the indonesian economy during the sby decade: a balance...
TRANSCRIPT
The Indonesian Economy during the SBY Decade: A Balance Sheet
Hal Hill
ANU 2014 Indonesia Update,
September 19-20 (Thanks to Haryo Aswicahyono, Riza Halili, Stephen Howes)
INTRODUCTION What criteria to evaluate the record? 5 markers: Avoiding economic crises. (Do no harm!) Achieving rapid economic growth. Raising living standards, protecting the poor and vulnerable. Lifting institutional and governance quality. Environmental sustainability. (Will focus mainly on the first two markers.)
INTRODUCTION (cont) SBY criteria: pro growth, poor, jobs, green. Or simply holding the country together, consolidating democracy, mitigating conflict? How much should we attribute ‘outcomes’ to SBY? Eg, cabinet appointments, etc. The global and regional context is crucial. Who and what are the relevant comparators? SBY I and SBY II compared. Lost opportunities in SBY II?
THREE KEY CONTEXTUAL FACTORS Relevant for thinking about ‘the nature of Indonesia’, continuities. 1. Comparative historical growth experience. Indonesia one of the very few developing countries to have achieved prolonged and rapid economic growth. But it has rarely grown as fast as the East Asian stars.
How common is rapid sustained growth?
A relatively rare phenomenon – only 13/about 150
countries in last 100 years
China 1961-2010
Hong Kong 1960-1997
Indonesia 1966-1997
Japan 1950-1983
Korea 1960-2001
Malaysia 1967-1997
Singapore 1967-2002
Taiwan 1965-2002
Thailand 1960-1997
Botswana 1960-2009
Brazil 1950-1980
Malta 1963-1994
Oman 1960-1999
Source: Growth Commission Report
Long-term East Asian economic growth.
Ratio of GDP per capita, 2010/1961:
China 12.4
Korea 15.6
Singapore 12.4
Malaysia 7.9
Thailand 8.2
Indonesia 5.5
Vietnam 5.0
Philippines 2.1
Three key contextual factors (cont) 2. SBY came to power when Indonesia’s economy, politics, institutions were still very fragile. That is, a government that was institutionally weakened, and with very little fiscal space. Just 5 years after the deepest growth collapse in Indonesian history; no certainty about economic recovery; financial sector and exchange rate collapse a very recent memory.
Three key contextual factors (cont) 3. The global and regional environment matter. Three sub-periods: a. Very supportive global economy, 2004-07, China boom, record terms of trade. (see REER series) b. A hostile environment, from mid 2008 for next 18 months. Indonesia managed the GFC effectively, also during an election period. Note comparisons with 1997-98, and other countries. (see slide) c. Volatile, anaemic environment from 2010; periodic shocks, capital surges, Bernanke shock, declining terms of trade, etc. Slower growth; dangers of global QE for emerging markets.
Real Exchange Rate
Setting the REER = 100 in 2000 for the four economies, confirms that Indonesia has lost competitiveness over the past decade, resulting from both periodic nominal appreciations and relatively high inflation. Broadly similar REER only in late 2005, early 2009 (both brief) and second half of 2013.
The result of the commodity boom and strong capital inflows.
70
80
90
100
110
120
130
140
Jan
-00
Jul-
00
Jan
-01
Jul-
01
Jan
-02
Jul-
02
Jan
-03
Jul-
03
Jan
-04
Jul-
04
Jan
-05
Jul-
05
Jan
-06
Jul-
06
Jan
-07
Jul-
07
Jan
-08
Jul-
08
Jan
-09
Jul-
09
Jan
-10
Jul-
10
Jan
-11
Jul-
11
Jan
-12
Jul-
12
Jan
-13
Jul-
13
Jan
-14
Indonesia Malaysia Philippines Thailand
Suharto Marcos
AN OVERVIEW
Economic recovery underway by 2000. Per capita incomes rose by about one-third over the decade. Though growth generally never as fast as the Soeharto era. (see slide) Comparatively – by Southeast Asian norms – the Indonesian record is similar to its neighbours; 5-6% growth seems to be the ‘new normal’ for the region. Note that Indonesia was much less adversely affected by the GFC – good management and good luck. (see slide)
0
200
400
600
800
1000
1200
1400
1600
1800
2000
-15
-10
-5
0
5
10
151
96
0
19
63
19
66
19
69
19
72
19
75
19
78
19
81
19
84
19
87
19
90
19
93
19
96
19
99
20
02
20
05
20
08
20
11
Indonesian GDP, 1960-2013
GDP growth (annual %. LS) GDP per capita (constant 2005 US$, RS)
GDP per capita growth (annual %, constant 2005 USD)
-20
-15
-10
-5
0
5
10
15
1980 1985 1990 1995 2000 2005 2010
Thailand Philippines Indonesia
Source: World Bank Indicators, 2014
-20
-15
-10
-5
0
5
101
98
0
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
20
10
Total Factor Productivity Growth (%)
Indonesia Malaysia Philippines Thailand
AN OVERVIEW (cont) All three major sectors have grown over this period. But agriculture and especially industry more slowly. See slides. Why? Dutch disease/commodity boom. For agriculture, for food sector, policy more about rents and distribution than productivity and efficiency. For manufacturing, China has lowered the global price of manufactures; exports less competitive owing to labour market, regulatory constraints, less open FDI policy.
