1. GROWTH AND INEQUALITY in Indonesia Mohammad Faisal CORE Indonesia (Center of Reform on Economics)

2. GDP Growth: Survived the Global Crisis, but weakening due to the fall of commodity prices

3. Component 20122013 2014 2015 Q1 Q1Q2Q3Q4 Private consumption5.3 5.6 5.45.35.01 Government1.34.93.6-0.74.51.42,21 Investment9.74.95.44.33.53.94.4 Export of goods and services2.05.3-0.4-0.8-0.7-2.9-0.5 Import of goods and services6.20.1-0.7-5.1-3.70.1-2.2 GDP6.35.75.1 5.0 4,71 GDP Growth: Stagnant private consumption, declining exports Sumber: BPS

4. China's Economic Slowdown -Import growth -15% -PBC policy on yuan Low Commodity Prices - Oversupply - El-Nino Impact The Fed Policy Uncertainty - US$ Appreciation 10% - Low inflation rate -2% (Sept.15) Indonesia’s Export - 10% market share to China - 59% in primary ommodities - Current account deficit (US$12,4 bill. [Q1-Q3]) - Gov. budget deficit (2,6% GDP) Rp/US$ - BI tight monetery policy (BI Rate 7,5%) -High leverage on US$ debt Domestic consumption & investment - High lending interest rate - Unemployment & Poverty rate hike Recent external challenges

5. Declining commodity prices Declining exports

6. Declining farmers purchasing power following low commodity prices Declining farmers trade index impacted on 12,8 million households

7. Rupiah & Asian currency exchange rates Weakening Rupiah exchange rates due to fundamental factor and the sentiment in the financial sector

8. Trade Balance: Weak export growth, slight trade surplus, depite Rupiah depreciation Deepening fuel and gas deficit, marginal surplus in non fuel and gas 8

9. Poverty in Indonesia The rates of poverty reduction is slowing down Source: BPS Percentafe of poor people

10. Gini Ratio: Increasing inequality Urban National Rural Source: BPS

11. Increasing Inequality Income Distribution & Gini Ratio 17 41 49 21 40% poorest people 20% richest people Gini Ratio

12. 3,5% 23% 5,1% 58% 8,9% 3% 1,0% 8% 7,3% 5,7% 3,7% 2% Growth Q1 2014 – Q1 2015 GDP Contribution (Q1-2015) Regional Contribution to GDP, 2015 Minimum contribution of regions outside Java, depending on export commodities Source: BPS

13. New Jobs created per 1% GDP Growth: Fewer jobs created 1%GDP = 433,000 jobs (2008)  1%GDP = 164,000 jobs (2012)

14. Open Unemployment Rates

15. Open Unemployment rates among ASEAN countries Source: World Bank

16. Unemployment, Agustus 2015 Large proportion of workers in Informal sectors, Unpaid Workers, and part-time Source: BPS Million

17. Larger Proportion Working in Informal Sector

18. Stagnant growth of real wages

19. Bank Loan Interest Rates Tight monetary policy, High loan interest rates Sumber: BI

20. High Central Bank Rates

22. Current Indonesia Economic Growth: Decoupled from World Downturn, but also from Economic Competitiveness and People Welfare 1. Indonesian economy still grew relatively strong, even amids global economic down turn. 2. Some factor has supported Indonesia to be relatively resistance from global economic down turn : a) GDP structure: dominated by private consumption b) Export structure: dominated by primary comodities c) Maintaining high cost support (maintaining high interest rate and minimum of control capital inflows) 3. Indonesia experienced a relative long time lag of negative impact of global crisis. Such positive performance did not result in the improvement of competitiveness as well as the people’s quality of live.

23. Conclusions Although Indonesia has survived the global economic crisis in 2008, the economic growth has been weakening since 2011 due mainly to the fall of commodity prices. Inequality has increased in the last fifteen years despite relatively strong GDP growth. The Monetary Authority has persistently imposed tight policy by keeping the central bank rate high despite domestic economic slowdown, due to a fear of capital outflow following the FFR increase. Tight monetary policy has impeded the real sector growth and banking credit has become even more difficult to get especially for SMEs. Competitiveness of agricultural sector and farmer real wages continue to decline, resulting in widening income ineqality between rural and urban sectors. Unemployment and poverty rates have only marginally declined in recent years, and has even increased in 2015.

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