Monetery Sector and Financial Markets

By the time this piece went to press, Indonesia Deposit Insurance
Corporation (IDIC) interest rate on loans remained unchanged. Interest
rate on loans remained unchanged at 7.75%. Apparently, IDIC does not seem
to see indications of significant rise in interest rate on deposits in general.
That said, monetary condition in Indonesia continues to point toward
restrictive trajectory as reflected in rising interest rate on deposits.
The movement of the interest rate on deposits continues to rise. In June
(quarter II) 2014, interest rate on time deposits for the duration of one month
was 8.32%, which represented an increase of 16 bps from the level posted in
previous month (8.1%), and represented an increase of 33 bps from the
position registered in quarter I (7.99%). Meanwhile, in July 2014, interest
rate on time deposits for one month maturity was 8.41%, which represented
an increase of 9 bps from the level registered in the previous month. What is
worth noting is the level of interest on time deposits on one month maturity
was far higher than interest rate acceptable on IDIC guaranteed loans.
Consequently, rising interest rate on deposits has induced an increase in
interest rate on loans, which in turn has led to tightening liquidity in
Indonesian commercial banks. On average weighted interest rate on credit
over the last few months has shown an upward trend as follows: 12.75%
(May 2014); 12.76% (June 2014); and 12.82% (July 2014). Consequently,
14
Figure 5: Developments in Interest rate on IDIC guaranteed Loans and
Deposits, 2011 – 2014* (%)
Interest rate on guaranteed loans remain unchanged, the upward trend
shown by interest rate on deposits continues
Note:
* July 2014 (Time deposits) and August 2014 (interest rate on loans)

growth in disbursement of credit has dropped to 15% (y-o-y) in July 2014
from 16.65% (y-o-y) in June 2014 and 17.4% (y-o-y) in May 2014. In quarter
to quarter terms, interest rate on credit in quarter II-2014 registered an
increase of 20 bps from quarter I-2014-an increase of 12.56%; while credit
growth contracted from 19.06% (y-o-y) in quarter I-2014. By July 2014, total
credit disbursement was IDR 3,516.7 trillion.
There is yet no change in Indonesian monetary policy. In accordance with
the decision of Bank Indonesia Governors' council issued on 11 September
2014, BI Rate remained unchanged at 7.5%. The policy was reached after
taking into consideration the fact that inflation remained in check, recovery
of the Global economy which is underpinned by performance of the US
economy that in turn depends heavily on domestic consumption remains
sluggish, and positive condition in financial markets that continues to post
positive developments. On the other hand, a dark shadow continues to hang
over Indonesian economy due to risk that among other factors is attributable
to: uncertainty in the global economy arising from the continuation of the
tapering off policy this year which will be coupled with subsequent increase
in the Fed Fund Rate (FFR) in 2015 as well as weaning economic growth
affecting emerging markets; decline in value of exports as a result of falling
demand in commodities and natural resources which in part is attributable to
the implementation of Law on Mineral and Coal Mining and weakening
economic growth in emerging markets; and domestic inflation which is likely
to edge upwards as a result of poor weather conditions (El Nino) and
impending plans by the government to raise levels of determined prices
15
Figure 6: Developments in BI Rate, August 2011 – August 2014 (%)
BI Rate remains unchanged, monetary sector remains restrictive

(flight fares and efforts to control government expenditure on fuel subsidies).
Meanwhile, the deficit on the current account in quarter II is poised to
increase due to the impending maturation of foreign debt obligations and
distribution of corporate dividends. Nonetheless, the deficit on the current
account registered in quarter II is still better than the level posted in the same
period in the previous year.
With regards to FFR, Joseph Stiglitz, a Nobel Prize laureate in
economics, Joseph Stiglitz, predicts that the increase will not occur in
2014 but in quarter II-2015. Stiglitz continues, to warn emerging markets
to be wary of global pressure on their economies in the wake of Fed policy. To
that end, Stiglitz advises that developing countries can avert the
ramifications of Fed policy on their economies by implementing sound
management of foreign exchange reserves, current account, and financial
account. The recovery of US economy means that quantitative easing policy
will be phased out by the end of this year, which also means that raising of FFR
in 2015. Median survey of members of Federal Open Market Operations
Committee (FOMC), the Fed, showed that prediction to raise FFR ranged
between 1 and 1.25%.
During quarter II-2014, the general level of prices showed a downward
trend. Inflation in August 2014 was 3.99% (y-o-y). With regards to
composition, in August 2014, Core Inflation continues to be under control at
4.49% (y-o-y), inflation of Volatile Prices was 0.48% (y-o-y), and inflation of
government Administered Prices was 6.19% (y-o-y). Based on month-to-
16
Figure 7: Inflation, August 2011 – August 2014 (y-o-y, %)
General level of prices is under control, inflation in August was 3.99 % (y-o-y)

month, August inflation was 0.47%. The decline in the general level of prices
in August was attributable to falling prices onions, tomatoes, and shallots due
to abundant supplies. Inflation in August was lower than the level registered
in July (4.5%, y-o-y) which was also lower than the level registered in the
month prior to that. Meanwhile, inflation in July 2014 was under control
thanks to the success of the instruction of the Ministry of Coordination for
Economic affairs that induced improvement in the system of distribution of
goods. Viewed from the vantage point of composition, in July 2014, Core
Inflation was 5.07% (y-o-y), inflation of Volatile Price was 1.97% (y-o-y),
while inflation of government Administered Prices 6.18% (y-o-y).
In August 2014, prices of foodstuffs and transportation registered
declining due to the completion of the long holiday season. Based on
month by month development, the highest inflation in August was registered
in expenditure on Education, Recreation, and Sports of 1.58% (m-t-m).
Meanwhile, the lowest inflation was registered in expenditure on
Transportation, Communications, and Financial Services of -0.12% (m-t-m).
Meanwhile, in July 2014, the highest inflation (1.94%, m-t-m) was registered
in expenditure on Food Stuff. On the contrary, in July 2014 the lowest inflation
(0.39%, m-t-m) was registered in expenditure on Health.
In general, cities in Indonesia that registered inflation in quarter II-
2014. Inflation was registered in 66 out of 82 cities that were surveyed in
August 2014, compared with 82 cities in July 2014. In August 2014, Tanjung
17
Notes: (1) Food stuffs; (2) Processed foodstuffs, Beverages, Cigarette, and Tobacco; (3) Housing, Electricity,
Gas, and Fuel; (4) Clothing; (5) Health; (6) Education, Recreation, and Sports; (7) Transportation,
Communication, and Financial Services
Table 6: Inflation by Category of Expenditure 2011 – 2014 (2012=100, m-t-m, %)
Cooling down in the wake of long holiday season, monthly inflation in August
2014 was 0.47% (m-t-m)

