Time to Move On
Executive Summary
After a long process, the Constitutional Court upheld Joko “Jokowi” Widodo’s presidential victory, meaning that challenger Prabowo Subianto lost his case alleging that the election had been won by electoral fraud. The verdict makes Jokowi the president-elect; he is to be inaugurated on October 20. Although the General Election Commission declared Jokowi the winner on July 22, Prabowo had refused to concede, and brought a claim before the Constitutional Court that the election was marked by widespread cheating. To add drama, each time the case was convened before the Court, the Prabowo camp brought in hundreds of noisy supporters, who gathered in the street in front of the Court building.
It’s now time for Jokowi to move into governance mode. In fact, he has already named a transition team, led by former Trade Minister Rini Soewandi. Four deputies in the current government who prepared the ground for the transition will help her. This is a new tradition, which will considerably speed up Jokowi’s adjustment to office. The transition team will work closely with the current government to identify the issues that need serious attention. The team is also preparing potential nominees for the new cabinet. But Jokowi himself will make all of the final appointments.
In the midst of this hectic situation, the Central Board of Statistics (CBS) announced Q2 the economic performance statistics. These suggest economic growth softened again, growing 5.12%, down from 5.22% in Q1. However, we see a strong possibility that growth will pick up in Q3: the CBS indicated that its Survey on Business Tendencies showed an uptick in business confidence – an attitude that might improve economic performance in this quarter.
In external accounts, Bank Indonesia reported a jump in the current account deficit. The deficit increased to 4.27% in Q2 from 2.05% of GDP in Q1. However, compared to the 2013 deficit at 4.47% of GDP, the tendency is toward deficit shrinkage in 2014. The jump in Q2 was seasonal in nature, due to the Muslim holidays. The trade balance in Q2 was made worse with the big trade deficit in June 2014. However, due to significant capital inflows in the form of FDI and portfolio investment, the balance of payments in Q2 resulted in a surplus of over $4 billion. With this, Central Bank FX reserves rose to over $107 billion in June 2014. In July, reserves increased to over $110 billion.
Inflation was recorded at 0.93% in July, and y/y inflation fell to 4.53%. Bank Indonesia then affirmed that inflation was under control, and so at its August policy meeting left the reference interest rate unchanged.
Before the August 17 Independence Day, Indonesian President Susilo Bambang Yudhoyono unveiled his 2015 proposed budget. Spending is to increase to over Rp. 2,000 trillion, for the first time in Indonesian history. But, due to the binding nature of several expenditures, the fiscal space continued to be limited. So, while the size of expenditure is big, it doesn’t provide for adequate stimulus. The new government will certainly have to revise the budget as fast as it can.
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