ProdukHukum BankIndonesia
The Experts’
Tradiion
that Flows in the Vein
One by one the imber is nailed and created a
wall then strengthened by the supporing beam.
The creator lets his hands to work and create
undoubtedly because every detail of size and shape
has clearly appeared in his mind. Even, every single
breath becomes the same soul to make the form of
the ark alive.
i
CHAPTER
V
ENHANCING THE RESILIENCE OF
THE REAL SECTOR IN SUPPORTING
ECONOMIC RECOVERY
Enhancing the Resilience
of the Real Sector in Supporing
Economic Recovery
Amid deep global economic contracion, the real
sector has remained mostly resilient to the global
economic pressure which enabled it to support the
performance of the Indonesian economy in 2009.99
The impact of the global economic crisis on the
country’s real sector was mainly through trade
channel as relected in export performance which
has dropped quite considerably. Such a drop in
exports has prompted businesses to reduce their
aciviies, which in turn led to a decline in investment
and consumpion. In spite of being exposed to the
impact of global economic crisis, the Indonesian
economy has managed to grow by 4.5% (year-onyear) which was beter than previously esimated
in the beginning of the year of 4.0% (year-on-year)
due to domesic demand which remained strong, in
paricular when it came to household consumpion.
The coninuingly high household consumpion was
atributable to several factors which include, in
paricular, public purchasing power which remained
quite strong, electoral expenditures whose amount
was quite substanial and iscal simulus policy to
maintain public purchasing power. Moreover, the
domesic economic growth which remained high was
also supported by Micro, Small, and Medium-sized
Enterprises (MSME) which play quite a strong role in
the Indonesian economy. Unil recently, given that
the export and import role of the MSME sector has
99 Deiniion: the real sector refers to all which relates to the
producion of goods and services and their distribuion. The
aciviies of the real sector include producion. consumpion. and
investment throughout enire economic aciviies.
138
remained limited, the impact of global economic
crisis on that sector has been relaively small.
account the sectors at which a region excels when
building an industry in the region.
Meanwhile, the coninuingly high household
consumpion was also propped by low inlaion.
Such a low inlaion level helped maintain public
purchasing power and led to the maintenance of
consumers’ conidence and expectaion. Moreover,
the maintenance of public purchasing power was
also supported by a number of government policy
packages such as reducing personal income tax and
increasing non-taxable income limits.
This chapter, divided into two parts, analyzes the
dynamics of the real sector in 2009. The irst part
examines why the resilience of domesic demand,
propped up by household consumpion, remains
measurably high despite the coninuous pounding
of global crisis and whether the sustainability
of household consumpion in the future can be
maintained. The analysis is divided into two subchapters. One of which analyzes factors contribuing
to the resilience of household consumpion and
the other explains the role of MSME as the shock
absorber unleashed by global inancial crisis. The
second part probes various challenges faced by
the real sector in maintaining and coninuously
enabling the momentum of naional economic
recovery to gather steam. This part discusses the
various challenges the manufacturing sector is facing
including the ones associated with ACFTA. Then, it
will also talk about classic issues in the real sector
such as lack of infrastructure and about measures
that should be taken in the future.
However, the success in keeping up the resilience
of domesic economy sill leave some problems as
relected in the declining trend of the growth of the
manufacturing sector and the constraints to which
some infrastructure projects are subjected. Such
challenges become increasingly important given that
the ASEAN-China Free Trade Agreement (ACFTA)
prompts businesses in the manufacturing sector to
enhance their compeiiveness. Therefore, future
industrial sector development should presuppose the
availability of adequate infrastructure and take into
consideraion regional aspects, that is, by taking into
Enhancing the Resilience of the Real Sector in Supporing Economic Recovery | CHAPTER V
139
The Resilience of Household Consumpion
5.1
Amidst the global crisis, household consumpion emerged
as the main pillar supporing the growth of the Indonesian
economy. The coninuing, relaively high growth of
household consumpion – which made up the largest
segment of GDP, around 58% – was able to prevent
economic growth from sliding further. In 2009, household
consumpion was able to experience a suiciently high
growth of 4.85%, only slightly lower compared to previous
year (5.34%). In the irst semester of 2009 when the
impact of the crisis on the Indonesian economy was
very much felt, household consumpion sill managed to
grow posiively, posing a suiciently high growth. Even
in quarter I 2009, household consumpion was sill able
to grow by 5.95%. This high growth of consumpion in
the irst half of 2009 was paricularly related to the big
spending associated with electoral aciviies made by
poliical paries or legislaive candidates during legislaive
campaigns and presidenial elecion. This general
elecion-related household consumpion expenditure was
recorded by BPS as the expenditure of a non-proit private
insituion. BPS data showed that during the irst quarter
of 2009, it was recorded that the non-proit insituion
spent Rp 26.58 trillion.
In addiion, the relaively high growth of household
consumpion in 2009 was also propped up by a low
inlaion. This was diferent from the case of external
shocks in 2005 whose impact signiicantly reduced the
growth of household consumpion because of high
inlaion. An upsurge in inlaion – as high as 17.11% – as
a result of fuel price hike in March and October 2005
caused public purchasing power and expectaion of
140
CHAPTER V | Enhancing the Resilience of the Real Sector in Supporing Economic Recovery
percent, yoy
percent, yoy
index
8
30
25
20
7
140
6
130
5
120
4
15
3
10
optimistic
110
100
90
2
80
5
1
70
0
0
2004
2005
2006
2007
Household Consumpion (rhs)
2008
2009
CPI
60
pesimistic
I
II III
2006
IV
Consumer Expectaion
I
II III
2007
IV
I
II III
2008
Current Economic Condiion
IV
I
II III
2009
IV
Consumer Confidence Index
Source: BPS-Staisics Indonesia
Chart 5.1 Inlaion and Household Consumpion Growth
Chart 5.2 Consumer Survey - Bank Indonesia
the country’s economic condiion to take a turn for the
worse. As a result, household consumpion dropped
signiicantly (Chart 5.1). In 2009, a suiciently low rate of
inlaion successfully maintained public purchasing power
as well as managed people’s expectaion, especially the
consumers’ level of conidence and expectaion, and
gradually transformed the pessimisic tone of Consumer
Conidence and Expectaion Index in quarter I 2009 into
an opimisic one for the rest of the year (Chart 5.2).
As a result, household consumpion in 2009 was not as
severely afected as in previous year (Chart 5.1).
Fundamentally, the strong household consumpion was
propped up by public purchasing power which was sill
high. In general, such a purchasing power which remained
strong was atributable to some main factors. The irst
factor was a general increase in people’s income. In
2009, the country’s per capita income calculated based
on the GDP per capita at current market prices showed
an increase from Rp 21.7 million per year in 2008 to Rp
24.3 million per year which represents an increase of
around 12%. This was supported by data on increasing
income in the formal and informal sectors. As far as the
formal sector is concerned, a survey conducted by BTI
Consultants indicated that the average salary rise in 2009
stood at 8.39% with the largest salary rise recorded in
three sectors, namely the insurance sector (9%-13%), the
oil and gas sector (8%-12%) and the sector associated
with fast moving consumer goods (3%-11%).100 In the
informal sector, such an income was relected in the
increase of the real wage of agricultural labors from Rp
29,063 per day in 2008 to Rp 30,473 per day in 2009. Such
100 SWA Magazine. May 2009 ediion
increased earnings in both the formal and informal sectors
very much helped leverage public purchasing power,
paricularly amidst the low rate of inlaion. The second
factor was the indicated use of savings by the private
sector to prop up the exising level of consumpion. This
was related to the consumer’s inter-temporal decision
to maintain the sustainability of purchasing power by
assigning part of future consumpion potenial to the
current consumpion. Such inter-temporal decision was in
turn able to keep domesic consumpion stable for a long
period of ime. These high public savings potenial used to
maintain consumpion level corresponded to the country’s
high economic growth over the last four years which stood
at around 6%.
Furthermore, to protect low-income earners’ purchasing
power, the Government coninued to channel direct cash
transfers (BLT). As for simulus package, the Government
also issued several policies for reducing personal income
tax, increasing the limit of non-taxable income (PTKP) as
well as providing a variety of subsidies such as cooking
oil subsidy. Then, in quarter II 2009, the Government
paid the 13th salary to civil servants. Such programs were
very helpful, in paricular for people in the low to middle
income bracket. In addiion, Bank Indonesia’s monetary
policy of reducing interest rates had also helped public
purchasing power.
Consumer opimism of future income had propelled
consumpion as well. A survey on consumers conducted
by Bank Indonesia indicated that people’s expectaion of
future income remained high despite global economic
crisis (Chart 5.2). In quarter I 2009, such opimism jacked
up the Consumer Conidence Index to the opimisic
Enhancing the Resilience of the Real Sector in Supporing Economic Recovery | CHAPTER V
141
percent
index
percent
83
16.5
16
120
78
110
15.5
15
100
73
14,5
90
80
14
68
13.5
70
60
13
63
12.5
50
58
Consumer Expectaion
Current Economic Condiion
Early Age of Career to Populaion Raio
Consumer Conidence Index
2007
2006
2005
2004
2003
2002
2001
12
2000
IV
1999
II III
2009
1998
I
1997
IV
1996
II III
2008
1995
I
1994
IV
1993
II III
2007
1992
I
1991
IV
1990
II III
2006
1989
I
1988
40
Peak Age of Career to Populaion Raio
Source: BPS-Staisics Indonesia
Source: Danareksa
Chart 5.3 Consumer Survey – Danareksa
Chart 5.4 Raio of Early and Peak Age of Career to
Populaion
level. Consumer opimism in future condiion was also
relected in Danareksa’s survey in May, the Consumer
Expectaion Index had started to pick up (Chart 5.3). The
level of household consumpion which calculates the
level of expected income in the future is an indicaion of
household behavior which tends to follow the Life Cycle
Hypothesis (LCH) and Permanent Income Hypothesis (PIH)
theories. The LCH and PIH theories basically state that the
consumpion decision of an individual is not only based on
their current income but also on the calculaion of their
expected income. Based on this premise, an increase or a
decline in an individual’s income is considered temporary
and will only give a limited efect to the individual’s
consumpion. Conceptually, the LCH and PIH theories are
the reverse of Keynes’ theory which assumes that the
consumpion of an individual at a given ime will be very
much related to their income at that paricular ime.
consumpion easy. According to a BIS survey (2009)101,
the level of household debts in Indonesia was relaively
low, that was, sill hovering around 7%, compared to
other countries such as Korea (82%) and the U.S. and
Britain where it went beyond 100%. Such a low raio
made it easy for the country’s household sector to access
inancing for consumpion. Based on December 2009
data, consumpion credit went up to 17.3% (year-on-year)
which was far above the investment and working capital
credit. Another source of inancing which also showed an
increase was loans from pawnbrokers. As of September
2009, the growth of loans put up by pawnbrokers had
increased by around 47.5%. Such an increase may relect
the tendency of households to make use of their nonmonetary savings such as gold and vehicles to maintain
their level of consumpion.
In the long run, the level of public consumpion will be
afected by the demoCharic structure in society. The
The strong posiion of the country’s household sector
balance sheets made access to the inancing of
101 Gounan Ma, Eli Remolona, and Ilhyock Shim (2009), ’Household
Debt : Implicaion for Monetary Policy and Financial Stability,’ Bank
for Internaional Setlement, paper no. 46.
