Where Are We Heading? Will The Economy Recover In 2016?

             Ok well, now we are in January 2016. I will start this article with some case that what happened in Indonesia in 2015? Indonesia was slowing down, there’s no debate anymore about this. The question was no longer if there’s a decline - instead the debate has shifted to the next stage, such as “how bad is it?” or “how long will it last?”, and critically “how do we get out of it?”, these questions was always in my mind in 2015. Some of what’s happening was beyond Indonesia’s control, so not much could be done- but in areas such as infrastructure and other stimulus measures, the Government had plenty of levers at its disposal

            An uncertain global economic environment has put emerging economies like Indonesia in a fragile position. On the monetary side, Bank Indonesia (BI) had maintained tight policies by keeping its rate at roughly same level of 7,5% for most of last year (2015). There were limited options for BI to loosen its monetary policy, given sticky inflation of above 6 percent in recent months, persistent external vulnerabilities and uncertainty with respect to the The Fed’s movements in the coming months. When Bank Indonesia maintained tight policies by keeping rate at level 7,5%, there are some people who hate this step. For your information that something worse could happen if Bank Indonesia decreases BI rate to 7,25%. BI has to stick to stability over growth! Why? Because keeping rupiah is the task and purpose in accordance with Bank Indonesia law no 4/2004 as i said before in my article “Pengaruh Ekonomi AS dan China Terhadap Fluktuasi Nilai Rupiah”. Bank Indonesia has maintained a tight monetary stance by keeping its benchmark interest rate at 7,5 percent since February 2015, even though calls have been mounting to lower the rate to revive the economy.

            Ok by the way, as usual, people nowadays will make a to-do list or some of ‘em make resolution or some shit stuff in a new year. Now, i write this article on January 10th to January 14th, 2016 and I don’t do “new year resolution” whatsoever. So don’t ask. But, i’m curious of a “new year resolution” of Government in 2016. Where are we heading, fellas? And, I’m curious about the economic global in this year, will the economy recover in 2016?

1.  THE FEDERAL RESERVE

            The Federal Reserve’s end-of-year decision to raise interest rate was presented as the “normalization” of monetary policy and the end of the era of the 2007 – 2008 financial crisis. Ending seven years of loose monetary policy will not only shape US financial markets, but will have profound effects on economies and even politic across the world. Emerging market (including Indonesia of course), increasingly dependent on the flood of investment fleeing the US, will face challenges as the higher interest rates may make them less attractive for foreign investors.

            Since 2007, The Fed deliberately pushed down interest rates in an attempt to boost consumption and investment. The Fed was broadly successful stimulating consumption and investment. As higher interest rates spread through the US economy, they will affect other countries, too. One main transmission channel is a growing differential between US and other developed economies. Let’s say Japan, UK and US. There are 3 countries who have extremely low interest rate and quantitative easing programs. The UK is anticipated to follow the US lead, but Japan and Europe could ressist tightening monetary policy in 2016. If so, higher US interest rate will lead to increased demand for American assets. That will push the value of the dollar against these currencies. Indeed the dollar already rose in 2015 as investors anticipated the interest rate differential.

            So what happen to Indonesia? I mean we will wait what Bank Indonesia will do as the fed’s hike. Bi will increase its BI’s rate to 7,75%, or still 7,5%. Indonesia i mean, has more to fear from higher US interest rate. If BI raises to 7,75%, how about our economy? What i know is, till today, Bank and Multifinance companies still have a heavy pressure. They both still have to be very careful in throwing credit.Why? It’s easy to answer. Because the threat of non performing loans have not been gone. If BI raises BI’s rate to 7,75%, so Bank and Multifiannce companies will raise its rates too. And it’s DEFINITELY a bad news for some companies, cause it’s a significant effects on markets. But if it’s still 7,5%, Bank Indonesia will play a meaningful role to take responsibility keeping sthe stability of rupiah. Wait, it’s not just BI’s rate. How about capital outflow? When BI doesn’t raise BI’s rate, capital outflow will take time.

