Customer shops at traditional market. Wet markets and traditional grocery shops are holding on to customers in rural areas and small towns, but they are losing ground in larger towns and cities. (Photo: The Insider Stories)

JAKARTA (TheInsiderStories) – Good Morning. All eyes will be on the announcement of Indonesia’s economic growth in the second quarter (2Q) by the Statistics Indonesia today. While, politics will get more interesting this week as any presidential candidate hopefuls must meet the deadline to register to the Election Commission this Friday.

Indonesia’s economic growth had been quite disappointing of late. The pace has been below expectation, also far below President Joko Widodo’s promise of 7 percent per year.

For the 2Q, economic growth is expected to be faster than 5.06 percent (YoY) in the January-March period. Bank Indonesia’s governor Perry Warjiyo estimated economic growth might reach 5.2 per cent in the 2Q of this year.

There are several factors that become the basis of the central bank estimation, he said. One of them is a survey of business activities that grew 20.23 per cent in the second quarter of this year from 8.23 per cent in the same period last year.

The supplementing data is indeed encouraging. Banks’ loans grow faster, manufacturing activities, tough not robust, are expanding, inflation is tame and stable, investment continues to rise and government spending and revenue are higher than last year.

The missing ingredient is household consumption, which accounts for more than half of Indonesia’s GDP. Slower growth in household consumption is due to adjustments as the Indonesian economy switches to investment-driven model. That is the textbook explanation.

The supplementing data is indeed encouraging. Banks’ loans grow faster, manufacturing activities, tough not robust, are expanding, inflation is tame and stable, investment continues to rise and government spending and revenue are higher than last year.

The missing ingredient is household consumption, which accounts for more than half of Indonesia’s GDP. Slower growth in household consumption is due adjustments as the Indonesian economy shifts toward for investment-driven model. That is the textbook explanation.

Growth in investment, or gross fixed capital formation, is indeed accelerating. But it has yet to offset the slower growth in household consumption. There’s also talks that the government may seek to hold back infrastructure investment due to its impact on the rupiah’s fall.

In addition, external forces are not working on Indonesia’ favor. Central banks from developed economies are tightening their monetary policy, creating restrictions to the flow of international capital. Trade war tension is escalating and Indonesia could find itself in a difficult position.

Trade was one of the key issues during a meeting between Indonesian Foreign Minister Retno Marsudi and her U.S counterpart Mike Pompeo in Jakarta on Sunday (05/08). Pompeo affirmed previous commitment that seeks to boost Indonesia-U.S bilateral trade to $50 billion, almost double the current amount, but stressed the importance of “fair and equivocal” principles.

Marsudi, meanwhile, revealed hopes that Indonesia will stay in the US’s Generalized System of Preferences (GSP) list, which gives tariff reduction to Indonesian exports worth $2 billion to the U.S.

Trade war fears were the underlying sentiment in Asian equity market last week (July 30-August 3). In Indonesia, foreign investors pulled out Rp1.1 trillion from the equity market in the week, despite the Jakarta Composite Index gained 0.31 percent.

The Rupiah weakened and ended the week at 14,503 per U.S dollar, a level not seen since July 25. Positive news come from the debt market. The government raised the maximum amount of Rp20 trillion from debt auction out of Rp45.4-trillion bids.

Moving to politics, Jusuf Kalla and his supporters will be hoping that the Constitutional Court can deliver its verdict on term limit for President and Vice President seats before Friday (10/08), the deadline to register for the 2019 Presidential Election.

Kalla is currently barred to run again as he had served the position twice. But Kalla and his team seeks clarification on whether the two-term limit is only applicable when the President or Vice President seats are being held for two consecutive periods.

Critics are quick to point out that the two-term limit is put in place to avoid a repeat of Soeharto’s 32-years authoritarian regime. If the Court rules in Kalla’s favor, then he is free to run again in 2019, possibly as Joko Widodo’s running mate again. For Widodo, having Kalla as running-mate again may greatly improve his chance in 2019.

The opposition camp may also feel similar anxiety as registration deadline nears. Gerindra Party’s founder, already endorsed by several parties as Presidential Candidate, has yet to announce his number two.

The move by Susilo Bambang Yudhoyono and his Demokrat Party to join the opposition camp changes the dynamics. SBY’s is keen to put his heir apparent Agus Harimurti Yudhoyono as Vice Presidential candidate, which is also sought by Prabowo’s loyal ally the Justice Prosperous Party. No easy decision there.

Hope you have a profitable day.

by TIS Intelligence Team, Email: theinsiderstories@gmail.com

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