Table 5.1 The Development of Urbanizaion in Indonesia and Emerging Markets
Countries
Urbanizaion (millions)
percentage of
total populaion
2000
2007
2000
2007
1990-2007
Indonesia
54.5
113.6
31
50
4.3
Brazil
111.8
163.1
75
85
2.2
China
311.0
556.3
27
42
3.4
India
216.6
329.1
26
29
2.5
Source: BNP Paribas, 2009
142
Average of
Annual Growth (%)
CHAPTER V | Enhancing the Resilience of the Real Sector in Supporing Economic Recovery
increase in the raio of populaion at the later career
stages to the populaion at the early career stage
indicated increased household income with higher
capacity for consumpion and saving (Chart 5.4). In
addiion, demoCharic change in the form of increased
urbanizaion has also led to higher consumpion. Data
from 2000 to 2007 showed that the average rate at which
populaion moved from rural to urban areas stood at
4.3% per year, far higher compared to other countries
like Brazil, China, and India which on average grew by
2.2%, 3.4%, and 2.5% per year respecively (Table 5.1).
The growth of urbanizaion was one of the sources of
consumpion growth given that the average spending of
populaion in urban areas was far higher than that in rural
areas. In 2008, based on BPS data, the average spending
of urban populaion, which amounted to Rp 496,000 per
month, was higher by around 75% than the one of rural
populaion.102
102 BNP Paribas, Indonesia Strategy, 2010: Road Map, 22 December
2010
Enhancing the Resilience of the Real Sector in Supporing Economic Recovery | CHAPTER V
143
The Role of MSME as a Shock-absorber
of the Global Economic Crisis
5.2
The resilience of domesic economy in the face of global
economic crisis cannot be detached from the important
role of MSME mainly because the role of export and
import aciviies in this sector is relaively limited. In
addiion, many MSME rely on domesic sources for raw
materials as well as domesic market as their main target.
The persistence of MSME entrepreneurs in managing
their business through eiciency measures as well as
abundant and economical supply of labor helps minimize
the adverse impact of the crisis on the MSME sector. In
addiion, MSME workers who are generally low educated
are responsible for the lexibility of movement of workers
among MSME sectors, paricularly within the informal
sector because this sector does not require highly
speciied experise. This sub-chapter analyzes the role of
MSME in the structure of the Indonesian economy.
g
The Role of MSME in Economy
The role of MSME in the Indonesian economy is quite
signiicant. In terms of its contribuion to the formaion of
GDP (at current market prices) of 2008, MSME contributed
around 55.56% of the total GDP. In 2008, the role of MSME
in the agricultural, trade and services sectors were quite
signiicant, accouning for 95.26%, 96.34% and 95.66%
respecively, followed by the inancial and business service
sector, the services sector, the construcion sector, and
the transportaion/ communicaion sector. Meanwhile,
the contribuion of MSME to the mining, industrial, and
electricity sectors was relaively small. In addiion, the
contribuion of MSME also appeared dominant in terms of
the amount of business units involved, which accounted
144
CHAPTER V | Enhancing the Resilience of the Real Sector in Supporing Economic Recovery
Table 5.2 The Role of MSME’s in The Domesic Economy in 2008
Nominal GDP (billion rupiah)
No.
Sectors
MSME
GDP
Numbers of Business Unit
MSME
Porion
(%)
MSME
Total
Labor
MSME
Porion
(%)
MSME
Total
MSME
Porion
(%)
1
Agriculture
679,452.9
713,291.4
95.26
26,400,869
26,401,111
100.00
42,460,064
42,689,635
99.46
2
Mining and
Quarrying
69,155.8
543,363.8
12.73
261,341
261,421
99.97
641,463
720,310
89.05
3
Manufacturing
435,324.5
1,380,731.5
31.53
3,238,111
3,239,420
99.96
10,463,416
12,302,150
85.05
4
Electrisity, Gas and
Water Supply
3,092.0
40,846.7
7.57
11,622
11,747
98.94
102,536
156,769
65.41
5
Construcion
156,071.2
419,321.6
37.22
174,359
174,604
99.86
766,095
797,111
96.11
6
Trade, Hotels and
Restaurants
666,809.1
692,118.8
96.34
14,789,950
14,791,206
99.99
24,314,062
24,494,057
99.27
7
Transportaion and
Communicaion
152,165.4
312,454.1
48.70
3,205,025
3,205,344
99.99
3,753,683
3,851,874
97.45
8
Finance, Rental and
Business Service
230,890.5
368,129.7
62.72
997,511
998,110
99.94
2,657,545
2,813,609
94.45
9
Services
216,398.7
226,223.6
95.66
2,178,749
2,178,946
99.99
5,737,406
5,787,129
99.14
2,609,360.1
4,696,481.2
55.56
51,257,537
51,261,909
99.99
90,896,270
93,612,644
97.10
Total
Source: Ministry of Cooperaive and Small and Medium Enterprises
for 99.99% of total business units with the contribuion of
the 3 largest sectors made up 85% of the total. The three
largest sectors – the agricultural sector, the trade sector,
and the services sector – managed 26.40 million, 14.79
million, and 2.18 million business units respecively (Table
5.2).103
In addiion, MSME played a signiicant role in absorbing
labor. The amount of labor absorbed by MSME accounted
for 90.9 million people or 97.10% of the total naional
labor force, most of whom were concentrated in MSME
of micro category, or 81.74% of total MSME labor force. In
terms of their variety by sector, MSME labor force spread
out over the enire sectors and most of them provided a
signiicant contribuion to the absorpion of labor force in
103 Based on Law No.20 of the year 2008 on MSME: (1) a micro
enterprise is deined as having a net asset of a maximum of IDR 50
million (not including land and building used for the business) or
having an annual sales turnover of a maximum of IDR 300 million.
(2) a small enterprise is deined as having a net asset of more than
IDR 50 million up to IDR 500 million at the most (not including
land and building used for the business) or having an annual sales
turnover of more than IDR 300 million up to IDR 2.5 billion at the
most. (3) a medium enterprise is deined as having a net asset
worth more than IDR 500 million up to IDR 10 billion at the most
(not including land and building used for the business), or having
an annual sales turnover of more than IDR 2.5 billion up to IDR 50
miliar at the most.
the sector. In terms of labor absorpion, MSME absorbed
the largest labor force in the agricultural sector and the
trade sector, accounted for 42.46 million and 24.31 million
workers respecively or around 73% of the total labor
force absorbed in the MSME sector.
As far as the banking industry is concerned, the amount
of loans it extended to MSME was also quite high.
Throughout 2009, the amount of loans extended to MSME
accounted for 51.28% of the total loans by the banking
industry. From such a proporion of MSME loans, it was
obvious that the banking industry saw MSME as business
unit worth inancing and commercially viable. During
the same period, loans extended to small enterprises
accounted for the largest share (37%) followed by loans
extended to micro enterprises (32%) and to medium
enterprises (31%) of total loans disbursed by the banking
industry to MSME.
g
The Advantage of MSME in Facing
Economic Crisis
In general, the survey conducted by Bank Indonesia
indicated that most respondents were aware of and felt
Enhancing the Resilience of the Real Sector in Supporing Economic Recovery | CHAPTER V
145
not-aware
8.2%
not Feel the Impact
of Crisis
25.2%
Aware of Economic Crisis
91.8%
Felt the Pitch
of Crisis
74.8%
Chart 5.5 Survey of the Economic Crisis
the efects of global economic crisis on their businesses.104
The results of the survey indicated that while around 92%
of respondents were aware of global economic crisis, the
rest weren’t (Chart 5.5). Moreover, the global economic
crisis inluenced MSME business aciviies as relected in
the answers of 74.8% respondents who felt the efects of
the crisis. Only 25.2% of the respondents did not feel the
impact of the crisis on their businesses (Chart 5.6).
Despite being exposed to the crisis, the MSME sector can
manage itself in a relaively good shape so that the impact
of the crisis on its performance was relaively limited.
As in the previous economic downturns – in 1997 and in
2005 – the existence of the MSME sector was one of the
main factors which saved the Indonesian economy. And
the main factors responsible for the high resilience of this
sector included, among others, the markeing orientaion
of MSME products to the domesic market and the
relaively small proporion of their products which were
intended for export. Moreover, MSM entrepreneurs had
a strong moivaion to keep their business and producion
aciviies relying on local materials. Another advantage
of this sector lied in its characterisically abundant,
economical and low-educated labor force with high
mobility to move to another sector.
Chart 5.6 Impact of the Economic Crisis Survey
for 15.40 % of total exports (Chart 5.7). Therefore, when
exports took a plunge like in 2009, MSME were relaively
able to survive given that their products were mostly
intended to meet domesic demand and only a few were
export-oriented. There were two main MSME sectors
which provided the largest contribuion to the GDP,
namely the agricultural sector and the trade sector. On
average, the contribuion of each sector over the last 10
years (1999-2008) was 94.76% and 96.43% respecively
(Table 5.3). In 2009, each of the two sectors grew by 4.1%
and 1.1% correspondingly. Moreover, in the same year,
other MSME sectors with quite a large contribuion to
the GDP – of more than 50% – such as the construcion,
transportaion, and communicaion sectors; the inancial
and business service sector, and the services sector
grew quite high, that was, by 7.1%, 15.5%, 5.0%, and
6.4% respecively. This proved that MSME were able to
withstand the crisis.
Labor is key to MSME’s resilience. In general, MSME’s
labor force is characterized by low wages and low level
of educaion (unskilled labor). Based on a Bank Indonesia
percent
20
MSME products, which were mostly intended for the
domesic market, added value to measures aimed at
addressing the drop in export performance as a result
of the crisis. Over the last 10 years (1999-2008), MSME
exports were relaively small; on average it accounted
18
16
14
12
10
8
6
4
104 A quick survey was conducted by Bank Indonesia in mid- 2009
involving 1000 [MSME] respondents as target samples taken
proporionally from almost the enire parts of Indonesia based on
their respecive net GDP contribuions. The survey deines MSME
on the basis of sales turnover as referred to under the Law No.20 of
2008 on MSME.
2
1999
2000
2001
2002
2003
2004
2005
MSME Export Share
Source: State Ministry of Cooperaion and Small & Medium Enterprises
Chart 5.7 MSME Export Share
146
2006
CHAPTER V | Enhancing the Resilience of the Real Sector in Supporing Economic Recovery
2007
2008
Table 5.3 Average of MSME’s Contribuion to GDP (1999-2008)
No
Average of MSME's
Contribuion to GDP
1999-2008
Sectors
1
Agriculture
94.76
2
Mining and Quarrying
12.77
3
Manufacturing
32.02
4
Electricity, Gas and Water Supply
8.98
5
Construcion
54.93
6
Trade, Hotels and Restaurants
96.43
7
Transportaion and Communicaion
54.66
8
Finance, Rental and Business Service
63.21
9
Services
59.17
Source: Ministry of Cooperaive and Small and Medium Enterprises
survey, the low wages of MSME labor force match
their low skills and consequently, low producivity. This
explains why MSME labor force is relaively economical
and reducing workforce is considered as the last opion
by MSM entrepreneurs. Such low labor costs made MSM
entrepreneurs, when being hit by any inancial crisis,
restrain themselves from terminaing their workforce
massively and prefer to keep most of them for another
momentum of demand recovery. For those experiencing
the terminaion of employment, the characterisically
economical and low-educated nature of the MSME labor
force led them to shit in between or among MSME.