            Well, how about our currency? What’s the influence of fed’s rate to our currency? Ok, i just use a logic sense of economy to explain this. In 2015 Indonesia were running current account deficits. Higher rates meant that the cost of financing these deficits by foreign borrowing was about to increase. We may say in the next 6 to 12 months, rupiah would lost roughly 10 – 20% of their value against dollar. And this is not a good news from our side. Fed’s rate significantly hit our rupiah.

            By the way, i still believe that there’s some light at the end (in considering the risks). I hope Bank Indonesia and Finance Minister will do a tremendous job to handle this. But i still remember what John Conally said (according to what i read in BBC, last year probably), the dollar is “our currency but your problem”.

 

2.  YUAN VS DOLLAR

            Now, Indonesia’s rupiah inched closer to Rp 14.000 per US dollar as soon as trading began on Monday January 11th, 2016. The last time the rupiah surpassed the Rp 14.000 benchmark was in August, when China made a sudden devaluation of the yuan. The rupiah depreciation persisted until early October. The rupiah eventually gained strength and ended trading at Rp 13, 740 per US dollar, appreciating by 0,3% two days ago. This is just an opening information. Just in case, yuan and dollar have influence to rupiah.

            In 2016, we will see currency war. Currency war is a popular term in context of the international political economy. For decades, US dollar, for instance, has been promoted as one of few valid international currencies and the majority of countries throughout the world have now accepted the US dollar currency as an official means for transaction and investment. By dominating the currency war, the US has enjoyed a variety of advantages, including prolonged economic stability. To some extent, by maintaining such a form of dominance, it’s possible for the value of the US dollar to increase or even multiply in other countries, in particular those that may be suffering under the weight of economic downturn like what happened in Indonesia in 1998.

            Within the last decade, the currency war has transformed into a global trend and the rising of new major powers, like China, has challenged the hegemony of US. This includes the competition to acquire financial dominance among the international community. In recent years, China’s yuan has been introduced in many countries as an alternative payment for both debt and investment. By the way, you can read my last article (Pengaruh Ekonomi AS dan China Terhadap Fluktuasi Nilai Rupiah” in Kompasiana. I explain a lot about yuan and the potential of yuan to follow US Dollar.

            In the near future, the currency war particularly, the competition between yuan and dollar is likely to become extremely harsh and unbearable. It seems that this beneficial strategy will be exercised by the Chinese government in the long run so as to take dominate over US dollar in International market. Who will win the war? At present, this remains unpredictable. There are still many factors that may impinge on the competition. In regard to primary concern for Indonesia is the survival of the rupiah.

            Yuan vs Dollar? Indonesia has to prepare some counter measures. The rationable is to survive any potential damage that may arise. As a country that has good relationship with these two major powers, Indonesia has to develop a smart strategy!

 

3.  e-conomy

            Today, leaving home without smartphone is almost unthinkable. The smartphone has become indispensable in the lives of billion people around the world and business are fast tapping into enermous potential of the mobile revolution.

            Over the past decade, mobile technologies have grown by leaps and bounds, transforming lives and entire industries. From travel to education to healthcare and finance, business are waking up to the potential of reaching millions of new customers by offering services that were once imaginable. Not even the industrial revolution had such rapid and broad impact on human society.

            Indonesians too have been quick to adopt mobile technologies. More and more industries have begun to offer mobile-based services with the travel, banking finance and retail sectors leading the way. Even transportation companies are using mobile technologies to provide more efficient services and reduce cost.