-20
-15
-10
-5
0
5
10
15
20
25
301
96
1
19
63
19
65
19
67
19
69
19
71
19
73
19
75
19
77
19
79
19
81
19
83
19
85
19
87
19
89
19
91
19
93
19
95
19
97
19
99
20
01
20
03
20
05
20
07
20
09
20
11
20
13
Indonesia Real Sector Growth, 1960-2013
Agriculture Manufacturing Services
0
10
20
30
40
50
601
96
0
19
62
19
64
19
66
19
68
19
70
19
72
19
74
19
76
19
78
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
20
10
20
12
Indonesia sector shares of GDP, current prices, 1960-2013
Agriculture Manufacturing Services
MACROECONOMIC MANAGEMENT A (silent) success story story. The architecture already in place – 2003 Fiscal Law (maximum deficits 3% GDP, public debt 60% of GDP) and independent Bank Indonesia. Both maintained during the SBY decade; generally received bipartisan support. Generally very competent appointments.
MACROECONOMIC MANAGEMENT (cont) Dramatic and successful fiscal consolidation, public debt declined from over 90% of GDP to about 25%. Slide. Inflation kept in check. Slide. Rp allowed to float, a key ‘shock absorber’. These the key to Indonesia weathering the volatility of 2008-09, etc.
0
10
20
30
40
50
60
70
80
90
100
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
Central government debt, total (% of GDP)
-2
0
2
4
6
8
10
12
14
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Inflation 2000-13, Indonesia, Philippines, Thailand
Indonesia Philippines Thailand
MACROECONOMIC MANAGEMENT (cont) But some caveats: 1. Practically no action on the crippling subsidies issue. Including lost opportunities (2011?) when a deal with the DPR was in the offing. See Davies/Howes slide, BIES 2014. 2. Inflation: persistently higher than neighbours. BI ambivalence. See slide.
Fuel and non-fuel subsidies over time, as a percentage of GDP and of
government spending.
0%
5%
10%
15%
20%
25%
30%
0%
1%
2%
3%
4%
5%
6%
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Fuel (lhs) Non-fuel (rhs) Subsidies/total expenditure (rhs)
Regulated and unsubsidized petrol prices and subsidies, 2005 prices
-1000
0
1000
2000
3000
4000
5000
6000
7000
8000Ja
n
Jun
No
v
Ap
r
Sep
Feb
Jul
Dec
May Oct
Mar
Au
g
Jan
Jun
No
v
Ap
r
Sep
Feb
Jul
Dec
May Oct
Mar
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Rp
per
litr
e (2
00
5 p
rice
s)
Regulated petrol price Unsubsidized petrol price
Per litre subsidy
MACROECONOMIC MANAGEMENT Some caveats (cont): 3. Tax effort remains weak. BB on tax payers: 20 million registered, 10 million file, 1.5 million actually pay. 4. Protecting reforming ministers at crucial periods? (Sri Mulyani; also Mari Pangestu). Macro legacy: low debt, modest structural deficit, zero fiscal space for any new commitment – health, social security, infrastructure, defence.
MACROECONOMIC MANAGEMENT (cont) Digression: did Indonesia save enough of the 2000’s commodity boom? Compared to the 1970’s. Recall 1970’s: Pertamina scandal, KKN, etc. But: major rural and infrastructure investments, rice production rose sharply, ‘egalitarian strategy’. 2000’s: Infrastructure spending as % of GDP about half of Soeharto era. No net savings. Though education spending has increased. But different circumstances: 1970s – one commodity (oil), centralized and strong government. 2000’s – more diffused rent collection, regional autonomy, different kind of boom (coal, palm oil, etc).
