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Jumat, 27 Mei 2016

Policy packages and political coalition



President Joko “Jokowi” Widodo’s overseas trips generally receive a positive response from foreign investors. In addition, many as 12 economic policy packages issued by the government since September are aimed at attracting new investment.

Yet the Indonesian economy grew by a mere 4.92 percent in the first quarter of this year, lower than expected. Investment growth was also lower than the previous quarter.

Despite having eased the monetary policy by lowering the reserve requirement and cutting the BI rate to 6.75 percent, credit growth declined to 7.9 percent in April. 

BI tried to be realistic by lowering its GDP growth projection to between 5 percent and 5.4 percent. 

External factors, such as low commodity prices, the economic slowdown in China and the plan of the US Federal Reserve to increase its interest rate have negatively affected Indonesia’s economic growth target. 

Meanwhile, the domestic potential for higher growth has yet to be utilized to its full potential and policy packages have not been implemented sufficiently.

President Jokowi himself announced the 12th economic policy package late in April, a policy intended to improve Indonesia’s position in the World Bank’s Ease of Doing Business rankings from 109 to 40. 

The real goal should be to eliminate the obstacles for business, an improvement to the country’s rank should follow.  

The pendulum swings between positive expectations and doubt surrounding the practicality of implementation. 

It is not the number of policy packages that matter, but whether these policies can be effectively implemented and will facilitate higher economic growth. 

The implementation regulation for the new Investment Negative List, issued as part of the 10th policy package, has not been issued. 

It appears as if quite a strong tug of war between ministers who support liberalization, such as the Trade Minister and the Energy and Mineral Resources Minister, and those who are support trade protection, such as the Agriculture Minister.

President Jokowi looks mainly for political consideration, to which the final policy that comes to him has to decide.

Internal conflict in determining policy is quite serious in Jokowi’s administration and the result is oft unexpected. The decision to change the plan for the Masela gas block development from offshore to on-shore, for example, was a result of a conflict between Coordinating Maritime Affairs Minister Rizal Ramli and Energy and Mineral Resources Minister Sudirman Said. 

A single digit interest rate should not be the goal, better access to finance and better quality of demand for credit should be the focus. When non-performing loans increase, banks are inclined to be conservative in allocating new credit. 

The quality of the demand for credit is more of a problem than availability of liquidity. For banks, it is the time to restructure their lending portfolio, rather than a time to achieve high credit expansion.

On the political front, it was a big surprise — unprecedented — that Jokowi was able to consolidate political power after such a short time in power, practically without significant opposition. 

The second largest political party, Golkar, with its controversial new chairman, have declared their support for Jokowi’s administration and expect to be included in the cabinet which is reportedly due to undergo a reshuffle. 

It is a possibility that President Jokowi will rely on Golkar as the party is more experienced than its own, the Indonesian Democratic Party of Struggle ( PDI-P ).

On one hand a large political coalition is very good for political stability, but on the flip side it means that there will likely be too much reliance on one person — the president himself — even for economic policies. 

Ministers, both those with a liberal and those with a protectionist tendency will have to spend more time and energy to gain access to the President, than on the implementation of policies. 

As a result, the policies will be easier to change, depending on which side the pressure comes from. 

It is likely that the cabinet reshuffle shall be implemented with consideration for Golkar and also National Mandate Party ( PAN ). Cabinet reshuffle is an effective way for the President to accommodate and allocate positions to the members of the ruling coalition. 

However, it comes at the cost of policy effectiveness. Political party chiefs are generally known to get things done based on their own vested interests, and bring problems of policy effectiveness and accountability.

Indonesia’s economy should still be able to grow higher than 5 percent, but it requires consistent and focused policy implementation. 

The ruling political coalition should facilitate and support policy intended for public interest rather than for their own interests. This is certainly not easy to achieve.


oleh: Umar Juoro
disadur dari The Jakarta Post, Jum'at, 27 Mei 2016

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