Core programs of 2009

And here is the GOI's 2009 agenda of what they call "four core programs":

1. Financial sector programs: to submit draft laws of deposit guarantee institution, amendment to Bank Indonesia law, financial sector safety net; to extend the business credit for low income families (KUR); and financial sector assessment program.
2. Fiscal policy programs: to continue the fiscal consolidation; budget expansion for infrastructure, education, and poverty eradication; more tax stimuli; and targeted subsidy for agriculture (fertilizers, seeds) and energy (fuel, liquefied gas, and electricity).
3. Real sector support policy programs: real sector stimuli (taxation, customs), investment climate (licensing, national single window); market support and sector empowerment (export-import monitoring, domestic product promotion, etc); trade financing; micro and SME empowerment; infrastructure development acceleration; improvement on energy and food production.
4. Anti-poverty programs: PNPM expansion, direct cash transfer for 2 months, rice for the poor (18.2 million of target households with an allocation of 15 kgs per each); and PKH expansion.

Although these four "core programs" seem to be the squeezed version of the Presidential Decree 5/2008 on the Economic Program Focuses, I would think even more trimmed version is desirable. All above still seems too many to accomplich within one year. If GOI could just complete what has been started on electricity and road infrastructure, and make more effective cash transfer, that would be great. Forget about expanding too much on agri and energy subsidies.

Prospect of 2009

Still from the GOI's presentation yesterday, here is their projection for 2009 (in %, yoy): C 4.8, G 10.4, I 6.5, X 5.9, and M 6.1, which brings the GDP growth to 5%. Sounds quite optimistic.

The 2009 challenges

According to the government, the key economic challenges of 2009 are: 1) The need to increase the quality of human resources, 2) The need to fill the infrastructure gaps, 3) The integration with global economy, 4) The need to increase the quality of bureaucracy, and 5) The need to improve income distribution.

I would add: the possible upward swing of the world crude oil price, massive layoffs, and the rise of protectionism.

Explaining the small deficit

According to Minister of Finance, the very small budget deficit realization of 0.1 (see macro summary below) is due to higher-than-target revenue and lower-than-target expenditure. The revenue realization of 2008 was 9.6% higher than that targeted in the 2008 budget (APBN-P 2008). This came from tax (8.1% higher) and non-tax (13.2% higher). Grant on the other hand was below target (only 78.3%). Meanwhile, state expenditure only met 99.6% of the target in APBN-P 2008. This was due to lower spending for ministries and other central government institutions (99.4%) even though transfer to local governments was higher than target (100.1%).

This suggests the government limited capability to spend effectively -- a necessity for effective fiscal stimulus. Or, a more supply side economics?

Macroeconomic summary of 2008

From GOI's presentation on economic evaluation of 2008 and prospect of 2009 in Jakarta, January 5, 2009. Below is the macroeconomic summary of 2004-2008. The first numbers indicate those of 2007, the second 2008.

• Growth (%) 6.3 - 6.2
• Inflation (%) 6.7 - 11.1
• Bank Indonesia's policy rate (SBI 3 month rate, %) 8 - 9.3
• Exchange rate (Rp/$) 9,130 - 9,691
• Foreign reserves ($ billion) 56.9 - 50
• Current account (% GDP) 2.6 - 0.9
• Budget deficit (% GDP) 1.2 - 0.1
• Foreign debt (% GDP) 32.7 - 30.4
• Debt service ratio (%) 21.5 - 17.5
• Open unemployment (%) 9.1 - 8.3
• Poverty rate (%, BPS method of daily calorie) 16.6 - 15.4
• Poverty rate (million of population, BPS method of daily calorie) 37.2 - 35.0
• Poverty rate (%, WB $1/day, PPP) 6.7 - 5.9
• Poverty rate (million of population, WB $1/day, PPP) 15.5 - 14.2
  
• Poverty rate (%, WB $2/day, PPP) 45.2 - 42.6
• Poverty rate (million of population, WB $2/day, PPP) 105.3 - 100.7
  

2008 State Budget

Assumptions: 6.8% growth, 6% inflation, 7.5% BI Rate, IDR9,100/USD, and USD60/barrel of oil price.

The 6.8% growth assumption is wishful. I think the best we can go in 2008 is 6.5%.