            For example, grab bike and gojek. I wanna tell you something about my expreience. Well, i know grab car for the first time when my friend introduce me this application last 2 moths ago. In November, when we wanna go home (not go to the “kosan”, because it’s weekend”), too tired to use taxi or angkot, we decided to take grabcar. We’re in BSD square South Tangerang. We wanna go to the rawabuntu station. So, when we used grabcar, i was so mezmerized when for the first time i knew that grab car using personal car, not-like-angkot-look. Grab car could raise our economic growth for sure, that was in my mind. When we arrived in rawabuntu station, the bill was Rp 16000 (fix cost). We knew that before we went. And you know if we used taxi? It will cost you around Rp 30000. How can grab car more effective and cheaper? Crazy huh? So, i mean this is a good idea in this era. I’m sure that so many investors out there intrested to invest the local digital start-ups like gojek, grabcar, tokopedia, etc. So, i’m sorry but fuck you Ignatius Jonan who wants to close this kind of business.

            This is a good business for Indonesia. Indonesia’s economy growth is becoming increasingly related to internet connectivity and the stregthening of Indonesia internet business. How does this kind of business works? I use a logic sense for this case. Except investors who invest in the start-ups-company,  the-start-up-company has to find money as their capital. They obtain small credits from state-owned bank like Mandiri, BNI 46, BRI which they pay back using mobile banking. The bank is reaching out to people beyond big cities and teaches them how to use online payment applications.

            So, i hope in 2016, digital start-up can raise our economic growth!

 

4. WHO will be the Mandiri-1?

            As we know that Mandiri is a state-owned bank which play a vital role in Indonesia. And for your information that Budi Gunadi Sadikin as the CEO of Bank Mandiri will end his position in march 2016. Who will replace him?

            Of course it will be contrary to tradition and the best leadership practice at Bank Mandiri, in which educational programs and succession make bank mandiri easily find the next leader from the organization. Because if they get the next leader from outside Mandiri, it will be a kind of slap to Bank Mandiri because they have candidate from inside (because they prepare the next leader from the program Officer Development Program).

            But before Budi Gunawan Sadikin  lead Mandiri, let me remind you something. Agus Martowardojo ex CEO Bank Mandiri (he’s now as Governor of Bank Indonesia) was not from inside Bank Mandiri (did educational program in ODP – Officer Development Program Bank Mandiri. As I know, Agus was raised by Bank Niaga, and did educational program in there. Agus replaced Neloe as CEO of Bank Mandiri. Neloe fail to make Bank Mandiri grow and makes Mandiri as the biggest bank in Indonesia. When Neloe was there, the NPL (non performing loan) rocketed to 25% (if I’m not wrong). Agus Martowardojo who replaced Neloe, was successful in restructuring Bank Mandiri.

            So, who’s the next Mandiri – 1, who deserves to replace Budi Gunadi Sadikin to become CEO Bank Mandiri. For me, leader should prepare a successor. Leader should develop people around him/her. Leader has a vision for his/her people. It’s a must. If people who get on top and don’t want to prepare a successor, he/she is a boss, not leader! People who don’t prepare his/her people to get a better position, don’t have a vision,  kind of people like that definitely not a leader! That kind of people just feel to be needed, feel superior than other and selfish. So I mean Bank Mandiri needs a leader, not a boss! Look what happen to Agus Marto. CEO Mandiri before him (i forget his name, Johan if i'm not wrong) , prepare Agus to fill his position next. He prepare his successor. He and Agus were from the same corps before (Bank Niaga). When Johan fill the position as CEO Bank Mandiri, he prepared Agus Marto as his successor when Neloe ended his position as Mandiri-1. By the way, Bank Mandiri is too big to have a leader of a mediocre banker. I’m sorry but it’s true. I think Sofyan Basyir (ex-CEO BRI and now as CEO PLN) and Jahja Setiaatmaja (CEO BCA) deserve to fill this position. Why? Because Sofyan Basyir had succeed making transformation in BRI and Jahja had succeed making BCA grow bigger and always one step ahead. By the way, I admire Jahja Setiaatmaja. He’s genius! But I think it’s better if Mandiri prepare the next CEO from the inside who knows Mandiri very well and the tradition in Mandiri. And don’t forget, people in there is smart.

            There’s so many things that we face in 2016. Hope that all is well.