Pandan registered the highest inflation (1.98%, m-t-m), while Ternate city
registered the lowest inflation (-1.02%, m-t-m). Meanwhile in July 2014,
Bengkulu city registered the highest inflation (2.92%, m-t-m), while
Maumere city posted the lowest inflation (0.03%, m-t-m).
2. Indonesian foreign debt continues rising
Indonesian foreign debt rose to USD 285 billion in June 2014. The level of
debt increased by 19.24% in the same period in 2013. Meanwhile, based on
month-to-month trajectory, Indonesian foreign debt shot up by 0.21%, which
was attributable to a surge of 0.76 % (m-t-m) in private sector debt. The rise
in private sector debt was as a consequence of tightening liquidity in the
country induced the private sector to search for foreign financial by which it
sources. On the contrary, the level of government and central bank foreign
debt registered a decline of 0.43% (m-t-m).
Long term foreign debt continues to be the favored mode of foreign
debt. ing In June 2014, long term foreign debt continued dominat
government and central bank foreign debt of IDR 114 billion. Nonetheless,
that level of debt represented a decline of 1.5% compared the level posted to
in the previous month. Meanwhile, long term private foreign debt a
18
Source: Bank Indonesia and CEIC (analyzed, 2014)
Figure 8: Indonesian Foreign Debt, June 2012-June 2014 (USD Billion)
Despite the decline of government and central bank debt , Total Foreign
Debt showed an increase as a result of a surge in private foreign debt

registered an increase of 5.3% compared the level posted in the previous to
month in 2014. , in June 2014, short term foreign debt registered an increase
of 1.5% (m-t-m), while government long term foreign debt registered an
increase of 9.17% (m-t-m).
Indonesia continues to be an attractive investment for foreign
investors. In July 2014, government bonds held by foreign investors
registered an increase of IDR 1,012 trillion. Thus, the level of debt in July
2014, represented a drastic increase of 78.3% compared the level in the to
same period in 2013 and an increase of 3.5% over the level registered in June
2014. Contrariwise, foreign ownership of SBI registered a decline of 46.7%
(m-t-m). However, during March-May 2014, the level of SBI held by foreign
investors registered a drastic increase, which was followed by an equally
drastic decline in the level of SBI held by foreign investors in June 2014. One
of the causes of the drastic decrease was profit taking as foreign investors the
sold off SBI in their portfolios. Meanwhile, in June 2014, foreign ownership of
equity posted an increase of 6.44% (m-t-m).
Outstanding government securities in Augustus 2014, registered an
increase of 1.67% month-to-month. The increase was attributable to the
deficit registered on the balance of trade as well as the decline in economic
growth in quarter II-2014, which induced the government to issue more
19
Figure 9: Indonesian Foreign Debt based on the Maturity, June 12- June 14
(USD Billion)
Government and central bank continues dominating the long term foreign
debt, while short term debt dominates the private foreign loans
Source: Bank Indonesia (analyzed, 2014)

securities to finance development. Based on components, tradable
outstanding government securities registered an increase of 2.07% (m-t-m).
On the contrary, non-tradable outstanding government securities registered
a decrease of 0.66% compared with the level registered in July 2014.
20
Figure 10: Foreign Ownership of Government Securities in Indonesia
during July 2012-July 2014 (IDR Trillion)
Foreign ownership of SBI registered a decline while foreign ownership of
government bonds and equity registered an increase
Source: DJPU, BI, OJK, and CEIC (2014, analyzed)
Figure 11: Composition of Indonesian Securities Augusts 2012 – Augusts 2014
(IDR Trillion)
Outstanding government securities posted an increase
Source: DJPU and CEIC (2014, analyzed)

The ability of Indonesia to repay foreign debt declined. Debt service
ratio of Indonesia in quarter II-2014 was 48%, which represented an
increase of 4.01% compared with the previous quarter. This was bolstered
by improvement in the ratio of debt to export as well as the ratio of debt to
GDP, which registered an increase of 3.32% and 4.72%, respectively,
compared with the previous quarter in 2014. The increase in the ratio of debt
to export registered an increase of was as a result of the increase in debt
which exceeded the increase in exports.
3. Improvement in the balance of payments position is not
followed by improvement on the balance of trade position
Indonesian balance of payments in quarter II-2014 has improved. The
Surplus on the balance of payments increased by 107.95% from the had
previous quarter to reach USD 4.3 billion. Based on year-on-year calculation,
the balance of payments position as this edition went to press was far better
than the condition in quarter II-2013, which posted a deficit of USD 2.48
billion. During this quarter, the increase in the surplus was attributable to the
surplus on the capital and financial account which was larger than the deficit
registered on the current account. The surplus on the capital and financial
account rise to USD 1.9 billion, larger than the increase in deficit registered s
on the current account.
21
Figure 12: Debt Burden Indicators of Indonesia, June 2012-June 2014 (%)
Ratio of Indonesian foreign debt to exports, GDP and debt service ratio
registered an increase
Source: Bank Indonesia (2014, analyzed)

The deficit on the current account soared in quarter II-2014. The deficit
of the current account increased by USD 4.15 billion in quarter I-2014 to
reach the level of USD 9.11 billion. The rise in the deficit was as a result of
deterioration of the balance of trade in goods, balance of trade in services,
and the primary income balance. With regards to the balance of trade in
services, the deterioration was attributable to the increase in the use of
imported freight and foreign financial services. Meanwhile, with respect to
primary income balance, the deterioration in performance was attributable
to the increase in government obligations to foreign direct and portfolio
investments in Indonesia that reached USD 1.19 billion.
The surplus on the capital and financial account in quarter II-2014
registered an increase. In quarter II-2014, the surplus on the capital and
financial account was USD 14.51 billion, which in percentage terms
represented an increase of 89.78% over the surplus registered in quarter I-
2014 (USD 7.65 billion). The position on the capital and financial account by
and large rises whenever the net flow of foreign direct investment as well as
'other investments' register a surplus. The same is evident if viewed on a y-o-
y basis, whereby the surplus on the Indonesian capital and financial account
posted an increase of 68.23% (surplus in quarter II-2013 was USD 8.63
billion).
22
Figure 13: Indonesia Balance of Payments Position, 2011:Q2-2014:Q2
(USD Billion)
Indonesian Balance of payments has registered improvement