As a result, once a MSME goes sluggish or goes out of
business, it is relaively easy for their employee to swing
or move. It has been shown under the Todaro migraion
model that labor shiting in informal businesses, the
majority of which are MSME, is relaively very easy given
that employment opportuniies in the informal sector is
quite largely available and does not require highly-skilled
workers.105 Such an indicaion of labor shiting out of the
formal sector into the informal sector was conirmed by
the Naional Staisics Agency (BPS) whose labor force
data indicated that the number of informal sector workers
had increased from 71.35 million in August 2008 to 72.61
million in February 2009 and lastly, 72.72 million as of
August 2009.
that the fallout of global economic crisis was relected
in the average decline of monthly sales turnover. Such a
decline, however, was not directly and fully followed by a
reducion in producion and workforce. Presumably, one
of the factors responsible for such a limited response was
related to the efort made by MSME to conduct eiciency
irst prior to terminaing the employment of their
workforce or reducing their capacity of producion (Chart.
5.8). This was relected in the results of the survey which
showed that the majority of respondents employed an
eiciency strategy to alleviate the adverse impact of the
crisis. Apparently, reducion of workforce and producion
was not a priority opion for them.
In addiion to self-help measures taken by MSM
entrepreneurs, the Government has also taken various
measures to develop MSME. Through the Ministry of
Cooperaives, the Government has made some policies
respondent
Efficiency
New Market
New Market Segments
Laying off
Reducing raw material inventory
MSME’s persistent efort in keeping their businesses
running has also helped bolster its performance. A
quick survey conducted by Bank Indonesia indicated
105 Todaro. Michael P.. and Smith. Stephen C..”Economic Development”.
Tenth Ediion. Addison Wesley. 2009
Lessening producion
Changing business
0
200
400
600
Chart 5.8 MSME Entrepreneurs Response (Quick Survey Result)
Enhancing the Resilience of the Real Sector in Supporing Economic Recovery | CHAPTER V
147
aimed not only at helping MSME address the crisis but
also helping them coninue growing and developing.
Government policies for empowering MSME through
the extension of informaion or training are coninued to
be made by the Ministry of Cooperaives. Measures to
develop markets for MSME products are also coninued
to be taken by the Government. Exhibiions of MSME
products in diferent regions are coninued to be made
by the Government in order to introduce MSME products
and to open up and expand new markets. Moreover, the
Government’s plan to help develop MSME is stated in
its 100-day program and plan for 5 years to come which
includes, among others, the extension of educaion and
training programs for MSM entrepreneurs, the extension
of the One Village One Product (OVOP) concept, the
acceleraion of the development or revitalizaion of 90
tradiional markets. In addiion, the Government has
also planned the addiion of the budget of the Naional
Program for the Empowerment of Self-Help Communiies
(PNPM Mandiri).
One of the measures the Government took to improve
MSME’s access to the banking industry was the
issuance of a People’s Business Loan (KUR). Under this
scheme, MSME may obtain inancing with relaively
easy requirements supported by the Government’s
underwriing faciliies. Under such a scheme, MSME and
Cooperaives which are not yet bankable in spite of the
viability of their business because of collateral deiciency
get the opportunity to obtain loans from banks because
70% of the loans are guaranteed by the Credit Guarantee
Insituion which is owned by the Government. In
implemening the KUR scheme, Bank Indonesia acted as
a working partner for the Government which in this case
issued regulaions to support the implementaion for the
underwriing, the monitoring of the implementaion of
KUR program and coordinaing with banks and related
government agencies. By the end of 2009, the KUR
ceiling reached to Rp 17.18 trillion with a debit balance
of Rp 8.15 trillion and with a total of 8,153,345 debtors.
Meanwhile, the risk associated with the extension of
the loan was quite low as relected in the level of NPL of
4.92%. In terms of sector, the extension of KUR was mostly
aimed at the trade sector, the hotel and restaurant sector
(PHR) and the agricultural sector.
The role of Bank Indonesia through the implementaion
of monetary policies also afects the development of
MSME. Monetary policies through the reducion of BI rate
and measures to control the stability of exchange rate
provide opportunity for MSM entrepreneurs to enhance
their access to credit and shape MSM entrepreneurs’
opimism. Moreover, the role of Bank Indonesia to
increase MSME’s access to banks’ loans was also carried
out through appeals to the banking industry to help
MSME development by providing loans or by providing
MSM entrepreneurs with training such as training on how
to draw a loan proposal. Such training is very important to
make it easy for MSME to access loans from banks (or to
make them bankable).
In general, there was sill an increase in loans extended
to MSME by banks throughout 2009. The amount of
working capital loans for MSME in all sectors – except the
manufacturing sector – sill indicated a rise compared
to that by the end of 2008. The same thing was also
indicated by the development of investment loans. In
general, the loans taken out by MSME for investment
Table 5.4 Development of MSME’s Working Capital and Investment Credit
millions of rupiah
Working Capital Credit
No
Sectors
2008
148
Investment Credit
1
Agriculture
2
Mining
3
Manufacturing
4
Electricity, Gas and Water Supply
5
Construcion
6
Trade
7
Transportaion
8
Business Services
9
Social Services
13,548,786
2009
15,860,458
2008
2009
5,875,700
6,731,565
3,023,641
3,624,215
702,703
636,684
39,099,768
37,334,323
6,959,461
6,748,235
384,833
416,919
175,089
288,218
14,223,747
15,990,977
2,893,445
3,300,093
138,331,809
163,558,675
18,818,021
24,421,565
4,691,147
4,785,247
3,949,499
4,520,721
28,633,538
30,195,279
12,218,683
13,932,720
5,034,939
5,666,125
2,551,786
3,080,270
CHAPTER V | Enhancing the Resilience of the Real Sector in Supporing Economic Recovery
in almost all sectors were on the rise (Table 5.4). This
shows two things. Firstly, from banks’ side, the trust of
the banking industry in MSME was sill high presumably
because of the relaively good performance at which
MSME pay of both their working capital loans and
investment loans. Secondly, from MSME’s side, the
prospect of MSME’s output growth sill coninues to be on
the rise. This condiion encourages MSME to increase the
amount of their loans to develop their business.
Enhancing the Resilience of the Real Sector in Supporing Economic Recovery | CHAPTER V
149
The Role of the Manufacturing Industry
as the Engine of Economic Growth
g
5.3
Portrait of the Manufacturing Industry
The role of non oil and gas manufacturing sector is crucial
for the Indonesian economy.106 In terms of its contribuion
to economic growth, this sector sill provides the largest
contribuion to the formaion of GDP. In terms of its
contribuion to export, this sector posts a bigger share
compared to the export of the agricultural and mining
sectors. In terms of its contribuion to the labor force, this
sector on average absorbs around 12% of the total labor
force. Industrial sectors have great backward and forward
linkages so that any enhancement in the performance of
the manufacturing industry may afect other industrial
sectors.107
Amidst its important role in the domesic economy, the
performance of the non oil/ gas manufacturing sector
coninues to be on a declining trend over the last 5 years.
In terms of its contribuion to the GDP, since 2005 the
performance of this industrial sector had coninued its
decline even though the decline was limited, from 28.07%
in 2005 to around 26% in 2009. In terms of its growth,
106 The deiniion and concept associated with the manufacturing
industry used here refer to the deiniion of BPS on the non-oiland-gas manufacturing industry which is deined as an economic
acivity of transforming a [raw] material mechanically, chemically
and manually into a inished goods/ semi-inished goods, and or
transforming goods of lower value into goods of higher value and
whose characters are closer to the end user.
107 Forward linkage is an economic acivity whose output can be used
as an input for another economic acivity. Backward linkage is an
economic acivity whose input absorbs the output from another
economic acivity.
150
CHAPTER V | Enhancing the Resilience of the Real Sector in Supporing Economic Recovery
Table 5.5 Performance of Non-Oil and Gas Manufacture in 2009
Manufacture Subsectors
Growth 2009 (%.
yoy)
Share of Non-Oil &
Gas Manufacture
11.3
29.8
1
Food. Beverages and Tobacco
2
Texile, Leather products and footwear
0.5
9.8
3
Wood products and other planing materials
-1.5
3.8
4
Paper and prining products
6.3
5.2
5
Chemicals and rubber products
1.5
13.3
6
Cement and non-metalic mineral products
-0.6
3.0
7
Basic metals
-4.5
1.5
8
Transportaion equip. machinery and apparatus
-2.9
32.9
9
Others
3.1
0.7
Source: BPS-Staisics Indonesia
over the last ive years the manufacturing industry posted
an average growth of 5% per year, far lower than in the
period before the crisis in 1997 during which it was able to
grow by an average of 10% per year. The decline made the
growth of this paricular sector lower than the naional
economic growth although previously, the growth of this
sector had always been higher than that of the naional
growth.
Throughout 2009, the non oil/gas manufacturing sector
only grew by 2.5% (year-on-year), which was lower than
last year’s growth. The decline of external demand as a
result of global economic crisis signiicantly afected the
manufacturing sector especially its export-oriented subsectors. Sub-sectors with signiicant export desinaion
including, among others, imber/wooden, texile, and
chemical products show a relaively low growth; even
the imber/wooden product sub-sector sufered from
a contracion in 2009. Meanwhile, domesic-oriented
percent
100
sub-sectors such as the food, beverages, and tobacco
industry posted a high growth in 2009, that was 11.3%.
Presumably, the high growth of this sub-sector was
atributable to the sill high growth of public purchasing
power and also the increase in demand associated with
legislaive elecion and presidenial elecion (Table 5.5).
In terms of its sub-sectors in general, there were some
industries sufering from contracion including the imber/
wood and forest yield sub-sector, the cement and non
metal quarry material sub-sector, the basic metal, iron
and steel sub-sector, and the sub-sector pertaining
to transport equipment, machine and its equipment.
Meanwhile, other sub-sectors sill show posiive
performance (Table 5.5). In terms of its structure, the
transport equipment, machine and its equipment subsector, the food, drink and tobacco sub-sector, and the
chemical and rubber product sub-sector sill make up the
largest segment of the manufacturing sector (Chart 5.9).
Meanwhile, the food, drink, and tobacco sub-sector and
the paper and printed mater sub-sector were the main
contributors to the growth of the manufacturing sector
(Chart 5.10).
g
80
60
Some Characterisics of the
Manufacturing Sector
40
20
0
I
II
III
IV
I
2008
Food beverages & tobacco
Wood & other products
Chemical & rubber products
II
III
IV
2009
Iron & steel basic metal
Texile leather products & footwear
Paper and prining products
Cement & non-metallic quarrying products
Transport equip. machinery & apparatus
Source: BPS-Staisics Indonesia
The drop in the performance of the non oil/gas
manufacturing sector is related to some main
characterisics of the industrial sector. Firstly, the use of
imported inputs in the aciviies of the manufacturing
sector was quite high and thus made the sector
vulnerable to the ups and downs of the exchange rate.
Chart 5.9 Distribuion of Manufacturing Sector
Enhancing the Resilience of the Real Sector in Supporing Economic Recovery | CHAPTER V
151
(contribuion, yoy)
(contribuion, yoy)
1.4
2.4
1.2
1.0
1.9
0.8
0.6
1.4
0.4
0.2
0.9
0.0
(0.2)
0.4
(0.4)
(0.6)
I
II
III
2008**
Food beverages & tobacco
Paper and prining products
Iron & steel basic metal
Manufacturing (rhs)
IV
I
Texile leather products & footwear
Chemical and rubber products
Transport equip, machinery & apparatus
II
III
2009***
IV
(0.1)
Wood & other products
Cement & non-metallic quarrying
Other products
Source: BPS-Staisics Indonesia
Chart 5.10 Growth Contribuion of Manufacturing subsectors
Secondly, the export orientaion of the industrial sector
to developed countries was sill high. Around 44% of
exports of the manufacturing sector were sill desined
for three main countries, namely the United Naions,
Europe and Japan. As a result, this industrial sector
becomes highly vulnerable to any economic upheavals
taking place in the main export desinaion countries.
