14 August 2012

Who are benefited from Indonesia growth?

Strong economic growth not accompanied by rising living standards
Jakarta– In the midst of a global crisis, Indonesia's economic growth recorded a positive result. Economic growth for the second quarter of this year reached 6.4 percent compared with the same period last year.

Economic growth continued to be centred in Java Island contributing 57.5 percent. In cumulative terms, economic growth for the first semester of 2012 was an improvement on first semester economic growth for 2011, which was 6.3 percent.

"Although still centred in Java, regions outside Java also began to record significant economic growth, particularly in Sulawesi. Economic growth in Sulawesi for the second quarter reached 4.6 present compared with the previous quarter of only 4.5 percent. This improvement was cause by a growth in mining industry and agricultural products", said Central Statistics Agency (BPS) chairperson Suryamin during a press conference in Jakarta on Monday August 6.

Suryamin said that gross domestic product (GDP) at current market prices for the second quarter of 2012 reached 2,050.10 trillion rupiah [US$ 215.25 billion]. The three sectors that recorded the highest growth (quarterly) were trade, hotels and restaurants, accounting for 5.2 percent, electricity, gas and drinking water, 4.6 percent, and construction 4.4 percent.

Meanwhile for annual growth, the transportation and communication sector grew by 10.1 percent, trade, hotel and restaurants 8.9 percent, and construction 7.3 percent.

GDP for the second quarter of 2012 was dominated by manufacturing, plantations, trade, hotels and restaurant sectors, each contributing 23.5 percent, 14.8 percent and 13.8 percent respectively. The structure of GDP according to spending for the second quarter of 2012 was dominated by household spending amounting to 53.5 percent.

In addition to this, GDP was also supported by gross fixed capital formation (GFCF) and government expenditure, which provided a contribution of 32.9 percent and 9 percent respectively, along with exports at 24.3 percent and imports at 26.6 percent.

President Susilo Bambang Yudhoyono welcomed the positive economic growth for the second quarter noting that this growth has occurred in the midst of a global economic crisis.


According to economic observer Salamuddin Daeng from the Institute for Global Justice (IGJ), Indonesia's economic growth can be categorised as an anomaly because it is not accompanied by improvements in living standards.

There are four reasons for this anomaly said Daeng. First, Indonesia's economy is driven by foreign debt, which continues to grow. "Indonesia's [foreign] debt has accumulated to 2.870 trillion rupiah [US$ 301.35 billion]. Debt has become the government's principle source of income and is the driving force of economic growth", he explained.

Second, economic growth is driven by increased consumer spending based on the rising cost of basic goods and food, which is sustained by a growth in credit, particularly consumer credit.

The third factor is economic growth is driven by raw material exports such as minerals, oil and gas and plantation and forestry products, so there is little creation of added value and employment opportunities. Finally, economic growth is driven by foreign investment resulting in the country's natural resources increasingly being controlled by foreigners.

Economic observer A. Tony Prasetiantono from Gadja Mada University (UGM) in Yogyakarta said that the domestic sector is sustaining national economic growth. "The transmission of the global crisis through a decline in exports and a trade account deficit will only be felt in the third and fourth quarters of this year. Moreover the contribution of exports to GDP is not significant", said Prasetiantono.

A similar view was conveyed by economist Mirza Adityaswara. A number of domestic sectors are growing because they are driven by low interest rates, which are apparent from a growth in credit of 26-28 percent (annually), which is simultaneously driven by low fuel prices (BBM), which are still subsidised by the government.
"So from this, high [economic] growth is being experienced by sectors orientated towards domestic [markets], such as trade, manufacturing, the automotive industry, transportation, communication and construction", said Adityaswara, adding that the consequence of high growth in sectors orientated towards the domestic market is a tendency for the trade account deficit to steadily rise.

According to Prasetiantono, faster and more government spending has also been enough to assist economic growth. In concert with this, keeping inflation below 5 percent has helped slightly although this will have an effect, namely energy subsidies will continue to increase, which is not in fact a healthy trend. (ENY/BEN/ATO/MAS)
[Ekonomi Tumbuh Signifikan, Kesejahteraan Masih Rendah - Kompas. Rabu, 07 Agustus 2012. Slightly abridged translation by James Balowski.]