After recording a surplus in three quarters, the trade balance of goods
fell back into deficit. During the last quarter, the balance of trade in goods
posted a relatively large surplus of USD 4.7 billion and USD 3.35 billion in
quarter IV-2013 and quarter I-2014, respectively. However, during quarter II-
2014, the balance of trade in goods plunged into deficit of USD 0.47 billion
due to contraction in the surplus registered on the balance of trade in the non-
oil and gas sector. Besides, the surge in the deficit on the balance of trade in oil
and gas also contributed to the deterioration in the Indonesian balance of
trade of goods. said, the condition registered in quarter II-2014, was it is
better than the deficit of USD 0.56 billion registered in quarter II-2013.
The surplus on the non-oil and gas in quarter II-2014 was a half of that
registered in the previous quarter. During quarter I-2014, the level of
surplus on the non-oil and gas account was USD 5.58 billion, which has since
registered a decline of USD 3.19 billion to reach USD 2.39 billion (contraction
of 57.2% q-to-q). The decline in surplus was as a consequence of an upsurge
in non-oil and gas imports (USD 3.74 billion) which was higher than the
increase in non-oil and gas exports (USD 0.55 billion). The highest increase in
non-oil and gas imports (q-to-q) was registered in coffee beans (310.06%),
and followed by resin and resin gums (306.32%).
The deficit on oil and gas balance surged once again in quarter II-2014.
During quarter I-2014, the deficit on the oil and gas sector was USD 2.75
billion, but has since soared to USD 3.19 billion, which represents an increase
23
Figure 14: Balance of Trade in Goods 2011:Q2-2014:Q2 (USD Billion)
Balance of Trade in goods fell into deficit once again

of 16.08%. The increase q-to-q above was relatively lower that y-o-y growth
that reached the magnitude of 51.66%. The rise in the deficit was attributable
to the surge in the value of oil and gas imports (USD 0.45 billion) and
contraction in the value of gas exports (USD 0.47 billion). Thus, the increase
in the exports of crude oil and refinery products was not enough to offset the
surge in the value of imports.
In quarter II-2014, Indonesia registered negative net exports with large
trading partners, Asia Region. After recording a trade surplus of USD 1.13
billion, in the previous quarter (I-2014), Indonesia fell back into a deficit of
USD 4.25 billion with Asia. The same applies to the performance of trade with
other regions such as Australia-Oceania and Africa, Indonesia also registered
negative net exports of USD 0.16 billion and USD 0.67 billion. Nonetheless,
Indonesia registered positive net exports with America and Europe region of
USD 1.15 billion and USD 0.64 billion, respectively.
Indonesian exports to all regions were raise with the exception of
Africa. Indonesian exports to Africa registered 13.86% growth in quarter II-
2014 compared with the previous quarter. The largest increase in exports
was registered in Indonesian trade with Australia-Oceania Region (4.56%),
followed by trade with America Region (2.31%). Overall, Indonesian exports
registered growth of 0.59% from USD 43.94 billion (quarter I-2014) to USD
44.2 billion (quarter II-2014).
Based on q-to-q trajectory, Indonesian imports from all regions
registered positive growth. Indonesian Imports from Africa increase by
84.20%, followed by imports from America region, which recorded growth of
28.46%. Meanwhile, Indonesian imports from Europe registered the
smallest growth of 6.9%. However, Asia is still the largest source of
Indonesian imports to the tune of USD 34.75 billion in quarter II-2014.
24
Table 7: Exports-Imports of Indonesia by Region in 2014 (USD Billion)
Indonesia registered a deficit on the balance of trade with Asia region
Source: Bank Indonesia (2014)

1. GAMA Leading Economic Indicator (GAMA LEI)
Leading Economic Indicator is one of early warning system models used
in predicting the direction of the movement of the economy in future.
GAMA Leading Economic Indicator (GAMA LEI) is a model that has been
developed by Macroeconomic Dashboard team, Faculty of Economics and
Business, Gadjah Mada University. Turning points and movements in the
GAMA LEI is used to predict the direction of the movement of Indonesian
economy for some periods in the future. GAMA LEI analysis uses quantitative
and qualitative tests to produce the best prediction.
GAMA LEI is compiled from various indicators which are subjected to
robust statistical tests. The performance of the variables such as
investment, total value of automotive sales, and consumption of cement with
regards to the macroeconomic side, and market capitalization and IDX of
capital market provide vital gauge on the performance of the economy.
Nonetheless, it is worth noting that some other macroeconomic indicators
are likely to register quick change in the not too distant future.
GAMA LEI has proved itself to be able to make accurate prediction of the
Indonesian economy cycle over the last periods. The prediction of GAMA
LEI model was able to accurately forecast the direction of Indonesian
economy cycle. The decline in the performance of some key Indonesian
economic indicators have contributed to the decline in economic growth in
quarter II-2014. However, the decline in growth registered in quarter II-
2014, is smaller than that registered in quarter I-2014. In this edition, GAMA
LEI predicts the direction of movement of Indonesian economy amidst
vagaries and fluctuations that are associated with 2014, which is the year of
politics, especially the election of a new president who is about to take reins
of government in October 2014.
GAMA LEI generates a multiplicity of patterns of Indonesian economic
growth and cycle of economic projections makes it a comprehensive
prediction. Business cycle forecast emphasize the movement of the
economy whether it will tend toward expansion or contraction some time in
future. GAMA LEI cycle in 2014:Q2 lies in an expansionary phase (lies above
C. GAMA LEI AND CONSENSUS ON ECONOMIC PROJECTIONS