Thirdly, the compeiiveness of most of the country’s
industrial products was low as indicated in the low score
of Revealed Comparaive Advantage (RCA).108 Indicaion
of Indonesia’s weak industrial compeiiveness is also
relected in the results of survey conducted by the World
Economic Forum in the book it published itled Global
Compeiiveness Report 2009-2010 which showed that
Indonesia ranks 54th out of 130 countries surveyed in
terms of compeiiveness. This did not difer from the
previous period. Indonesia’s compeiiveness was sill far
below that of other compeitor countries within ASEAN
such as Singapore (which ranks 3rd), Malaysia (which
ranks 21st), and Thailand (which ranks 36th) (Table 5.7).
Such a low level of compeiiveness was related to the
peculiarity of the country’s manufacturing industry which
was characterized by the tendency to center around a
number of companies and the prevalence of machines
108 RCA can be formulated as follows: RCA=(Xik/Xi/Wk/Wt). If the RCA
value of a country for a certain commodity is greater than one (1),
the country in quesion has a comparaive advantage over the global
average for the commodity. The reverse is also true if the value is
less than one (1). Analysis was made using data originaing from
UNCOMTRADE based on the 2 digit SITC which is composed of 69
groups of commodiies. Note:
Xik = value of export commodity k from country i
Xi = value of total exports from country i
Wk = value of export commodity k in the world
Wt = value of the world’s total exports
Table 5.6 The Main Characterisics of Non-Oil and Gas Industries
Main Characterisics of Non-Oil&Gas
Manufacture
1. Based on IO 2005 table, reliance on
imported raw materials were sill high
2. Export shares to developed countries were
quite high.
Current Condiions
Implicaions
- especially on transport equip., basic metal, iron,
steel, chemical, paper, and texile
Sensiive to Exchange Rate
- The market share to developed countries (USA,
Europe, Japan) were around 44.1%
Industrial export performance was
sensiive to economic changes in
developed countries
- The market share to Emerging Markets
(Singapore, China, India) were around 22.8%
- the RCA value of texile & texile products
1.88, chemical 0.47, machinery &
apparatus 0.37, electronic products 0.37%
(source: UNComtrade, processed)
Taking opportunity of global
economic recovery to boost the
export growth were limited
4. Based on mapping survey of the economic
sector, there were many industries using the
old machines
- Machines need to be replace (> 15 years old) was
18%
Increasing the acceleraion of
producion growth was hard to do
5. Based on BI Producion Survey, the average
industrial capacity uilizaion in 2009 was
72.9%
- The high capacity uilizaion was in cement & non- Increasing the acceleraion of
metallic quarrying, chemical and paper
producion growth was hard to do
3. Compeiiveness of industrial products
were relaively low. Only texile and texile
products had strong compeiiveness
- The old machines (13 years old) was 35%
6. Market structure of industrial sector is
concentrated only in a few companies
- By using concentraion raio 4 (CR4) approach,
the market share of 4 companies have controlled
more than 75% of total market share.
Source: Input Output Table 2005, BPS, SPSE BI 2006, Producion Survey-BI, UNComtrade (processed)
152
CHAPTER V | Enhancing the Resilience of the Real Sector in Supporing Economic Recovery
Less compeiive
Table 5.7 Indonesia Compeiiveness Rank
Global Compeiiveness Index
Countries
2006-2007
2007-2008
2008-2009
2009-2010
Indonesia
50
54
55
54
Malaysia
26
21
21
21
Vietnam
77
68
69
69
Thailand
35
28
34
36
China
54
34
30
29
Philippines
71
71
70
87
Singapore
5
7
5
3
Source: World Economic Forum, 2009
older than 10 years of age. Fourthly, most of the machines
in the industry had a high uilizaion capacity and thus less
responsive to increased demand. Based on Bank Indonesia
producion survey, the uilizaion capacity of this industrial
sector was relaively high, or beyond 70%. Some paricular
sub-sectors had even a uilizaion capacity beyond 90%,
namely the chemical sub-sector, the cement sub-sector,
and the basic metal sub-sector (Table 5.6).
g
Readiness of the Industrial Sector in
Addressing ASEAN-China Free Trade
Agreement (ACFTA)
In addiion to the above-menioned characterisics of the
industry, the challenge of the industrial sector gets bigger
as a result of the applicaion of ACFTA. This ASEAN-China
free trade agreement was iniiated by a framework of
agreement of Comprehensive Economic Cooperaion in
2002 in Pnom Penh. ASEAN member countries and China
agreed to establish free trade between China and six
ASEAN member countries (Indonesia, Brunei, Thailand,
Malaysia, Singapore and the Philippines) in 2010 and
between China and four other ASEAN member countries
(Cambodia, Vietnam, Laos and Myanmar) in 2015.
In the implemening stage of the free trade agreement,
it is agreed that import duies are to be eliminated
gradually. The reducion or the eliminaion of ACFTA
import duies is divided into four schemes, namely Early
Harvest Program (EHP), Normal Track (NT), Sensiive
Track (ST) and Highly Sensiive Track (HST). Under the EHP
scheme, it was agreed to reduce import duies gradually
staring from January 1, 2004 down to 0% on January 1,
2006. The reducion in import duies under the NT scheme
came into force as of July 20, 2005 and the NT scheme
had been further divided into NT I and NT II. The reducion
in import duies under the NT-I scheme to 0% took place
on January 1, 2010 while the reducion of import duies
under the NT-II scheme to 0% would take place in 2012.
Import duies under the ST scheme would go down to 20%
in 2012 and sink down further to 0-5% in 2018. Import
duies under the last scheme, that is, the HST scheme,
would be 50% at maximum in 2015. Currently there are
8,738 commodiies under ACFTA, most of which (6,682)
belong to the NT1 scheme (Table 5.8). Up to 2009, the
number of commodiies whose import duies dropped to
zero percent would amount to 5,709 or account for 65.3%
of total commodiies. In 2010, the number of commodiies
with zero percent import duies increased by 1,597 to
7,306 or accounted for 83.61% of the total ACFTA import
duty posts.
The applicaion of ACFTA provides opportunity for
Indonesia to increase its natural resources-based exports.
The mapping of export opportuniies is based on the
RCA indicator and based on the performance of the
growth of non oil and gas exports over the last 5 years.109
Combinaion between the RCA indicator and the export
performance divides commodiies into four quadrants.
Based on the mapping results, most of the commodiies
with the potenial to make use of China and ASEAN’s
markets are natural resources-based commodiies. Some
natural resources-based industrial commodiies such as
Crude Palm Oil (CPO), rubber, and paper were the main
109 According to an analysis made on the basis of the 2 digit SITC
(Standard Internaional Trade Classiicaion) which is composed of 69
groups of goods. The limit of growth based on the country’s average
non oil and gas exports in the 2004-2008 period was 17.2%.
Enhancing the Resilience of the Real Sector in Supporing Economic Recovery | CHAPTER V
153
Table 5.8 Classifying Commodiies by Price Reducion and Sectoral Scheme
Industry
No. Category
A
B
C
D
E
F
G
H
I
J
K
L
M
N
O
P
Q
Category
Keterangan
Member
Post Tarif
1
EHP 1
343
2
EHP 2
2
182
20
35
3
NT – I
185
9
4
NT – II
1
6
ST
6
HST
1
1
9
48
6,682
Normal Track 1:
tarif of import duies had
been reduced/eliminated
since July 20, 2005 and to
be 0% on January 1, 2010.
16
474
Normal Track 2:
tarif of import duies will
be reduced/eliminated to
0% in 2012
6
228
186 123 114 411 299 749 405 764 1,245 838 302 166 723 49 114
3
The Proposed Delay
5
545
19
2
1
4
20
16
Early Harvest Program:
Tarif of import duies had
been reduced/eliminated to
0% since January 1, 2004 up
o to January 1, 2006.
14
117
66
14
107
7
2
114
10
58
15
85
152 119
4
4
15
13
73
41
48
6
7
22
128
2
206
GEL
23
22
7
642
Sensiive Track :
tarif of import duies will
be reduced/eliminated to
0%-20% in 2012 up to 2017
and to 0%-5% in 2018.
251
Highly Sensiive Track :
tarif of import duies will
be reduced/eliminated to
0%-50% in 2015.
96
General Exepion List (GEL)
is a list of products excluded
from the CEPT scheme
because of some reasons
such as such as naional
security protecion, public
moral, health and human
life, animals or plants, the
value of art, historic or
archaeological goods
Souce: Ministry of Trade Republic of Indonesia, (processed)
Note:
A = Agriculture
B = Marine and Fisheries
C = Energy and Mineral
D = Drug and Food Control
E = Forestry
F = Food and Beverages
G = Forest and Plantaion
H = Upstream Chemical
I = Downstream Chemical
J = Metal
K = Machine
L = Texile and Texile Products
M = Miscellaneous Industry
N = Transport Equipment
O = Electronics
P = Mariime
Q = Handicrat
contributors to Quadrant I, or a quadrant with RCA greater
than one and with growth above the average of other
commodiies. Even though the number of commodiies
under Quadrant I was relaively smaller compared to
those under other quadrants, they accounted for the
largest in terms of export value, or by 47.4% (Chart 5.11
and 5.12). Because of the relaively strong support of
natural resources-based commodiies under Quadrant
I, it was necessary to observe early on the development
of groups of commodiies under potenial quadrants,
or Quadrants II and IV. That’s because the commodiies
under such quadrants were industry-based so that the
154
diversiicaion of export became beter.
The distribuion of Indonesia’s export commodiies
under Quadrants II and IV had a potenial for further
development. In terms of their performance over the last
ive years, commodiies under Quadrant II had shown
promising performance by posing a growth above the
average. Some main commodiies under Quadrant II
include, among others, iron and steel, vehicles, machinery,
and transport equipment. Meanwhile, commodiies
grouped under Quadrant IV have a comparaive advantage
but their growth is sill limited; they included, among
CHAPTER V | Enhancing the Resilience of the Real Sector in Supporing Economic Recovery
Quadrant II
50
Export growth (%)
Quadrant I
40
Quadrant IV,
25,1%
30
Quadrant I,
47,4%
20
-0,5
0,5 10
1,5
2,5
3,5
Quadrant III,
19,4%
4,5
Quadrant II,
8,1%
RCA
0
-10
Quadrant III
-20
Quadrant IV
Source: UN Comtrade (processed)
Chart 5.11 RCA Commodity vs Export Growth
Chart 5.12 Export Share
others, texile and texile products (TPT), imber/ wooden
products, paper and pulp, and house furniture.
The applicaion of ACFTA has the potenial to reduce the
of inlaion. On the one hand, the prevalence of Chinese
products since China’s accession to the WTO poses an
increasingly serious threat to commodity compeiion
on the global market. On the other hand, the Chinese
products with relaively cheap prices in various countries
has contributed to the reducion of the pressure of
inlaion. The same can be said of Indonesia. Thanks to the
gradual reducion of import tarifs since 2004 for some
products under the EHP and NT schemes, more choices of
goods are available with more afordable prices. Business
who so far rely on relaively expensive machines from
advanced countries have also conirmed the posiive
impact of ACFTA which provides them with di
Tradiion
that Flows in the Vein
One by one the imber is nailed and created a
wall then strengthened by the supporing beam.
