JAKARTA (TheInsiderStories) – Indonesian economy only grew 0.01 percent in the first quarter (1Q) of 2019, which was 5.07 percent on an annual basis, from growth of 5.06 percent in 1Q 2018. Similarly, compared to 4Q 2018 the Indonesian economy actually shrank by 0.52 percent from 5.18 percent.

This growth indicated that the Indonesian economy has stagnated and even dropped dramatically in several sectors, including agriculture, manufacturing, transportation, trade and construction. The agricultural sector has fallen dramatically even worse than before, especially food crops.

The manufacturing industry sector has a tendency for some sub-sectors to experience pressures, such as coal, and oil and gas refining, leather, wood, rubber, non-metallic minerals, electronics, and transportation equipment. The decline was due to business competitiveness, the purchasing power of several industrial products.

The transportation sector has weakened, especially air transportation due to the increase in airplane tickets since January. While the construction sector has dropped dramatically since government spending on infrastructure has not started much. In addition, demand for the property sector also declined.

According to Statistic Indonesia data, the structure of the country’ GDP is dominated by of Household Consumption components, which covers more than half of gross domestic products (GDP), around 56.82 percent, followed by Gross Fixed Capital Formation of 32.17 percent, Goods and Services Exports of 18, 48 percent, Government Consumption Expenditure of 6.35 percent, Inventory Change of 2.89 percent and Non-Profit Institution Consumption Expenditure that Serve Households at 1.36 percent.

At first glance it appears that Indonesia’ economic growth is increasingly reliant on the household consumption sector which reached 56.82 percent with a growth rate of 5.01 percent year on year. The high level of household consumption shows that the level of productivity of the Indonesian economy tends to weaken, which began to appear in recent years.

In order for the pace of household consumption to remain stable, the government needs to control inflation optimally. The Component of Import of Goods and Services as a deduction factor in GDP has a role of 18.74 percent. With this high contribution of goods import components, the trade balance at 1Q experienced a deficit of 0.26 percent.

The prices of oil and gas and coal and Crude Palm Oil in the international market which have been declining to slow economic growth in trading partner countries have also become factors that influence economic growth in the energy sector.

Investment performance also slowed to 5.03 percent from the previous growth of around 7.0 percent, while negative exports amounted to 2.08 percent, which was from 7.94 percent in 1Q 2018 to 5.86 percent in 1Q 2019. Investment dropped mainly on investment in vehicles and equipment others.

Foreign investment fell by 12 percent, even though around 2012-2013, foreign investment in Indonesia grew rapidly. Instead of continuing to announce the implementation of Online Single Submission (OSS), Indonesia needs to encourage investors to enter the non-telecommunication, non-transportation, manufacturing, and non-sterile industries.

The reduced interest of foreign investors to invest in Indonesia, one of which is because there is no clarity about the system and the licensing process as issued by the government regarding the implementation of OSS applications. Moreover, the import procedure for foreign products is very difficult and lingering.

On the other hand, the decline in the pace of the agricultural sector affected the weakening of the farmers’ exchange rate during the initial three months in the Widodo administration’s political year. This is because the selling price of agricultural products received by farmers goes down because of the harvest.

Likewise, the purchasing power of farmers decreases due to product prices at a lower level than the prices of goods and services consumed by farmers. The decline shows that economic rents are not enjoyed by farmers but actors in the value chain of agricultural commodities.

Director of the Institute for Development of Economics and Finance (INDEF) Tauhid Ahmad said the issue of decreasing prices of foodstuffs in the form of farmers’ rice and rice became a classic problem that had not been broken down since the independence of the republic.

This means that the government’s ability to control rice prices at the farm level is not optimal, so that those who benefit are players in the food commodity value chain which later become a polemic because imports tend to continue to rise.

The new Director of INDEF stressed that the government needs to seek a more friendly policy to resolve chronic diseases that ensnare farmers by revising Principal Selling Price and Highest Retail Price policies for grain and rice in order to boost the economies of scale of food crops.

While, Berly Martawardaya also from INDEF, rated that the performance of Indonesia’ manufacturing industry in 1Q decreased from 4.6 percent to 3.86 percent. In the midst of the narrative that continues to echo the government to make the manufacturing sector an ASEAN hub, the nominal Indonesian manufacturing exports are actually smaller under the Philippines, Malaysia, Thailand and India. Even though this sector absorbs the most labor and contributes to maintaining economic stability.

Likewise, senior researcher Enny Sri Hartati condemned government performance that was too positive seeing economic growth stagnating at around 5.0 percent in the past five years. According to her, the quality of national economic growth is very bad at the Widodo regime because the manufacturing contribution should not be less than 4.0 percent because it becomes a mirror to see the overall balance sheet.

This depreciation received a sharp response from the Solidaritas Indonesia Party economist Rizal Calvary Marimbo by asking that the government immediately evaluate a total of 16 Economic Policy Packages because they were considered not to trigger economic growth.

The Spokesman said the various obstacles to slowing down the economy were the performance of ministries that tightened regulation and bureaucracy, especially the ministry which should encourage investment and the role of the private sector, for example in the energy and fisheries sector.

Economist Ahmad Ma’ruf then stressed that the import substitution industry must be the government’s priority in formulating incentives to spur investment. Because, the development of the import substitution industry is relatively the easiest because the market is clear.

Because only by expecting foreign investment in the export industry will it still weaken economic performance because there are no incentives for exports. In contrast, foreign investors consider it easier to sell goods to Indonesia because import tariffs are relatively very low.

With the shift of foreign direct investment (FDI) to the service sector, researcher Andry Satrio Nugroho revealed that the government was time to push domestic demand rather than build an export-based manufacturing industry. Some of the services or tertiary sectors are reflected in several trade subsectors and online transportation services.

Because the shrinking of the domestic economy was not directly affected by global economic fluctuations, because the contribution of external factors only ranged from 20 percent. Meanwhile, the majority of the main factors were triggered by the condition of fiscal policy and the driving force of domestic investment.

Moreover, the distribution of Indonesia’s development is still dominated by Java’s economic contribution of 59.03 percent of GDP. Therefore, diversification of economic development must be supported by equitable development to be more Indonesia-centric so that local industrial sectors grow.

Written by Daniel Deha, Email: daniel@theinsiderstories.com