the value of 100) despite tending toward a decline. This implies that
Indonesian economy probably will grow in 2014:Q2, year-on-year.
Nonetheless, the cycle of GDP generated by the model points toward a decline
albeit within the expansion phase.
Outcome of GAMA LEI prediction in this edition points to a decline in the
cycle of Indonesian economy (GDP). GAMA LEI model in 2014:Q2 shows a
change in the direction of the economy tending toward a decline. The
downward movement in GAMA LEI signals a decline in the cycle of
Indonesian economy (GDP) in 2014:Q3. Nonetheless, the celebratory year of
politics of 2014, especially in the wake of electing the president and vice
president in July, 2014, should generate hope and optimism for Indonesian
economy. To that end, the onus is on the newly elected government to take
advantage of the momentum by maintaining or even better still, improve the
performance of Indonesian economy.
2. Consensus on Projections of Macroeconomic Indicators
Besides making prediction of GDP cycle movement using GAMA LEI,
prediction of three other key macro indicators in Indonesia (economic
growth, inflation, and exchange rate) is made using an internal survey
in the Faculty of Economics and Business, UGM. Economic growth and
Figure 15: GAMA Leading Economic Indicator
GAMA LEI prediction points to a downward trend in the cycle of Indonesian
economy

exchange rate are moving toward improvement, while inflation shows signs
of deterioration from 2014 to 2015. The consensus is obtained on the basis of
expert judgment of lecturers and researchers in the Faculty of Economics and
Business, Gadjah Mada University.
In general, prediction of real economic growth (y-o-y) in quarter III-
2014 tends toward improvement compared with the performance of
quarter II-2014. Real GDP (y-o-y) is predicted to growth within the range
5.22% ± 0.24 % in quarter III-2014 and 5.44% ± 0.51% in quarter III-2014.
Annualized real economic growth of GDP for 2014 and 2015 is projected to be
5.68 % ± 0.43% and 5.9% ± 0.6%. Based on survey results, three key
indicators which contributed to real economic growth in 2014 are: the world
economy condition, domestic and foreign investment, and government
policy.
Inflation in Indonesia in 2014-2015 is predicted to fall within the range
of 5 and 7 percent. In 2014, based on prediction outcomes, Indonesian
inflation is forecast to fall within the range of 6.54% ± 1.89%. In 2015,
prediction point to an upward movement that will fall within the range of
7.09% ± 1.96%. Meanwhile, based on quarterly trajectory, inflation in
Indonesia in quarter III-2014 and IV-2014 is predicted to fall within the range
5.36% ± 1.67% and 5.81% ± 1.88%. Based on survey results, three key
indicators that have played an important role in determining inflation in
27
Table 8: Estimates of Real GDP Growth (y-o-y, in %)
Source: Primary data (analyzed, 2014)
Table 9: Estimates of Inflation (y-o-y, in %)
Table 10: Estimates of Exchange rate of Rupiah (IDR/USD)
GAMA LEI and Economic Projection Consensus

Indonesia are exchange rate of rupiah, seasonal factors, and prices of goods
and services that are set by the government.
The exchange rate of rupiah is predicted to post improvement and
becomes stable in 2014, but will continue to hover around IDR/USD
11,000. In quarter III-2014, exchange rate of Rupiah is predicted to be
IDR/USD 11,545 ± IDR/USD 271. In the following quarter, rupiah is
predicted to appreciate to USD 11,514 ± IDR/USD 365. Meanwhile, in
annualized terms, the exchange rate of rupiah in 2014 is predicted to be
IDR/USD 11,513 ± IDR/USD 368 and 2015, it is predicted to appreciate to
reach IDR/USD 11,275 ± IDR/USD 453. Based on outcome of the survey, three
key factors have played important role in influencing the appreciation of
rupiah in 2014, which include: condition of Indonesian economy, market
expectations, and macroeconomic policy.
28

A desired economy should be stable in economic growth and inflation
and shows decrease in disparity of regional economic. A stable economic
growth requires policies that are favorable to economic growth for instance
development of infrastructure and creation of competitive business climate.
Besides, there is also need to identify the sectors in every region that have the
potential to achieve high growth rates which should receive the support
required to propel development in the regions.
Out of 33 provinces, 9 provinces record an increase on economic growth
in 2012 to 2013. Jambi records highest growth (7.88%), SR of Yogyakarta
(5.4%), West Kalimantan (6.08%), Central Kalimantan (7.37%), Central
Sulawesi (9.38%), Gorontalo (7.76%), West Nusa Tenggara (5.92%), East
Nusa Tenggara (5.56%), and Papua (14.84%). Meanwhile, the rest of the
provinces recorded decline in economic growth. It is interesting to note that
some provinces that recorded high economic growth during quarter I-2014,
based on year on year trajectory, recorded weakening growth. This was the
case with SR of Yoyakarta, West Kalimantan, Central Kalimantan, Central
Sulawesi, East Nusa Tenggara, and Papua. This phenomenon attests to the
weak foundation of regional economies in Indonesia. Weakening in regional
economy will undoubtedly have adverse impact on the national economy.
From the vantage point of quarterly growth, only 12 provinces were
able to record positive growth in quarter I and II-2014. Provinces that
were able to growth positively include SR of Aceh (underpinned by Trading,
Services, Hotel and Restaurants), Riau Islands, Lampung (manufacturing
sector), SCR of Jakarta (trading sector, Hotels and Restaurants;
Transportation and Communications; and Services), Banten (Trading, Hotels
and Restaurants), West Java (Trading, Hotels and Restaurants), Central
Kalimantan (Mining and services), Bali (Agriculture and trading, Hotels and
Restaurants), South East Sulawesi (Trading , Hotels, and Restaurants), East
Nusa Tenggara (Trading, Hotels and Restaurants and Services), Papua
(Manufacture sector), and West Papua (Manufacture sector). It is worth
noting that the rate of growth in Aceh and East Nusa Tenggara was below
national.
29
D. REGIONAL ECONOMY DEVELOPMENTS

Note:
* year-on-year
** year-to-date
Source: BPS and BI (2014)
Table 11: Economic Growth and Inflation in 33 Provinces (%)
Economic growth in a number of provinces has weakened

