Bank DBS Indonesia Holds Asian Insights Seminar 2019: Economists, Political and Capital Market Observers Share Views on Indonesia's Economy and Politics in 2020
INDONESIA,05 December 2019 -
Bank DBS Indonesia held Asian Insights Seminar 2019 that gathered more than 200 selected priority customers consisting of entrepreneurs, company leaders, and professionals. Taking Indonesia: Reassessing Growth & Stability in 2020 Amidst Global Dynamics as the theme, the seminar, an annual event, presented the views of practitioners and observers in the fields of economics, politics and capital market on the outlook of domestic economic/political situation after the inauguration of the President-elect and Vice President-elect and the Onward Indonesia Cabinet (“Kabinet Indonesia Maju”).
The Asian Insights Seminar presented Luky Alfirman, the Director-General of Budget Financing and Risk Management at the Ministry of Finance, who gave an overview of the current domestic situation. He also gave a thorough explanation of the government's strategic steps in increasing investment in the real sector that can sustain Indonesia's economic growth in the future. Luky cited recent developments in global issues, such as the US-China trade war, the political crisis in Hong Kong that led to prolonged protest demonstrations, the wave of protests in Chile triggered by the rise in subway ticket prices, as illustrations of the gloomy global economic and political conditions in 2019.
He considered 2019 an extraordinary year because of the simultaneous elections. However, Luky believes that the most important thing is how Indonesia maneuvers through challenges in 2020. According to the World Economic Outlook reports, the global economy grew 3.0% in 2019 and is projected to grow 3.4% in 2020. Meanwhile, global trade volume grew 1.1% in 2019, the lowest growth rate recorded. Although it is projected to grow 3.2% in 2020, it is subject to downsize risks.
Luky explained further the three investment channels in Indonesia, namely the financial market through foreign portfolio investments, capital flows to the real sector, and the trade channel. There are also demands for government countercyclical interventions as stimulus amid an economic slowdown through budget deficit policy. The state budget has three functions, namely allocative function, stabilization function, and distributive function whereby the government counters a decline in economic growth with a higher deficit, thus increasing additional debts.
The government aims to achieve inclusive growth in 2020. Inclusive growth is measured by the poverty rate, which currently stands at single digits in Indonesia, below 10%; the unemployment rate that stands at 5%; and the Gini ratio, which stands at 0.384. The government also strives to maintain inflation and the rupiah exchange rate, and a growth rate of above 5%.
Luky said the President’s current five priorities are human resources (HR) development, infrastructure, simplification of legislation, efficient bureaucracy, and economic transformation. Therefore, the government feels it necessary to simplify legislation through omnibus laws to package multiple areas of legislation aimed at creating jobs and empowering small and medium enterprises (SMEs). The priority sectors targeted by the omnibus laws are taxation, job creation, and finance.
Luky's views were shared by PT Bank DBS Indonesia Chief Economist Masyita Crystallin, who stated that Indonesia's economic structure had not changed in the past 15 years. Therefore, Indonesia needs a new economic engine by moving to higher value-added sectors, such as manufacturing and services and job creation, considering that an additional three million workers enter the labor market each year. In addition, Indonesia should also have a friendly current account deficit (CAD) to be able to achieve an economic growth of 5.5%-6%, above the potential level, to escape the "Middle Income Trap".
PT Batavia Prosperindo Asset Management President Director Lilis Setiadi added that in 2018, countries applied high interest rates and adopted tighter policies, causing trade tension to escalate. In 2019, key interest rates declined and policies were relaxed although trade tension continued to escalate. According to Lilis, the trade tension is a factor that determines the gross domestic product (GDP) of countries in the future. Lilis predicted that in 2020, global economic growth will improve because of more relaxed policies that are coupled with reduced trade tension.
Lilis also said that as an emerging market, Indonesia's GDP growth was higher than those of developed markets. She also saw an appreciation of the currencies in developing countries, particularly Indonesia, so that in 2019 inflation expectations would be below 3%. Regarding bonds, Lilis argued that in 2019, bond prices rose due to fundamental factors and massive fund inflows. She saw room for an increase in bond prices in 2020, although not as high as in 2019 because of economic recovery, especially in emerging Indonesia.
Lilis said that in 2019, Indonesia’s stock market achieved a growth of 5% and is expected to achieve a growth of 7-9% in 2020. She suggested that investors pay attention to three things, namely the money market that faces a risk of declining from the current rate; the bond market, which is expected to see a reversal in the near future; and the equity market. Lilis suggested that investors focus on long-term trends and take advantage of the short-term volatility.
The views of economists and capital market observers were complemented by the political view of Indonesian Political Indicator Executive Director Burhanuddin Muhtadi. Burhanuddin saw that Indonesia’s economy is of utmost importance to Jokowi due to several factors, including personal factor. Jokowi's political outlook is a combination of non-ideological technocratic pragmatism and social empathy for the poor, thus his tendency to prioritize economic issues.
Burhanuddin’s observation of the performance of 11 US presidents revealed that only three of them performed well in the second term. The lesson learned from these examples is that Jokowi should continue to strive for economic growth although he had worked hard in the first term and no longer has electoral burden in the second term. Burhanuddin also considered Jokowi's 2019-2024 cabinet a combination of the good, the bad and the ugly who dream of achieving economic and political stability.
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