Only the richest 20 percent benefiting from economic growth  

Jakarta – Economic growth, which reached 6.4 percent in the second quarter of 2012, is largely being enjoyed by the middle- and upper-class, because it is not quality growth.

Economics professor Mudrajad Kuncoro, from the Gadjah Mada University Faculty of Business and Economics, said that economic growth has risen and per capita income (PCI) has reached 3,540 US dollars annually.

However the indications of an imbalance are visible from the results of the current national development process. This can be measured by the imbalance in distribution of income that is steadily widening as reflected by the gini coefficient (a measure of inequality), which rose from 0.33 in 2002 to 0.41 in 2011.
"The irony is, there has been a decline in the [share] of the national cake enjoyed by poorest 40 percent of the population, which has been accompanied by an increase in the [share] of the national cake enjoyed by the richest 20 percent", said Kuncoro when contacted in Jakarta on Tuesday August 7.

Indonesian Employers Association (Apindo) general chairperson Sofjan Wanandi is of the view that economic growth is only being enjoyed by the middle- and upper-classes, while lower-class society is being ground down by various obstacles and is simply trying to survive.

"Even though [they] benefit, the lower-classes' gains are becoming smaller because they have to deal with the high price of materials and have to face high bank interest rates", said Wanandi.
Wanandi confirmed that current economic growth rates are being sustained by people's consumption during the fasting month and Idul Fitri holiday celebrations. On the questing of increased investment, Wanandi said this is not something new.

Wanandi said that current investment, particularly by foreign investors, appears to be sustained, and represents a process that has been going on for two years. It is not the pace of investment that has recently been ventured, such as the investment by Foxconn from Taiwan, which is still struggling to find industrial land.

Not much change

Fishing communities and trade unions admit they have felt little impact from the high level of growth in the second quarter.

Cornelius Mahuze (32), a traditional fisher from the Marind Kampung Mbuti ethnic group in Merauke district, Merauke regency, Papua, concedes that his life is not heading in a better direction. "Yeah, it's just like this, [I] can only net prawns. [I] don't have a boat, don’t have any capital", he said on Tuesday.

Every day Cornelius works netting prawns on at the Mbuti beach. If it is the prawn season, he can catch 10-20 kilograms a day. Prawns sell for 15,000 rupiah a kilo. If it's not the prawn season, he can only catch 1-2 kilograms a day. "If it’s the hot season or big wave season, [I] don't have any income", he said.

Laurensius Mahuze (50), another traditional fisher from the Mbuti village, also relies on netting prawns from the beach because he does not own a motor-boat to catch fish at sea. His income depends upon the season. "If it's not prawn season, I just sell young coconuts for 5,000 rupiah each", he said.

Meanwhile according to Jamaluddin, a labour activist from the East Java provincial capital of Surabaya, economic growth has yet to raise workers' living standards and only provides profits to business and employers. This is reflected in the growth in the number of outsourced workers so that benefits that company owners are obliged to provide, such as the right to a pensions, healthcare allowance and children's schooling costs, are in fact non-existent.

"Workers' wages in Indonesia are the lowest compared with Thailand, Singapore, the Philippines and Malaysia. Meaning that economic growth is not directly proportional with workers' incomes, never mind farmers or fisherpeople", he said.

Meanwhile, an economic observer from the Airlangga University in Surabaya, Subagyo, said the gains from all this are actually being enjoyed by foreign investors who already control shares in almost all business sectors. "Economic growth is not impacting directly on the little people, but rather the owners of capital", he said.

National Planning and Development Minister and National Development Planning Board (Bappenas) chief Armida Alisjahbana said that economic growth in the second quarter of 2012 is being driven by growth in domestic consumption and investment. The government is targeting an investment growth of 11 percent, which could realistically reach 12 percent.

"How to maintain the momentum and minimalise declining exports. So as to get the best contribution for the agricultural sector. That will be the driving force. Our hope is, all of this can be translated into ordinary people's living standards and reducing unemployment", he said. (RWN/ETA/EVY/ATO/OSA/IDR/BEN)
[Pertumbuhan Dinikmati Kelas Menengah - Kompas.com. Kamis, 09 Agustus 2012. Translated by James Balowski.]

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