The creator lets his hands to work and create
undoubtedly because every detail of size and shape
has clearly appeared in his mind. Even, every single
breath becomes the same soul to make the form of
the ark alive.
i
CHAPTER
V
ENHANCING THE RESILIENCE OF
THE REAL SECTOR IN SUPPORTING
ECONOMIC RECOVERY
Enhancing the Resilience
of the Real Sector in Supporing
Economic Recovery
Amid deep global economic contracion, the real
sector has remained mostly resilient to the global
economic pressure which enabled it to support the
performance of the Indonesian economy in 2009.99
The impact of the global economic crisis on the
country’s real sector was mainly through trade
channel as relected in export performance which
has dropped quite considerably. Such a drop in
exports has prompted businesses to reduce their
aciviies, which in turn led to a decline in investment
and consumpion. In spite of being exposed to the
impact of global economic crisis, the Indonesian
economy has managed to grow by 4.5% (year-onyear) which was beter than previously esimated
in the beginning of the year of 4.0% (year-on-year)
due to domesic demand which remained strong, in
paricular when it came to household consumpion.
The coninuingly high household consumpion was
atributable to several factors which include, in
paricular, public purchasing power which remained
quite strong, electoral expenditures whose amount
was quite substanial and iscal simulus policy to
maintain public purchasing power. Moreover, the
domesic economic growth which remained high was
also supported by Micro, Small, and Medium-sized
Enterprises (MSME) which play quite a strong role in
the Indonesian economy. Unil recently, given that
the export and import role of the MSME sector has
99 Deiniion: the real sector refers to all which relates to the
producion of goods and services and their distribuion. The
aciviies of the real sector include producion. consumpion. and
investment throughout enire economic aciviies.
138
remained limited, the impact of global economic
crisis on that sector has been relaively small.
account the sectors at which a region excels when
building an industry in the region.
Meanwhile, the coninuingly high household
consumpion was also propped by low inlaion.
Such a low inlaion level helped maintain public
purchasing power and led to the maintenance of
consumers’ conidence and expectaion. Moreover,
the maintenance of public purchasing power was
also supported by a number of government policy
packages such as reducing personal income tax and
increasing non-taxable income limits.
This chapter, divided into two parts, analyzes the
dynamics of the real sector in 2009. The irst part
examines why the resilience of domesic demand,
propped up by household consumpion, remains
measurably high despite the coninuous pounding
of global crisis and whether the sustainability
of household consumpion in the future can be
maintained. The analysis is divided into two subchapters. One of which analyzes factors contribuing
to the resilience of household consumpion and
the other explains the role of MSME as the shock
absorber unleashed by global inancial crisis. The
second part probes various challenges faced by
the real sector in maintaining and coninuously
enabling the momentum of naional economic
recovery to gather steam. This part discusses the
various challenges the manufacturing sector is facing
including the ones associated with ACFTA. Then, it
will also talk about classic issues in the real sector
such as lack of infrastructure and about measures
that should be taken in the future.
However, the success in keeping up the resilience
of domesic economy sill leave some problems as
relected in the declining trend of the growth of the
manufacturing sector and the constraints to which
some infrastructure projects are subjected. Such
challenges become increasingly important given that
the ASEAN-China Free Trade Agreement (ACFTA)
prompts businesses in the manufacturing sector to
enhance their compeiiveness. Therefore, future
industrial sector development should presuppose the
availability of adequate infrastructure and take into
consideraion regional aspects, that is, by taking into
Enhancing the Resilience of the Real Sector in Supporing Economic Recovery | CHAPTER V
139
The Resilience of Household Consumpion
5.1
Amidst the global crisis, household consumpion emerged
as the main pillar supporing the growth of the Indonesian
economy. The coninuing, relaively high growth of
household consumpion – which made up the largest
segment of GDP, around 58% – was able to prevent
economic growth from sliding further. In 2009, household
consumpion was able to experience a suiciently high
growth of 4.85%, only slightly lower compared to previous
year (5.34%). In the irst semester of 2009 when the
impact of the crisis on the Indonesian economy was
very much felt, household consumpion sill managed to
grow posiively, posing a suiciently high growth. Even
in quarter I 2009, household consumpion was sill able
to grow by 5.95%. This high growth of consumpion in
the irst half of 2009 was paricularly related to the big
spending associated with electoral aciviies made by
poliical paries or legislaive candidates during legislaive
campaigns and presidenial elecion. This general
elecion-related household consumpion expenditure was
recorded by BPS as the expenditure of a non-proit private
insituion. BPS data showed that during the irst quarter
of 2009, it was recorded that the non-proit insituion
spent Rp 26.58 trillion.
In addiion, the relaively high growth of household
consumpion in 2009 was also propped up by a low
inlaion. This was diferent from the case of external
shocks in 2005 whose impact signiicantly reduced the
growth of household consumpion because of high
inlaion. An upsurge in inlaion – as high as 17.11% – as
a result of fuel price hike in March and October 2005
caused public purchasing power and expectaion of
140
CHAPTER V | Enhancing the Resilience of the Real Sector in Supporing Economic Recovery
percent, yoy
percent, yoy
index
8
30
25
20
7
140
6
130
5
120
4
15
3
10
optimistic
110
100
90
2
80
5
1
70
0
0
2004
2005
2006
2007
Household Consumpion (rhs)
2008
2009
CPI
60
pesimistic
I
II III
2006
IV
Consumer Expectaion
I
II III
2007
IV
I
II III
2008
Current Economic Condiion
IV
I
II III
2009
IV
Consumer Confidence Index
Source: BPS-Staisics Indonesia
Chart 5.1 Inlaion and Household Consumpion Growth
Chart 5.2 Consumer Survey - Bank Indonesia
the country’s economic condiion to take a turn for the
worse. As a result, household consumpion dropped
signiicantly (Chart 5.1). In 2009, a suiciently low rate of
inlaion successfully maintained public purchasing power
as well as managed people’s expectaion, especially the
consumers’ level of conidence and expectaion, and
gradually transformed the pessimisic tone of Consumer
Conidence and Expectaion Index in quarter I 2009 into
an opimisic one for the rest of the year (Chart 5.2).
As a result, household consumpion in 2009 was not as
severely afected as in previous year (Chart 5.1).
Fundamentally, the strong household consumpion was
propped up by public purchasing power which was sill
high. In general, such a purchasing power which remained
strong was atributable to some main factors. The irst
factor was a general increase in people’s income. In
2009, the country’s per capita income calculated based
on the GDP per capita at current market prices showed
an increase from Rp 21.7 million per year in 2008 to Rp
24.3 million per year which represents an increase of
around 12%. This was supported by data on increasing
income in the formal and informal sectors. As far as the
formal sector is concerned, a survey conducted by BTI
Consultants indicated that the average salary rise in 2009
stood at 8.39% with the largest salary rise recorded in
three sectors, namely the insurance sector (9%-13%), the
oil and gas sector (8%-12%) and the sector associated
with fast moving consumer goods (3%-11%).100 In the
informal sector, such an income was relected in the
increase of the real wage of agricultural labors from Rp
29,063 per day in 2008 to Rp 30,473 per day in 2009. Such
100 SWA Magazine. May 2009 ediion
increased earnings in both the formal and informal sectors
very much helped leverage public purchasing power,
paricularly amidst the low rate of inlaion. The second
factor was the indicated use of savings by the private
sector to prop up the exising level of consumpion. This
was related to the consumer’s inter-temporal decision
to maintain the sustainability of purchasing power by
assigning part of future consumpion potenial to the
current consumpion. Such inter-temporal decision was in
turn able to keep domesic consumpion stable for a long
period of ime. These high public savings potenial used to
maintain consumpion level corresponded to the country’s
high economic growth over the last four years which stood
at around 6%.
Furthermore, to protect low-income earners’ purchasing
power, the Government coninued to channel direct cash
transfers (BLT). As for simulus package, the Government
also issued several policies for reducing personal income
tax, increasing the limit of non-taxable income (PTKP) as
well as providing a variety of subsidies such as cooking
oil subsidy. Then, in quarter II 2009, the Government
paid the 13th salary to civil servants. Such programs were
very helpful, in paricular for people in the low to middle
income bracket. In addiion, Bank Indonesia’s monetary
policy of reducing interest rates had also helped public
purchasing power.
Consumer opimism of future income had propelled
consumpion as well. A survey on consumers conducted
by Bank Indonesia indicated that people’s expectaion of
future income remained high despite global economic
crisis (Chart 5.2). In quarter I 2009, such opimism jacked
up the Consumer Conidence Index to the opimisic
Enhancing the Resilience of the Real Sector in Supporing Economic Recovery | CHAPTER V
141
percent
index
percent
83
16.5
16
120
78
110
15.5
15
100
73
14,5
90
80
14
68
13.5
70
60
13
63
12.5
50
58
Consumer Expectaion
Current Economic Condiion
Early Age of Career to Populaion Raio
Consumer Conidence Index
2007
2006
2005
2004
2003
2002
2001
12
2000
IV
1999
II III
2009
1998
I
1997
IV
1996
II III
2008
1995
I
1994
IV
1993
II III
2007
1992
I
1991
IV
1990
II III
2006
1989
I
1988
40
Peak Age of Career to Populaion Raio
Source: BPS-Staisics Indonesia
Source: Danareksa
Chart 5.3 Consumer Survey – Danareksa
Chart 5.4 Raio of Early and Peak Age of Career to
Populaion
level. Consumer opimism in future condiion was also
relected in Danareksa’s survey in May, the Consumer
Expectaion Index had started to pick up (Chart 5.3). The
level of household consumpion which calculates the
level of expected income in the future is an indicaion of
household behavior which tends to follow the Life Cycle
Hypothesis (LCH) and Permanent Income Hypothesis (PIH)
theories. The LCH and PIH theories basically state that the
consumpion decision of an individual is not only based on
their current income but also on the calculaion of their
expected income. Based on this premise, an increase or a
decline in an individual’s income is considered temporary
and will only give a limited efect to the individual’s
consumpion. Conceptually, the LCH and PIH theories are
the reverse of Keynes’ theory which assumes that the
consumpion of an individual at a given ime will be very
much related to their income at that paricular ime.
consumpion easy. According to a BIS survey (2009)101,
the level of household debts in Indonesia was relaively
low, that was, sill hovering around 7%, compared to
other countries such as Korea (82%) and the U.S. and
Britain where it went beyond 100%. Such a low raio
made it easy for the country’s household sector to access
inancing for consumpion. Based on December 2009
data, consumpion credit went up to 17.3% (year-on-year)
which was far above the investment and working capital
credit. Another source of inancing which also showed an
increase was loans from pawnbrokers. As of September
2009, the growth of loans put up by pawnbrokers had
increased by around 47.5%. Such an increase may relect
the tendency of households to make use of their nonmonetary savings such as gold and vehicles to maintain
their level of consumpion.
In the long run, the level of public consumpion will be
afected by the demoCharic structure in society. The
The strong posiion of the country’s household sector
balance sheets made access to the inancing of
101 Gounan Ma, Eli Remolona, and Ilhyock Shim (2009), ’Household
Debt : Implicaion for Monetary Policy and Financial Stability,’ Bank
for Internaional Setlement, paper no. 46.