One of the policies that have had important influence on economic
growth in the regions is the implementation of the law on Minerals. The
Law on Minerals which was approved by the parliament on 16 December
2008 and was expected to contribute to valued added to mineral products in
Indonesia. The law prohibits mineral commodities that follow under the
regulated category to be exported in a raw material. It means that exporters
are required to process of such mineral before export. The expectation was
that by increasing value added of mineral commodities, the policy would
have positive impact on public welfare. The policy, which has been rolled out
since 12 January 2014, which was five years after its approval, has not
generates expected outcomes. A lot of polemics have characterized the
interlude between the approval and implementation of the law. Surprisingly
many local governments are not yet ready to establish smelters and other
processing facilities that are expected to process the raw minerals prior to
export destinations. Consequently, the implementation of the law has led to
serious disruptions in mining activities in many regions, which in turn have
had adverse effect on regional economies. It gives great impact in such
regions that have economies that rely heavily on mining activities such as
Central Sulawesi.
The Law on Minerals has also had adverse impact on Indonesian
relationship with key trading partners who have been important
importers of Indonesian minerals output. During the current period of
slow economic growth (which begun in 2012 and is expected to continue),
any policies that impact oil and gas are likely to impact economic growth. This
is especially so given the reality that in the wake of the implementation of the
law on minerals, regions are required to establish requisite infrastructure for
processing mineral output such as smelters so that exports of minerals have
added value prior to export destination. To that end, the development of
infrastructure is very vital for increasing the absorptive capacity of the
economy if it is to achieve economic growth above 5%.
The high inflation in some provinces in Indonesia during quarter II-
2014 are causing serious concern. This is because the 12 provinces have an
inflation rate above the national average (hit 2% year-to-date from the start
of the year until June 2014). The provinces are SCR of Jakarta, Banten, Central
Java, East Java, West Kalimantan, Central Kalimantan, South Kalimantan, Bali,
Central Sulawesi, East Nusa Tenggara, Maluku, and North Maluku.
Regional Economy Developments

Table 12: Income Disparity and Human Development Index (HDI)
In general Income disparity in various provinces in Indonesia shows an
upward trend as is the HDI

The Human Development Index (HDI) in 2013 for various provinces in
Indonesia shows an upward trend. This is an indication that the quality of
life which consists of health, knowledge, and decent living is on the right
track. Five out of 33 provinces in Indonesia with the highest HDI are SCR of
Jakarta (78.59), SR of Yogyakarta (77.37), East Kalimantan (77.33), North
Sulawesi (77.36), and Riau (77.25).
Income disparity in 2013 as reflected in the Gini ratio for various
provinces in Indonesia shows an upward trend. The decline in income
disparity occurs in 9 provinces, South Sumatera (from 0.4 to 0.38), Riau (from
0.4 to 0.37), West Java (from 0.41 to 0.40), South Kalimantan (from 0.38 to
0.36), Bali (from 0.43 to 0.4), North Sulawesi (from 0.43 to 0.42), East Nusa
Tenggara (from 0.36 to 0.35), Maluku (from 0.38 to 0.37), and North Maluku
(from 0.34 to 0.32). Provinces which have some of the highest Gini ratios are
SR of Yogyakarta (0.44), Gorontalo (0.44), and Papua (0.44). Meanwhile,
Bangka Belitung had the lowest Gini ratio (0.31). It is interesting to note that
SR of Yogyakarta which has the highest HDI in Indonesia apparently also has
one of the highest Gini ratios in Indonesia (0.44). Meanwhile Riau and North
Sulawesi with highest HDI were able to reduce their income disparity
(reflected in lower Gini Ratios).
Regional Economy Developments

Entering ASEAN Economic Community (AEC) 2015, regional economy
has yet to register stable growth. , In fact some economies in the region are
showing signs of increasing vulnerability arising from weak economic
structure. The economic situation in ASEAN region in quarter II-2014 is a the
portrayal of an economic that has mixed bag of optimism interspersed with
some dose of pessimism. Some key countries in the region such as Malaysia,
Philippines, Thailand, Singapore and Vietnam, despite continuing to
fluctuate over time, have succeeded in registering economic growth that
exceed expectations. Meanwhile, Indonesia as the major engine of s the
regional economy shows signs of weakening growth as are Brunei
Darussalam, Laos, Cambodia and Myanmar are still bedeviled by issues . They
that relate to economic fundamentals such as the structure of the economy
that suffers from sufficient diversification and rising disequilibrium that
characterizes government revenue and expenditure. Consequently,
economic growth which has been achieved has been short on quality which
has contributed to economic contraction. Such a situation is reflected in the
continuing economic vulnerability of the regional economy in the lead up to
AEC 2015 amidst conditions in the world economy that has yet to achieve
strong and sustainable economic growth.
Various challenges continue to bedevil regional economy in the lead up
to AEC 2015. The challenges are attributable to among other factors
international phenomena as well as regional factors such as the impending
plan by United States Central Bank to raise interest rate by about 100-115
basis points which poses the danger to reverse the flow of capital which had
flooded emerging markets back to United States in 2015, global economic
situation which continues to be anaemic as reflected in the current account
positions of many countries that are still in deficit, and deficit on government
revenues and expenditures (budget) that exceeds 3 % in some countries in
the region. Besides, a number of challenges that relate to domestic policy
such as impeding plan by the government to rationalize prices of subsidized
fuels in Indonesia and Malaysia, the impending plan by Malaysia to
implement a new Goods and Service Tax (GST) policy in 2015, proposal of
raising Value Added Tax (VAT) by 10% and salaries of civil servants by 8% in
Thailand in 2015, and domestic political instability that continues to afflict
E. ASEAN:
Entering ASEAN Economic Community 2015 Amidsts Shadow of
Challenges Hanging over the Regional Economy

ASEAN
Cambodia and Thailand. The above issues have the potential to derail efforts
of countries in the region to achieve economic growth targets in the lead up to
AEC 2015 which will come into force late 2015.
Major economies in ASEAN region registered high growth in Quarter II-
2014 that exceeded expectations. ASEAN-5 nations with the exception of
Indonesia have been able to register economic growth that exceeded
expectations. Malaysia which Bank Negara Malaysia was projected to register
just 5.8% and Philippines that Bangko Sentral projected to grow by 5.7%,
both have been able to achieve growth of 6.4%. The two economies derived
benefits from economic momentum in Quarter II-2104 that arose from
growth in service and construction sectors while Singapore also achieve a
suitable amount of growth which was largely derived from their insurance
sector. Meanwhile, with time as the fallout from the coup de etat that rocked
Thailand -as the second largest economy in the region- is gradually setting its
foothold on achieving economic growth in Quarter II-2104, shedding off the
effects of the protracted public demonstrations that saw economic
contraction to the tune of -2.1%. Economic growth that was achieved in
Thailand was as a result of improvement in international trade for Thailand
as well as increasing confident of investor sentiments that was reflected the
return of foreign investors to capital market encouraged by various financial
Table 13: GDP Growth in Constant 2000 Prices in ASEAN Nations, 1998-Q1 2014
(y-o-y, %)
Contribution of private sector continue to be key in maintaining economic
momentum in the regional economy
Note:
Average economic growth for 1998-1999, 2000-20007, and 2008-2009
Data on economic growth for Q2/2014; Cambodia, Laos and Myanmar was not available by the time this
piece was written
Source: Ministry of Finance, Financial Note and Revised State Budget Plan 2014