OPENNESS, BUSINESS CLIMATE A mixed record: Tariffs reasonably low, constrained by AFTA, etc. NTB’s proliferating, especially after departure of Minister Pangestu. Rising economic nationalism. (Back to the Soeharto era political economy correlations.) No significant improvement in the investment climate during the SBY decade.
0
1
2
3
4
5
6
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Corruption Perception Index: Score
Indonesia Malaysia Philippines Thailand Vietnam
0
20
40
60
80
100
120
140
160
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Starting a Business: Cost (% of income per capita)
Indonesia Malaysia Philppines Thailand Vietnam
0
20
40
60
80
100
120
140
160
180
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Starting a Business: Time (Days)
Indonesia Malaysia Philppines Thailand Vietnam
INFRASTRUCTURE Several summits and master plans, but a major area of under-performance. Why, and is it beyond Jakarta’s control? Tight fiscal policy, reluctance to borrow. Meddling DPR, deters private investors. Very little reform of SOEs, regulators – PLN, Pelindo’s, etc. Inter-jurisdictional cooperation issues; and role of local govts, their expenditure priorities. Land access.
Transport and logistics remain a major weakness. Logistics absorb 20-30% of total costs. Source: World Bank
0 20 40 60 80 100 120
Infrastructure
Customs
Logistics competence
Overall
Thailand Philippines Malaysia Indonesia Vietnam China Bangladesh
0
10
20
30
40
50
60
70
80
2007 2010 2012 2014
Logistic Performance Index: Rank
Indonesia Malaysia Philippines Thailand Philippines Vietnam
ALSO: 1. Inherited a ‘big bang’ decentralization, that is, a weaker centre, arguably consolidated it, with minor tinkering. A functioning system; no increase in inequality (2013 Update). See slides. 2. Education: progress disappointing, in spite of 20% spending requirement. But now increasingly a local government responsibility. Again, appointments issue. See slides.
50
70
90
110
130
150
2001 2002 2003 2004 2005 2006 2007 2008 2009Trill
ion
s o
f R
up
iah
(C
on
stan
t 2
00
0)
Figure 1: Local Government Spending and Revenue, 2001-2009
Total Revenue Total Expenditure
Regional Inequality (Williamson Index)
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
1975 1980 1985 1990 1995 2000 2005 2010
GRP per capita GRP non mining per capita
Figure
-100
-80
-60
-40
-20
0
20
40
60
80
0 200 400 600 800 1,000 1,200 1,400 1,600
Pe
rce
nta
ge C
han
ges
of
GR
P p
er
Cap
ita,
19
75
-20
10
(r
ela
tive
to
Nat
ion
al A
vera
ge)
GRP per capita at current price, 1975 (National average = 100)
4 Quadrants
Maluku
Riau
East Kalimantan
Jakarta
Papua
South Sumatera
Figure
-100
-80
-60
-40
-20
0
20
40
60
80
100
0 10 20 30 40 50 60 70 80 90 100
Pe
rce
nta
ge C
han
ges
of
GR
P p
er
Cap
ita,
19
75
-20
10
(r
ela
tive
to
Nat
ion
al A
vera
ge)
GRP per capita at current price, 1975 (National average = 100)
4 Quadrants
Maluku
East Nusatenggara
North Sulawesi
Aceh
East Java Central Sulawesi
West Nusatenggara
Bengkulu Yogyakarta
North Sumatra
Central Kalimantan
Central Java
South East Sulawesi
0
100
200
300
400
500
600
1999 2003 2007 2011
TIMSS: Mean performance on the science scale for eighth grade students, total
Indonesia Malaysia Thailand
0
100
200
300
400
500
600
1999 2003 2007 2011
TIMSS: Mean performance on the mathematics scale for eighth grade students, total
Indonesia Malaysia Thailand
SUMMING UP
An extremely cautious leader. Even more so over time? Inherited a fragile economy and a young democracy. Consolidated both. A tremendous achievement. The macro economy: inherited a sound policy framework, maintained it, and appointed able people. Practically all other reforms too difficult: subsidies, infrastructure, labour market, economic nationalism. Presided over the sharpest increase in inequality in Indonesian history.