Table 5.1 The Development of Urbanizaion in Indonesia and Emerging Markets
Countries
Urbanizaion (millions)
percentage of
total populaion
2000
2007
2000
2007
1990-2007
Indonesia
54.5
113.6
31
50
4.3
Brazil
111.8
163.1
75
85
2.2
China
311.0
556.3
27
42
3.4
India
216.6
329.1
26
29
2.5
Source: BNP Paribas, 2009
142
Average of
Annual Growth (%)
CHAPTER V | Enhancing the Resilience of the Real Sector in Supporing Economic Recovery
increase in the raio of populaion at the later career
stages to the populaion at the early career stage
indicated increased household income with higher
capacity for consumpion and saving (Chart 5.4). In
addiion, demoCharic change in the form of increased
urbanizaion has also led to higher consumpion. Data
from 2000 to 2007 showed that the average rate at which
populaion moved from rural to urban areas stood at
4.3% per year, far higher compared to other countries
like Brazil, China, and India which on average grew by
2.2%, 3.4%, and 2.5% per year respecively (Table 5.1).
The growth of urbanizaion was one of the sources of
consumpion growth given that the average spending of
populaion in urban areas was far higher than that in rural
areas. In 2008, based on BPS data, the average spending
of urban populaion, which amounted to Rp 496,000 per
month, was higher by around 75% than the one of rural
populaion.102
102 BNP Paribas, Indonesia Strategy, 2010: Road Map, 22 December
2010
Enhancing the Resilience of the Real Sector in Supporing Economic Recovery | CHAPTER V
143
The Role of MSME as a Shock-absorber
of the Global Economic Crisis
5.2
The resilience of domesic economy in the face of global
economic crisis cannot be detached from the important
role of MSME mainly because the role of export and
import aciviies in this sector is relaively limited. In
addiion, many MSME rely on domesic sources for raw
materials as well as domesic market as their main target.
The persistence of MSME entrepreneurs in managing
their business through eiciency measures as well as
abundant and economical supply of labor helps minimize
the adverse impact of the crisis on the MSME sector. In
addiion, MSME workers who are generally low educated
are responsible for the lexibility of movement of workers
among MSME sectors, paricularly within the informal
sector because this sector does not require highly
speciied experise. This sub-chapter analyzes the role of
MSME in the structure of the Indonesian economy.
g
The Role of MSME in Economy
The role of MSME in the Indonesian economy is quite
signiicant. In terms of its contribuion to the formaion of
GDP (at current market prices) of 2008, MSME contributed
around 55.56% of the total GDP. In 2008, the role of MSME
in the agricultural, trade and services sectors were quite
signiicant, accouning for 95.26%, 96.34% and 95.66%
respecively, followed by the inancial and business service
sector, the services sector, the construcion sector, and
the transportaion/ communicaion sector. Meanwhile,
the contribuion of MSME to the mining, industrial, and
electricity sectors was relaively small. In addiion, the
contribuion of MSME also appeared dominant in terms of
the amount of business units involved, which accounted
144
CHAPTER V | Enhancing the Resilience of the Real Sector in Supporing Economic Recovery
Table 5.2 The Role of MSME’s in The Domesic Economy in 2008
Nominal GDP (billion rupiah)
No.
Sectors
MSME
GDP
Numbers of Business Unit
MSME
Porion
(%)
MSME
Total
Labor
MSME
Porion
(%)
MSME
Total
MSME
Porion
(%)
1
Agriculture
679,452.9
713,291.4
95.26
26,400,869
26,401,111
100.00
42,460,064
42,689,635
99.46
2
Mining and
Quarrying
69,155.8
543,363.8
12.73
261,341
261,421
99.97
641,463
720,310
89.05
3
Manufacturing
435,324.5
1,380,731.5
31.53
3,238,111
3,239,420
99.96
10,463,416
12,302,150
85.05
4
Electrisity, Gas and
Water Supply
3,092.0
40,846.7
7.57
11,622
11,747
98.94
102,536
156,769
65.41
5
Construcion
156,071.2
419,321.6
37.22
174,359
174,604
99.86
766,095
797,111
96.11
6
Trade, Hotels and
Restaurants
666,809.1
692,118.8
96.34
14,789,950
14,791,206
99.99
24,314,062
24,494,057
99.27
7
Transportaion and
Communicaion
152,165.4
312,454.1
48.70
3,205,025
3,205,344
99.99
3,753,683
3,851,874
97.45
8
Finance, Rental and
Business Service
230,890.5
368,129.7
62.72
997,511
998,110
99.94
2,657,545
2,813,609
94.45
9
Services
216,398.7
226,223.6
95.66
2,178,749
2,178,946
99.99
5,737,406
5,787,129
99.14
2,609,360.1
4,696,481.2
55.56
51,257,537
51,261,909
99.99
90,896,270
93,612,644
97.10
Total
Source: Ministry of Cooperaive and Small and Medium Enterprises
for 99.99% of total business units with the contribuion of
the 3 largest sectors made up 85% of the total. The three
largest sectors – the agricultural sector, the trade sector,
and the services sector – managed 26.40 million, 14.79
million, and 2.18 million business units respecively (Table
5.2).103
In addiion, MSME played a signiicant role in absorbing
labor. The amount of labor absorbed by MSME accounted
for 90.9 million people or 97.10% of the total naional
labor force, most of whom were concentrated in MSME
of micro category, or 81.74% of total MSME labor force. In
terms of their variety by sector, MSME labor force spread
out over the enire sectors and most of them provided a
signiicant contribuion to the absorpion of labor force in
103 Based on Law No.20 of the year 2008 on MSME: (1) a micro
enterprise is deined as having a net asset of a maximum of IDR 50
million (not including land and building used for the business) or
having an annual sales turnover of a maximum of IDR 300 million.
(2) a small enterprise is deined as having a net asset of more than
IDR 50 million up to IDR 500 million at the most (not including
land and building used for the business) or having an annual sales
turnover of more than IDR 300 million up to IDR 2.5 billion at the
most. (3) a medium enterprise is deined as having a net asset
worth more than IDR 500 million up to IDR 10 billion at the most
(not including land and building used for the business), or having
an annual sales turnover of more than IDR 2.5 billion up to IDR 50
miliar at the most.
the sector. In terms of labor absorpion, MSME absorbed
the largest labor force in the agricultural sector and the
trade sector, accounted for 42.46 million and 24.31 million
workers respecively or around 73% of the total labor
force absorbed in the MSME sector.
As far as the banking industry is concerned, the amount
of loans it extended to MSME was also quite high.
Throughout 2009, the amount of loans extended to MSME
accounted for 51.28% of the total loans by the banking
industry. From such a proporion of MSME loans, it was
obvious that the banking industry saw MSME as business
unit worth inancing and commercially viable. During
the same period, loans extended to small enterprises
accounted for the largest share (37%) followed by loans
extended to micro enterprises (32%) and to medium
enterprises (31%) of total loans disbursed by the banking
industry to MSME.
g
The Advantage of MSME in Facing
Economic Crisis
In general, the survey conducted by Bank Indonesia
indicated that most respondents were aware of and felt
Enhancing the Resilience of the Real Sector in Supporing Economic Recovery | CHAPTER V
145
not-aware
8.2%
not Feel the Impact
of Crisis
25.2%
Aware of Economic Crisis
91.8%
Felt the Pitch
of Crisis
74.8%
Chart 5.5 Survey of the Economic Crisis
the efects of global economic crisis on their businesses.104
The results of the survey indicated that while around 92%
of respondents were aware of global economic crisis, the
rest weren’t (Chart 5.5). Moreover, the global economic
crisis inluenced MSME business aciviies as relected in
the answers of 74.8% respondents who felt the efects of
the crisis. Only 25.2% of the respondents did not feel the
impact of the crisis on their businesses (Chart 5.6).
Despite being exposed to the crisis, the MSME sector can
manage itself in a relaively good shape so that the impact
of the crisis on its performance was relaively limited.
As in the previous economic downturns – in 1997 and in
2005 – the existence of the MSME sector was one of the
main factors which saved the Indonesian economy. And
the main factors responsible for the high resilience of this
sector included, among others, the markeing orientaion
of MSME products to the domesic market and the
relaively small proporion of their products which were
intended for export. Moreover, MSM entrepreneurs had
a strong moivaion to keep their business and producion
aciviies relying on local materials. Another advantage
of this sector lied in its characterisically abundant,
economical and low-educated labor force with high
mobility to move to another sector.
Chart 5.6 Impact of the Economic Crisis Survey
for 15.40 % of total exports (Chart 5.7). Therefore, when
exports took a plunge like in 2009, MSME were relaively
able to survive given that their products were mostly
intended to meet domesic demand and only a few were
export-oriented. There were two main MSME sectors
which provided the largest contribuion to the GDP,
namely the agricultural sector and the trade sector. On
average, the contribuion of each sector over the last 10
years (1999-2008) was 94.76% and 96.43% respecively
(Table 5.3). In 2009, each of the two sectors grew by 4.1%
and 1.1% correspondingly. Moreover, in the same year,
other MSME sectors with quite a large contribuion to
the GDP – of more than 50% – such as the construcion,
transportaion, and communicaion sectors; the inancial
and business service sector, and the services sector
grew quite high, that was, by 7.1%, 15.5%, 5.0%, and
6.4% respecively. This proved that MSME were able to
withstand the crisis.
Labor is key to MSME’s resilience. In general, MSME’s
labor force is characterized by low wages and low level
of educaion (unskilled labor). Based on a Bank Indonesia
percent
20
MSME products, which were mostly intended for the
domesic market, added value to measures aimed at
addressing the drop in export performance as a result
of the crisis. Over the last 10 years (1999-2008), MSME
exports were relaively small; on average it accounted
18
16
14
12
10
8
6
4
104 A quick survey was conducted by Bank Indonesia in mid- 2009
involving 1000 [MSME] respondents as target samples taken
proporionally from almost the enire parts of Indonesia based on
their respecive net GDP contribuions. The survey deines MSME
on the basis of sales turnover as referred to under the Law No.20 of
2008 on MSME.
2
1999
2000
2001
2002
2003
2004
2005
MSME Export Share
Source: State Ministry of Cooperaion and Small & Medium Enterprises
Chart 5.7 MSME Export Share
146
2006
CHAPTER V | Enhancing the Resilience of the Real Sector in Supporing Economic Recovery
2007
2008
Table 5.3 Average of MSME’s Contribuion to GDP (1999-2008)
No
Average of MSME's
Contribuion to GDP
1999-2008
Sectors
1
Agriculture
94.76
2
Mining and Quarrying
12.77
3
Manufacturing
32.02
4
Electricity, Gas and Water Supply
8.98
5
Construcion
54.93
6
Trade, Hotels and Restaurants
96.43
7
Transportaion and Communicaion
54.66
8
Finance, Rental and Business Service
63.21
9
Services
59.17
Source: Ministry of Cooperaive and Small and Medium Enterprises
survey, the low wages of MSME labor force match
their low skills and consequently, low producivity. This
explains why MSME labor force is relaively economical
and reducing workforce is considered as the last opion
by MSM entrepreneurs. Such low labor costs made MSM
entrepreneurs, when being hit by any inancial crisis,
restrain themselves from terminaing their workforce
massively and prefer to keep most of them for another
momentum of demand recovery. For those experiencing
the terminaion of employment, the characterisically
economical and low-educated nature of the MSME labor
force led them to shit in between or among MSME.