instruments that were issued by the government and the private sector.
Meanwhile, in Quarter II-2014, economic growth in Indonesia slowed
compared with the performance in the previous quarter. This was in part
attributable to continuing fluidity in investor confidence in Indonesian
economy which was compounded by dynamics in Indonesian politics in the
wake of electing the new President. Besides, the combination of restrictive
monetary policy and fiscal policy which among other indicators was reflected
in the decision by the government to postpone the payment of '13th-month
bonus salary' for the public servants at the beginning of Quarter II-2014 to
Quarter III-2014 which adversely affected public consumption in Indonesia
contributed as much to weakening economic growth in Indonesia.
Private sector plays a leading role in supporting economic growth in the
region. The economic growth momentum in Quarter II-2014 which
Malaysia, the Philippines, Singapore and Thailand experienced is by and
large underpinned by the growth in performance of the private sector
investment in services in such sectors that are related to trade and
construction, which in turn were supported by improvement in global
economy. This is shown by achievement registered by Malaysia and the
Philippines, which posted double digit growth of 12.1% and 12.7%,
respectively. The rise in the contribution of the private sector is also
attributable to weakening government expenditure that is related to
bottlenecks that bedevil bureaucracy.
There is need for some other countries in ASEAN region to accelerate
restructuring of economic fundamentals to if optimal economic growth
is to be achieved. Brunei as one of the countries in the region that recorded
economic contraction (-3.3%) should undertake fundamental economic
restructuring by accelerating efforts to diversify the economy which today
depends heavily on the oil and gas industry. According to the official
responsible for economic development planning in Brunei (JPKE), oil and gas
industry contributes more than 70% of GDP and 90% of total exports.
However, the dependency on the sector in this quarter registered contraction
of -0.6% attributable to efforts by the government to promote the
development of other sectors such as agriculture, fisheries, and forestry
which registered growth rate of 4.1% year-on-year. Other fundamentals
problems of the economy such as budget deficit which is still high as in the
case of Laos (5.8% of GDP) and Myanmar (3.7% of GDP) which came as a
consequence of implementing expansionary social security and defense
spending which reduced fiscal space for the government to undertake
economic stimulus to support economic growth. Meanwhile, the border
conflict between Vietnam and its key economic partner, China, weakened the

ASEAN
economy of Vietnam. To that end, the government of Vietnam is today taking
measures that entail the involvement of foreign investors in the economy
which policy is expected to reduce the dependency of Vietnam economy on
Chinese government.
Policy measures taken by countries to deal with imported Inflation have
varied. In general, countries in ASEAN region registered high inflation that
was largely associated with soaring prices of foodstuffs and non-alcoholic
beverages and some other components that are used for consumption such
as garments and electronics, most of which are imported by taking advantage
of the establishment of various facilities such as Special Economic Zone
especially those that are located in countries that lie in the Mekong River
delta (Cambodia, Laos and Myanmar). High inflation in the sub-region was
aggravated by annual natural disasters and bouts of political instability that
rocked Thailand that constitute one of the major economies in the sub-
region. Doubtless, such problems hampered interregional trade. Inflation in
several countries was aggravated more by rising prices of electricity which
reached 43% in Myanmar in April 2014 and the hiking of fuel prices in
Vietnam, which was done twice that is on June 26th, 2014 and July 7th, 2014.
Efforts to control inflation in countries in the region have been done by
controlling prices such as the policy adopted in Thailand by Thailand Military
Government and in Vietnam. Such policies can be deemed effective in that
they succeeded in stemming even higher inflation. On the contrary, Laos's
government took the measure of abolishing Value Added Tax (VAT) on some
imported commodities with the hope that such a policy would stimulate
Table 14: Inflation in ASEAN Countries, 2011-2014* (y-o-y, %)
The rise in prices of goods is attributable to the high proportion of import
products for consumption
Note:
Data for Brunei Darussalam, Cambodia, Laos, Malaysia, Myanmar, and Singapore is as per July 2014 (y-o-y).
Data for Indonesia, Philippines, Thailand, and Vietnam is as in August 2014 (y-o-y)
Source: Bloomberg (2014)

commercial production in the domestic economy. Brunei Darussalam also
implemented policy that was different from those that were adopted by other
countries in the region. Brunei was able to register the lowest inflation in the
current quarter by pegging its currency, Brunei Dollar to Singapore Dollar.
A shadow is handing over capital markets in the region due the plan of
the Fed to raise interest, which is likely to trigger reversal of capital flow.
In Quarter II-2014, in general capital markets in ASEAN region show strong
growth as reflected in double digit growth that was registered with the
exception of Cambodia (-15.96%), Malaysia (0.71%) and Singapore (4.80%).
Weakening growth of capital markets in Singapore and Malaysia which
represent countries that are highly integrated in international economy,
signals slowing on capital inflow into ASEAN region. The situation, according
to some sources, is attributable to precaution of investors in anticipation of
plans by the Fed to raise interest rate, which Bank Indonesia projects will be
implemented in the first half of 2015 by around 100 to 115 basis points.
Doubtless, the implementation of the policy is expected to trigger a reversal
of capital flows, which had flowed to emerging economies. The Ministry of
Finance, Republic of Indonesia, continues to indicate that the potential for a
reversal of capital flow will impact equilibrium on the capital market which in
turn will lead to a deficit on the current account. Cambodia and Laos are
concerned about the potential danger of capital flow reversal as they are
currently implementing policies that are tailored toward relaxing capital
market regulations with the hope of attracting foreign companies to list their
shares on their domestic capital markets which heretofore, have been
dominated by state owned companies.
Table 15: Capital Market Share Index in ASEAN Nations, 2009-2014 (y-o-y, %)
Capital flow is poised to face uncertainty attributable to plans by the Fed to
raise interest Rate
Note: Data for 2 January and 29 August 2014 is for year-to-date based growth

