2008, unlike other countries, turns out to be an eventful
year for the Indonesian economy. The rise in international oil prices therefore
put an unbearable burden on the budget and forced the Government to raise fuel
prices for consumers. To mitigate the impact of the rise in fuel prices, the
Indonesian Government paid direct cash handouts to the poor - a programme that
was well implemented and received.
The global economic and financial
crisis impacted on Indonesia in a number of ways:-
- On October 6, 2008, Indonesia's key stock market index
declined by 10% -its biggest one day percentage fall since 1998.
Indonesian sovereign bonds declined in value pushing up yields.
- By mid-October, Indonesian stock index had declined to
a level 40% below that in September 2008.
- The decline in the stock market index was due to a self-off
by foreign investors who owned over 60% of the stocks in the Indonesian
market and a sharp decline in the stock prices of the Bakrie group of
companies and particularly its flagship company PT.
- The Bakrie group shares were suspended from trading on
the Indonesian Stock Exchange while the company restructured its debt over
the last quarter of the year.
- Indonesia's annual price inflation also reached its highest
level reaching 12.14% compared to a year earlier.
- Simultaneously, the Rupiah slumped to a 10-year low
against the US Dollar.
The immediate impact of these developments was an official
downgrading of the export target and the GDP growth rate anticipated for 2009.
The decline in commodity prices adversely affected prospects for export
earnings in the last quarter of 2008 and the calendar year 2009. Palm oil, a
major export commodity, declined from over US$ 1,200 per ton to US$ 350 per ton-
it has since recovered to US$ 550 per ton. In addition to oil prices, the
softening of rubber prices added to Indonesia's export woes.
The Indonesian Government made determined efforts to
stabilize the Rupiah and soothe market fears. Indonesia is the biggest economy
in the ASEAN and its banking sector is well-capitalized, having recovered fully
from the contagion of the Asian Financial Crisis. The problem area is that of
stock and debt markets which are thin and prone to fluctuations on account of
the actions of foreign investors.
The elbow room of the Central Bank was reduced by the high
inflation rate (12%) and the Indonesian Central Bank was forced to raise its
benchmark rate in mid-October from 9.25% to 9.5% amidst fears of inflation and
global economic concerns. The Bank Indonesia's action was also intended to
strengthen the Rupiah which had slid from 9,300 to 11,000 Rupiah per.
The Indonesian business sector was worried because economic
growth was slowing down; banks were not granting new loans and had increased
interest rates. The external and domestic markets were shrinking and this was
affecting the employment numbers in the economy. The Manpower and
Transmigration Ministry announced on December 3 that 63,000 workers had been
laid off by factories in Indonesia. Jakarta had suffered the largest number of
lay offs with 14,200 people losing their jobs. It was estimated that industry
had grown by 4.8% in 2008 and would grow by 3.6% in 2009.
Strategy adopted by Indonesian Government to cope up with the situation, this
involved:
- boosting real sector growth through infrastructure
development;
- creating new working opportunities, and
- building a social safety net.