As a result, once a MSME goes sluggish or goes out of
business, it is relaively easy for their employee to swing
or move. It has been shown under the Todaro migraion
model that labor shiting in informal businesses, the
majority of which are MSME, is relaively very easy given
that employment opportuniies in the informal sector is
quite largely available and does not require highly-skilled
workers.105 Such an indicaion of labor shiting out of the
formal sector into the informal sector was conirmed by
the Naional Staisics Agency (BPS) whose labor force
data indicated that the number of informal sector workers
had increased from 71.35 million in August 2008 to 72.61
million in February 2009 and lastly, 72.72 million as of
August 2009.
that the fallout of global economic crisis was relected
in the average decline of monthly sales turnover. Such a
decline, however, was not directly and fully followed by a
reducion in producion and workforce. Presumably, one
of the factors responsible for such a limited response was
related to the efort made by MSME to conduct eiciency
irst prior to terminaing the employment of their
workforce or reducing their capacity of producion (Chart.
5.8). This was relected in the results of the survey which
showed that the majority of respondents employed an
eiciency strategy to alleviate the adverse impact of the
crisis. Apparently, reducion of workforce and producion
was not a priority opion for them.
In addiion to self-help measures taken by MSM
entrepreneurs, the Government has also taken various
measures to develop MSME. Through the Ministry of
Cooperaives, the Government has made some policies
respondent
Efficiency
New Market
New Market Segments
Laying off
Reducing raw material inventory
MSME’s persistent efort in keeping their businesses
running has also helped bolster its performance. A
quick survey conducted by Bank Indonesia indicated
105 Todaro. Michael P.. and Smith. Stephen C..”Economic Development”.
Tenth Ediion. Addison Wesley. 2009
Lessening producion
Changing business
0
200
400
600
Chart 5.8 MSME Entrepreneurs Response (Quick Survey Result)
Enhancing the Resilience of the Real Sector in Supporing Economic Recovery | CHAPTER V
147
aimed not only at helping MSME address the crisis but
also helping them coninue growing and developing.
Government policies for empowering MSME through
the extension of informaion or training are coninued to
be made by the Ministry of Cooperaives. Measures to
develop markets for MSME products are also coninued
to be taken by the Government. Exhibiions of MSME
products in diferent regions are coninued to be made
by the Government in order to introduce MSME products
and to open up and expand new markets. Moreover, the
Government’s plan to help develop MSME is stated in
its 100-day program and plan for 5 years to come which
includes, among others, the extension of educaion and
training programs for MSM entrepreneurs, the extension
of the One Village One Product (OVOP) concept, the
acceleraion of the development or revitalizaion of 90
tradiional markets. In addiion, the Government has
also planned the addiion of the budget of the Naional
Program for the Empowerment of Self-Help Communiies
(PNPM Mandiri).
One of the measures the Government took to improve
MSME’s access to the banking industry was the
issuance of a People’s Business Loan (KUR). Under this
scheme, MSME may obtain inancing with relaively
easy requirements supported by the Government’s
underwriing faciliies. Under such a scheme, MSME and
Cooperaives which are not yet bankable in spite of the
viability of their business because of collateral deiciency
get the opportunity to obtain loans from banks because
70% of the loans are guaranteed by the Credit Guarantee
Insituion which is owned by the Government. In
implemening the KUR scheme, Bank Indonesia acted as
a working partner for the Government which in this case
issued regulaions to support the implementaion for the
underwriing, the monitoring of the implementaion of
KUR program and coordinaing with banks and related
government agencies. By the end of 2009, the KUR
ceiling reached to Rp 17.18 trillion with a debit balance
of Rp 8.15 trillion and with a total of 8,153,345 debtors.
Meanwhile, the risk associated with the extension of
the loan was quite low as relected in the level of NPL of
4.92%. In terms of sector, the extension of KUR was mostly
aimed at the trade sector, the hotel and restaurant sector
(PHR) and the agricultural sector.
The role of Bank Indonesia through the implementaion
of monetary policies also afects the development of
MSME. Monetary policies through the reducion of BI rate
and measures to control the stability of exchange rate
provide opportunity for MSM entrepreneurs to enhance
their access to credit and shape MSM entrepreneurs’
opimism. Moreover, the role of Bank Indonesia to
increase MSME’s access to banks’ loans was also carried
out through appeals to the banking industry to help
MSME development by providing loans or by providing
MSM entrepreneurs with training such as training on how
to draw a loan proposal. Such training is very important to
make it easy for MSME to access loans from banks (or to
make them bankable).
In general, there was sill an increase in loans extended
to MSME by banks throughout 2009. The amount of
working capital loans for MSME in all sectors – except the
manufacturing sector – sill indicated a rise compared
to that by the end of 2008. The same thing was also
indicated by the development of investment loans. In
general, the loans taken out by MSME for investment
Table 5.4 Development of MSME’s Working Capital and Investment Credit
millions of rupiah
Working Capital Credit
No
Sectors
2008
148
Investment Credit
1
Agriculture
2
Mining
3
Manufacturing
4
Electricity, Gas and Water Supply
5
Construcion
6
Trade
7
Transportaion
8
Business Services
9
Social Services
13,548,786
2009
15,860,458
2008
2009
5,875,700
6,731,565
3,023,641
3,624,215
702,703
636,684
39,099,768
37,334,323
6,959,461
6,748,235
384,833
416,919
175,089
288,218
14,223,747
15,990,977
2,893,445
3,300,093
138,331,809
163,558,675
18,818,021
24,421,565
4,691,147
4,785,247
3,949,499
4,520,721
28,633,538
30,195,279
12,218,683
13,932,720
5,034,939
5,666,125
2,551,786
3,080,270
CHAPTER V | Enhancing the Resilience of the Real Sector in Supporing Economic Recovery
in almost all sectors were on the rise (Table 5.4). This
shows two things. Firstly, from banks’ side, the trust of
the banking industry in MSME was sill high presumably
because of the relaively good performance at which
MSME pay of both their working capital loans and
investment loans. Secondly, from MSME’s side, the
prospect of MSME’s output growth sill coninues to be on
the rise. This condiion encourages MSME to increase the
amount of their loans to develop their business.
Enhancing the Resilience of the Real Sector in Supporing Economic Recovery | CHAPTER V
149
The Role of the Manufacturing Industry
as the Engine of Economic Growth
g
5.3
Portrait of the Manufacturing Industry
The role of non oil and gas manufacturing sector is crucial
for the Indonesian economy.106 In terms of its contribuion
to economic growth, this sector sill provides the largest
contribuion to the formaion of GDP. In terms of its
contribuion to export, this sector posts a bigger share
compared to the export of the agricultural and mining
sectors. In terms of its contribuion to the labor force, this
sector on average absorbs around 12% of the total labor
force. Industrial sectors have great backward and forward
linkages so that any enhancement in the performance of
the manufacturing industry may afect other industrial
sectors.107
Amidst its important role in the domesic economy, the
performance of the non oil/ gas manufacturing sector
coninues to be on a declining trend over the last 5 years.
In terms of its contribuion to the GDP, since 2005 the
performance of this industrial sector had coninued its
decline even though the decline was limited, from 28.07%
in 2005 to around 26% in 2009. In terms of its growth,
106 The deiniion and concept associated with the manufacturing
industry used here refer to the deiniion of BPS on the non-oiland-gas manufacturing industry which is deined as an economic
acivity of transforming a [raw] material mechanically, chemically
and manually into a inished goods/ semi-inished goods, and or
transforming goods of lower value into goods of higher value and
whose characters are closer to the end user.
107 Forward linkage is an economic acivity whose output can be used
as an input for another economic acivity. Backward linkage is an
economic acivity whose input absorbs the output from another
economic acivity.
150
CHAPTER V | Enhancing the Resilience of the Real Sector in Supporing Economic Recovery
Table 5.5 Performance of Non-Oil and Gas Manufacture in 2009
Manufacture Subsectors
Growth 2009 (%.
yoy)
Share of Non-Oil &
Gas Manufacture
11.3
29.8
1
Food. Beverages and Tobacco
2
Texile, Leather products and footwear
0.5
9.8
3
Wood products and other planing materials
-1.5
3.8
4
Paper and prining products
6.3
5.2
5
Chemicals and rubber products
1.5
13.3
6
Cement and non-metalic mineral products
-0.6
3.0
7
Basic metals
-4.5
1.5
8
Transportaion equip. machinery and apparatus
-2.9
32.9
9
Others
3.1
0.7
Source: BPS-Staisics Indonesia
over the last ive years the manufacturing industry posted
an average growth of 5% per year, far lower than in the
period before the crisis in 1997 during which it was able to
grow by an average of 10% per year. The decline made the
growth of this paricular sector lower than the naional
economic growth although previously, the growth of this
sector had always been higher than that of the naional
growth.
Throughout 2009, the non oil/gas manufacturing sector
only grew by 2.5% (year-on-year), which was lower than
last year’s growth. The decline of external demand as a
result of global economic crisis signiicantly afected the
manufacturing sector especially its export-oriented subsectors. Sub-sectors with signiicant export desinaion
including, among others, imber/wooden, texile, and
chemical products show a relaively low growth; even
the imber/wooden product sub-sector sufered from
a contracion in 2009. Meanwhile, domesic-oriented
percent
100
sub-sectors such as the food, beverages, and tobacco
industry posted a high growth in 2009, that was 11.3%.
Presumably, the high growth of this sub-sector was
atributable to the sill high growth of public purchasing
power and also the increase in demand associated with
legislaive elecion and presidenial elecion (Table 5.5).
In terms of its sub-sectors in general, there were some
industries sufering from contracion including the imber/
wood and forest yield sub-sector, the cement and non
metal quarry material sub-sector, the basic metal, iron
and steel sub-sector, and the sub-sector pertaining
to transport equipment, machine and its equipment.
Meanwhile, other sub-sectors sill show posiive
performance (Table 5.5). In terms of its structure, the
transport equipment, machine and its equipment subsector, the food, drink and tobacco sub-sector, and the
chemical and rubber product sub-sector sill make up the
largest segment of the manufacturing sector (Chart 5.9).
Meanwhile, the food, drink, and tobacco sub-sector and
the paper and printed mater sub-sector were the main
contributors to the growth of the manufacturing sector
(Chart 5.10).
g
80
60
Some Characterisics of the
Manufacturing Sector
40
20
0
I
II
III
IV
I
2008
Food beverages & tobacco
Wood & other products
Chemical & rubber products
II
III
IV
2009
Iron & steel basic metal
Texile leather products & footwear
Paper and prining products
Cement & non-metallic quarrying products
Transport equip. machinery & apparatus
Source: BPS-Staisics Indonesia
The drop in the performance of the non oil/gas
manufacturing sector is related to some main
characterisics of the industrial sector. Firstly, the use of
imported inputs in the aciviies of the manufacturing
sector was quite high and thus made the sector
vulnerable to the ups and downs of the exchange rate.
Chart 5.9 Distribuion of Manufacturing Sector
Enhancing the Resilience of the Real Sector in Supporing Economic Recovery | CHAPTER V
151
(contribuion, yoy)
(contribuion, yoy)
1.4
2.4
1.2
1.0
1.9
0.8
0.6
1.4
0.4
0.2
0.9
0.0
(0.2)
0.4
(0.4)
(0.6)
I
II
III
2008**
Food beverages & tobacco
Paper and prining products
Iron & steel basic metal
Manufacturing (rhs)
IV
I
Texile leather products & footwear
Chemical and rubber products
Transport equip, machinery & apparatus
II
III
2009***
IV
(0.1)
Wood & other products
Cement & non-metallic quarrying
Other products
Source: BPS-Staisics Indonesia
Chart 5.10 Growth Contribuion of Manufacturing subsectors
Secondly, the export orientaion of the industrial sector
to developed countries was sill high. Around 44% of
exports of the manufacturing sector were sill desined
for three main countries, namely the United Naions,
Europe and Japan. As a result, this industrial sector
becomes highly vulnerable to any economic upheavals
taking place in the main export desinaion countries.