Currency exchange rates in the region are strongly influenced by
equilibrium or the lack thereof, on international trade and sentiments
of business practitioners. In general appreciation or depreciation of
currency exchange rate in the region is very much influenced by a country's
performance in international trade. This is evident in the case of Thailand
Baht, Indonesia Rupiah and Malaysia Ringgit. On the other hand,
depreciation of exchange rate for currency of Cambodia is a reflection of the
effect of garment factory workers' demonstrations that have rocked the
country for several months. It is not surprising that such condition
undermined positive sentiments that business men had about prospects of
the economy of Cambodia. Specifically for Vietnam, depreciation of its
currency exchange rate was as a result of devaluation policy implemented by
the government on June 19th, 2014 which saw the Vietnam Dong fall by 1%
against the US Dollar. Devaluation was implemented with the objective of
improving the competitiveness of Vietnam's exports to its new trading
partners amidst an economy that was rocked by border conflicts with China
which is the main trading partner. Meanwhile the factor of positive business
sentiments was also at play in influencing the exchange rate of the Philippine
Peso which registered an improvement in rating by Standard's & Poor in May
2014.
Table 16: Developments in Exchange Rate of Local Currencies Against USD,
in ASEAN Nations, 2009-2014 (y-o-y, %)
Positive market sentiments have underpinned appreciation of exchange
rates
Note:
* = In 2012 Myanmar revalued its currency
Data for 29 August 2014 is year-to-date based economic growth
Value with symbol (+) indicates currency appreciation (-) indicates currency depreciation
ASEAN

In August, two dates turned out to be very important and interesting to the
general public: the first, 17 August 2014. It marked 69th anniversary of
Indonesia’s proclamation of Independence, as well as marked by the issuing
of New Unitary Republic of Indonesia currency. Second, August 21 2014,
marked the issuing of the decision by the constitutional court which in effect
signaled approval and recognition of the newly elected President and Vice
President (Joko Widodo and Jusuf Kala). The issuing of NKRI currency is not
only a manifestation of the implementation of Act No.7/2011 on currency,
but also marks an important change in the concept of money in Indonesia
from Bank Indonesia currency to the NKRI currency (UNKRI). Bank
Indonesia currency (UBI)—which has served as a medium of exchange,
medium of payment, and unit of measurement for a long time—BI legal
tender, constitutes the obligation/liability of the monetary authority (BI) to
society. In other words, Bank Indonesia as merely an independent state
institution, is vested with enormous authority. On the other hand, the coming
to the fore of NKRI (UNKRI) currency means that the monetary obligation has
been shifted to the state, the Unitary Republic of Indonesia (NKRI)
represented by the government (Minister of Finance)and Bank Indonesia.
UNKRI is not only legal tender but also represents the existence of the state in
all elements and sections of life and economic activities of society living in the
Unitary Republic of Indonesia. Indeed, the issuing of UNKRI may indicate a
decrease in authority and an independence of Bank Indonesia after the
establishment of the financial services authority inflation target setting by
the government (Insukindro, 2009). However, such a step is important and
must be done to ensure that it is not only Bank Indonesia that has the
knowledge about the cost and the quantity of currency that is minted, but
also the government and representatives of the general public in the national
legislative assembly. In the future, it would be better if the quantity of NKRI
currency that is minted and circulated is linked well to the government
f. Current Issue
Prospects and Challenges for the New Government
Insukindro¹
¹ Lecture of economics at Faculty of Economic and Business UGM

Current Issue
development plan as entailed in the national medium term development plan
and the draft of national revenue and expenditure proposals. The last two
issues mentioned, will definitely be reflected in the internal balance such as
inflation, economic growth, employment opportunities, financial system
stability, and external balance, such as balance of payments. Needless to say,
realizing all the foregoing will require institution changes in the Bank
Indonesia Act.
The decision issued by the constitutional court on August 21, 2014, gave new
hope, because it cleared way for Indonesian population to have a new
President and Vice President, as well as most importantly, a host of new
policy packages that are encapsulated in the “nawa cita” (nine priority
programs). Programs which the new government has earmarked as its
priority that include smart and healthy Indonesia, subsidies for villages and
rural areas. As such will be originated from the macroeconomic sense that
constitutes forms of fiscal stimuli which is expected to the promote the
enhancement of work force quality, productivity, and economic growth.
Nevertheless, the challenges which the government will face are not easy. The
most noticeable is the fact that the draft of the 2015 government revenue and
expenditure proposals was compiled by the cabinet of the incumbent
President Bambang Yudhoyono. Doubtless Indeed, the programs that are
considered priority for the soon outgoing government are different from
those of the newly elected President and Vice President. Besides, other
problems need urgent attention such as fuel and electricity subsidies, foreign
debt, and source of financing for the draft government revenue and
expenditure proposals.
Reducing fuel subsidies, for example, can be done using two approaches: that
is quantity approach, which entails restricting the sale of subsidized (which is
a policy that the government has implemented lately) and the price approach,
which requires raising prices of fuel. The two approaches will in turn induce
an increase in price of fuel whether indirectly (the first approach), and
directly (the first approach). Using the new macroeconomic consensus
approach (MKB)², it is possible to analyze the impact of fiscal stimulus and
² The new macroeconomic approach, such as (New Neoclassical Synthesis) which was developed
by Goodfriend and King (1997) and /or New Consensus Macroeconomics) (see for example :
Arestis and Sawyer, 2008), and later combined by Hubbard et al (2012: Ch.9-13, 15), makes it
possible to use IS-MP-MNKPC approach in analyzing economic phenomena above (see also :
Insukindro, 2013)