Thirdly, the compeiiveness of most of the country’s
industrial products was low as indicated in the low score
of Revealed Comparaive Advantage (RCA).108 Indicaion
of Indonesia’s weak industrial compeiiveness is also
relected in the results of survey conducted by the World
Economic Forum in the book it published itled Global
Compeiiveness Report 2009-2010 which showed that
Indonesia ranks 54th out of 130 countries surveyed in
terms of compeiiveness. This did not difer from the
previous period. Indonesia’s compeiiveness was sill far
below that of other compeitor countries within ASEAN
such as Singapore (which ranks 3rd), Malaysia (which
ranks 21st), and Thailand (which ranks 36th) (Table 5.7).
Such a low level of compeiiveness was related to the
peculiarity of the country’s manufacturing industry which
was characterized by the tendency to center around a
number of companies and the prevalence of machines
108 RCA can be formulated as follows: RCA=(Xik/Xi/Wk/Wt). If the RCA
value of a country for a certain commodity is greater than one (1),
the country in quesion has a comparaive advantage over the global
average for the commodity. The reverse is also true if the value is
less than one (1). Analysis was made using data originaing from
UNCOMTRADE based on the 2 digit SITC which is composed of 69
groups of commodiies. Note:
Xik = value of export commodity k from country i
Xi = value of total exports from country i
Wk = value of export commodity k in the world
Wt = value of the world’s total exports
Table 5.6 The Main Characterisics of Non-Oil and Gas Industries
Main Characterisics of Non-Oil&Gas
Manufacture
1. Based on IO 2005 table, reliance on
imported raw materials were sill high
2. Export shares to developed countries were
quite high.
Current Condiions
Implicaions
- especially on transport equip., basic metal, iron,
steel, chemical, paper, and texile
Sensiive to Exchange Rate
- The market share to developed countries (USA,
Europe, Japan) were around 44.1%
Industrial export performance was
sensiive to economic changes in
developed countries
- The market share to Emerging Markets
(Singapore, China, India) were around 22.8%
- the RCA value of texile & texile products
1.88, chemical 0.47, machinery &
apparatus 0.37, electronic products 0.37%
(source: UNComtrade, processed)
Taking opportunity of global
economic recovery to boost the
export growth were limited
4. Based on mapping survey of the economic
sector, there were many industries using the
old machines
- Machines need to be replace (> 15 years old) was
18%
Increasing the acceleraion of
producion growth was hard to do
5. Based on BI Producion Survey, the average
industrial capacity uilizaion in 2009 was
72.9%
- The high capacity uilizaion was in cement & non- Increasing the acceleraion of
metallic quarrying, chemical and paper
producion growth was hard to do
3. Compeiiveness of industrial products
were relaively low. Only texile and texile
products had strong compeiiveness
- The old machines (13 years old) was 35%
6. Market structure of industrial sector is
concentrated only in a few companies
- By using concentraion raio 4 (CR4) approach,
the market share of 4 companies have controlled
more than 75% of total market share.
Source: Input Output Table 2005, BPS, SPSE BI 2006, Producion Survey-BI, UNComtrade (processed)
152
CHAPTER V | Enhancing the Resilience of the Real Sector in Supporing Economic Recovery
Less compeiive
Table 5.7 Indonesia Compeiiveness Rank
Global Compeiiveness Index
Countries
2006-2007
2007-2008
2008-2009
2009-2010
Indonesia
50
54
55
54
Malaysia
26
21
21
21
Vietnam
77
68
69
69
Thailand
35
28
34
36
China
54
34
30
29
Philippines
71
71
70
87
Singapore
5
7
5
3
Source: World Economic Forum, 2009
older than 10 years of age. Fourthly, most of the machines
in the industry had a high uilizaion capacity and thus less
responsive to increased demand. Based on Bank Indonesia
producion survey, the uilizaion capacity of this industrial
sector was relaively high, or beyond 70%. Some paricular
sub-sectors had even a uilizaion capacity beyond 90%,
namely the chemical sub-sector, the cement sub-sector,
and the basic metal sub-sector (Table 5.6).
g
Readiness of the Industrial Sector in
Addressing ASEAN-China Free Trade
Agreement (ACFTA)
In addiion to the above-menioned characterisics of the
industry, the challenge of the industrial sector gets bigger
as a result of the applicaion of ACFTA. This ASEAN-China
free trade agreement was iniiated by a framework of
agreement of Comprehensive Economic Cooperaion in
2002 in Pnom Penh. ASEAN member countries and China
agreed to establish free trade between China and six
ASEAN member countries (Indonesia, Brunei, Thailand,
Malaysia, Singapore and the Philippines) in 2010 and
between China and four other ASEAN member countries
(Cambodia, Vietnam, Laos and Myanmar) in 2015.
In the implemening stage of the free trade agreement,
it is agreed that import duies are to be eliminated
gradually. The reducion or the eliminaion of ACFTA
import duies is divided into four schemes, namely Early
Harvest Program (EHP), Normal Track (NT), Sensiive
Track (ST) and Highly Sensiive Track (HST). Under the EHP
scheme, it was agreed to reduce import duies gradually
staring from January 1, 2004 down to 0% on January 1,
2006. The reducion in import duies under the NT scheme
came into force as of July 20, 2005 and the NT scheme
had been further divided into NT I and NT II. The reducion
in import duies under the NT-I scheme to 0% took place
on January 1, 2010 while the reducion of import duies
under the NT-II scheme to 0% would take place in 2012.
Import duies under the ST scheme would go down to 20%
in 2012 and sink down further to 0-5% in 2018. Import
duies under the last scheme, that is, the HST scheme,
would be 50% at maximum in 2015. Currently there are
8,738 commodiies under ACFTA, most of which (6,682)
belong to the NT1 scheme (Table 5.8). Up to 2009, the
number of commodiies whose import duies dropped to
zero percent would amount to 5,709 or account for 65.3%
of total commodiies. In 2010, the number of commodiies
with zero percent import duies increased by 1,597 to
7,306 or accounted for 83.61% of the total ACFTA import
duty posts.
The applicaion of ACFTA provides opportunity for
Indonesia to increase its natural resources-based exports.
The mapping of export opportuniies is based on the
RCA indicator and based on the performance of the
growth of non oil and gas exports over the last 5 years.109
Combinaion between the RCA indicator and the export
performance divides commodiies into four quadrants.
Based on the mapping results, most of the commodiies
with the potenial to make use of China and ASEAN’s
markets are natural resources-based commodiies. Some
natural resources-based industrial commodiies such as
Crude Palm Oil (CPO), rubber, and paper were the main
109 According to an analysis made on the basis of the 2 digit SITC
(Standard Internaional Trade Classiicaion) which is composed of 69
groups of goods. The limit of growth based on the country’s average
non oil and gas exports in the 2004-2008 period was 17.2%.
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153
Table 5.8 Classifying Commodiies by Price Reducion and Sectoral Scheme
Industry
No. Category
A
B
C
D
E
F
G
H
I
J
K
L
M
N
O
P
Q
Category
Keterangan
Member
Post Tarif
1
EHP 1
343
2
EHP 2
2
182
20
35
3
NT – I
185
9
4
NT – II
1
6
ST
6
HST
1
1
9
48
6,682
Normal Track 1:
tarif of import duies had
been reduced/eliminated
since July 20, 2005 and to
be 0% on January 1, 2010.
16
474
Normal Track 2:
tarif of import duies will
be reduced/eliminated to
0% in 2012
6
228
186 123 114 411 299 749 405 764 1,245 838 302 166 723 49 114
3
The Proposed Delay
5
545
19
2
1
4
20
16
Early Harvest Program:
Tarif of import duies had
been reduced/eliminated to
0% since January 1, 2004 up
o to January 1, 2006.
14
117
66
14
107
7
2
114
10
58
15
85
152 119
4
4
15
13
73
41
48
6
7
22
128
2
206
GEL
23
22
7
642
Sensiive Track :
tarif of import duies will
be reduced/eliminated to
0%-20% in 2012 up to 2017
and to 0%-5% in 2018.
251
Highly Sensiive Track :
tarif of import duies will
be reduced/eliminated to
0%-50% in 2015.
96
General Exepion List (GEL)
is a list of products excluded
from the CEPT scheme
because of some reasons
such as such as naional
security protecion, public
moral, health and human
life, animals or plants, the
value of art, historic or
archaeological goods
Souce: Ministry of Trade Republic of Indonesia, (processed)
Note:
A = Agriculture
B = Marine and Fisheries
C = Energy and Mineral
D = Drug and Food Control
E = Forestry
F = Food and Beverages
G = Forest and Plantaion
H = Upstream Chemical
I = Downstream Chemical
J = Metal
K = Machine
L = Texile and Texile Products
M = Miscellaneous Industry
N = Transport Equipment
O = Electronics
P = Mariime
Q = Handicrat
contributors to Quadrant I, or a quadrant with RCA greater
than one and with growth above the average of other
commodiies. Even though the number of commodiies
under Quadrant I was relaively smaller compared to
those under other quadrants, they accounted for the
largest in terms of export value, or by 47.4% (Chart 5.11
and 5.12). Because of the relaively strong support of
natural resources-based commodiies under Quadrant
I, it was necessary to observe early on the development
of groups of commodiies under potenial quadrants,
or Quadrants II and IV. That’s because the commodiies
under such quadrants were industry-based so that the
154
diversiicaion of export became beter.
The distribuion of Indonesia’s export commodiies
under Quadrants II and IV had a potenial for further
development. In terms of their performance over the last
ive years, commodiies under Quadrant II had shown
promising performance by posing a growth above the
average. Some main commodiies under Quadrant II
include, among others, iron and steel, vehicles, machinery,
and transport equipment. Meanwhile, commodiies
grouped under Quadrant IV have a comparaive advantage
but their growth is sill limited; they included, among
CHAPTER V | Enhancing the Resilience of the Real Sector in Supporing Economic Recovery
Quadrant II
50
Export growth (%)
Quadrant I
40
Quadrant IV,
25,1%
30
Quadrant I,
47,4%
20
-0,5
0,5 10
1,5
2,5
3,5
Quadrant III,
19,4%
4,5
Quadrant II,
8,1%
RCA
0
-10
Quadrant III
-20
Quadrant IV
Source: UN Comtrade (processed)
Chart 5.11 RCA Commodity vs Export Growth
Chart 5.12 Export Share
others, texile and texile products (TPT), imber/ wooden
products, paper and pulp, and house furniture.
The applicaion of ACFTA has the potenial to reduce the
of inlaion. On the one hand, the prevalence of Chinese
products since China’s accession to the WTO poses an
increasingly serious threat to commodity compeiion
on the global market. On the other hand, the Chinese
products with relaively cheap prices in various countries
has contributed to the reducion of the pressure of
inlaion. The same can be said of Indonesia. Thanks to the
gradual reducion of import tarifs since 2004 for some
products under the EHP and NT schemes, more choices of
goods are available with more afordable prices. Business
who so far rely on relaively expensive machines from
advanced countries have also conirmed the posiive
impact of ACFTA which provides them with di