raising prices of fuel on macroeconomic variables, for instance: interest rate,
inflation, and economic fluctuation (recession or economic expansion).
Fiscal stimulus will have impact on the expansion of output (expansion), but
will also push up inflation. The question is: should interest rate be raised?
There are two answers to the question. First, raising interest rate with the
expectation that inflation will decrease³. Second, interest rate is not raised
and output grows registers faster growth (sustained economic expansion)
but characterized by a rise in inflation in the short term.
The increase in fuel prices will in the short term induce an increase in cost of
production, prices or inflation. The question is: should the increase in fuel
prices go hand in hand with an increase in interest rate by Bank Indonesia?
There are two answers to the above question. First, interest rate can be raised
with the expectation that inflation will decrease, but is likely to send the
economy into a slowdown or economic recession, and secondly, interest rate
is raised, and the economy does not plummet into a recession, but suffer from
inflation in the short term.
Based on the two examples above, there are two choices we can follow. They
are the standard neoclassic approach, which seems to be the source of
reference in Indonesia, or the new macroeconomics such as new
macroeconomic consensus. If our decision is to follow the new
macroeconomic approach, then we must have some policy options and
attendant consequences as well as the possibility that we avert the inflation
syndrome and become more inclined toward supporting the real sector or
aggregate supply. Of course, there is a need to intensify coordination among
the government, BI, OJK and so on, of which it is no an easy feat.
In a study by Insukindro and Makhfatih (2013), results lent support for the
need for coordination between the government and Bank Indonesia in the
management of money in circulation, by which it should facilitate economic
growth. The issuing of unitary Republic of Indonesia currency as the new
legal tender should make such coordination possible. The new government
should improve the governance of production and marketing of oil and gas as
well as subsidies and related tax revenues. It is known that government
expenditure will be sufficient to induce an increase in aggregate demand, but
it can help in promoting production or aggregate supply, that in turn it will
³ This policy is often the preference of economists who follow the neoclassical school of thought,
which had been received criticism from many sources (see for example: Blanchard e al, 2010)

help mitigate the syndrome of high interest rate and inflation. Crisis from
abroad and the increasingly open Indonesian economy are two issues that
require urgent attention. The study highlighted the impact of the two factors
aforementioned on Indonesian economy. The expectation is that by late
2014, the US and European Union economies will return to be a strong and a
robust economic growth.
Yogyakarta, August 24, 2014
Bibliography
Arestis, P and M.C. Sawyer (2008), A Critical Reconsideration of Foundation
of Monetary Policy in the New Consensus Macroeconomics Framework,
Cambridge Journal of Economics, 31(5): 761-779.
Blanchard, O., G. Dell'Ariccia and P. Mauro (2010), Rethinking Macroeconomic
Policy, IMF Staff Position Note, SPN/10/03, February 12
Goodfriend, M. and R.G. King (1997), The New Neoclassical Synthesis and the
Role of Monetary Policy, NBER Macroeconomics Annual: 971-987.
Hubbard, R.G., A.P. O'Brien and M. Rafferty (2012), Macroeconomics,
Pearson Education, Inc.
Insukindro (2009), Bank Indonesia Masa Depan, Kompas, 22 Juli
Insukindro (2013), Makroekonomika Baru: Pendekatan IS-MP-MNKPC dan
Sintesa Neoklasik Baru, Materi Ceramah di PRES BI, 30-31 Juli
Insukindro dan A. Makhfatih (2013), Kajian Analisis Ekonomi dan
Pembiayaan Pembangunan, Laporan Akhir, Konsultan Tim Kajian Staf Ahli
Meneg PPN/Ketua Bappenas, Jakarta
Current Issue

G. Economic Outlook
Indonesia's social, economic and political stability in the aftermath of
successful conduct of the election of the President and Vice President
remains unperturbed. The performance of the exchange rate, inflation and
composite capital market index reflect welcome signals for the election of a
newly President-elect and Vice President-elect. The expectation is that the
new government will roll out policies that will lead to improvements in the
management of Indonesian economy toward higher advancement, fairness
and welfare. Nonetheless, that is not to say there are no any challenges that
remain which the new government will have to deal with. Indonesia has
registered economic growth trajectory since 2012, posted a deficit on the
balance of trade in goods, as well as rising deficit on current account. What is
more worrying is the fact that debt service ratio continues to rise and is
currently at 48% which signals red light for any economy. This is at a time
when foreign private sector debt is soaring, a good percentage of which is
short term tenor. What is also cause for concern is the prospect of rising
volumes of portfolio investment flows capital markets and bonds, which can
reverse the course any time. Such worries are aggravated by fears that US is
poised to effect the tapering off of its bond buying policy in 2015. To that end,
signs of improvement in economic growth registered in ASEAN nations and
India are likely to face formidable hurdles in future. Thus, unless Indonesia
implements changes in the management of the economy, the economic
growth trend that has characterized the economy since 2012 that has fallen
short of quality will continue as GAMA LEI predicts. This is the more so given
the difficulty that fiscal policy which would have been expected to stimulate
the economy to higher growth trajectory continues to be constrained by
rising expenditure on energy subsidies.
The new government under the stewardship of President-elect Joko Widodo
and Vice President-elect Jusuf Kalla is expected to improve the quality of
growth as well as economic development. It is the hope that the government
will be able to lay a strong, sound, healthy, and highly competitive foundation
for the economy. In light of that fiscal policy along with others, is expected to
serve as an important instrument, in conducting allocation, maintain
economic stability, and effecting redistribution policies that will help to
stimulate economic development. The new government is expected to be

bold in rechanneling energy subsidies that have so far been poorly targeted
toward the development of human resources by increasing expenditure in
such areas as health, education, and other social security as well as in the
development of infrastructure such as irrigation, roads, railways, and dams,
which programs are expected to contribute to higher competitiveness.
Besides, various policies need to be implemented that are tailored to
strengthen economic growth as well as reduce dependency on foreign
products which measures are expected to increase the readiness of Indonesia
in the lead up to AEC 2015. To that end, the downward trend in economic
growth which the economy is experiencing to this moment can be stemmed
and even reversed if policies that support human resource development,
bolster competitiveness and increase the role of the domestic economy, as
well as strong commitment by the government to take necessary measures
even those that are deemed unpopular, will go a long way in improving the
economy of Indonesia. There is little doubt that the implementation of the
above policies will stem the downward trend in economic growth that
country is experiencing at the moment and the kick start Indonesian
economy toward sustainable economic growth path. Let's hope that is the
case.

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INDONESIAN ECONOMIC REVIEW AND OUTLOOK
TIM MACROECONOMIC DASHBOARD
MACROECONOMIC DASHBOARD
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IERO NO 3/YEAR III/SEPTEMBER 2014

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