Indonesian Economic System

Tugas paper ini dilaksanakan pada semester4, dan topik dalam tugas ini adalah Global Crisis 2009.
Awal mula permasalahan dan segala data-data tentang krisis global dibahas dalam paper ini, khususnya tentang masalah pariwisata di Indonesia.

1. BACKGROUND OF GLOBAL CRISIS 2008-2009

The global financial crisis of 2008–2009 emerged in September 2008 with the failure, merger, or conservatorship of several large United States-based financial firms and spread with the insolvency of additional companies, governments in Europe, recession, and declining stock market prices around the globe.

Development and cause

For many months before September 2008, many business journals published commentaries warning about the financial stability of leading U.S. and European investment banks, insurance firms and mortgage banks consequent to the subprime mortgage crisis. Beginning with failures caused by misapplication of risk controls for bad debts, collateralization of debt insurance and fraud, large financial institutions in the United States and Europe faced a credit crisis and a slowdown in economic activity. The crisis rapidly developed and spread into a global economic shock, resulting in a number of European bank failures, declines in various stock indexes, and large reductions in the market value of equities and commodities. Moreover, the de-leveraging of financial institutions further accelerated the liquidity crisis and caused a decrease in international trade. World political leaders, national ministers of finance and central bank directors coordinated their efforts to reduce fears, but the crisis continued. At the end of October a currency crisis developed, with investors transferring vast capital resources into stronger currencies such as the yen, the dollar and the Swiss franc, leading many emergent economies to seek aid from the International Monetary Fund.

Major US financial firms' crisis

The collapse of Lehman Brothers was a symbol of the global financial crisis.

On Sunday, September 14, it was announced that Lehman Brothers would file for bankruptcy after the Federal Reserve Bank declined to participate in creating a financial support facility for Lehman Brothers. The significance of the Lehman Brothers bankruptcy is disputed with some assigning it a pivotal role in the unfolding of subsequent events. The principals involved, Ben Bernanke and Henry Paulson, dispute this view, citing a volume of toxic assets at Lehman which made a rescue impossible. Immediately following the bankruptcy, JPMorgan Chase provided the broker dealer unit of Lehman Brothers with $138 billion to "settle securities transactions with customers of Lehman and its clearance parties" according to a statement made in a New York City Bankruptcy court filing.

The same day, the sale of Merrill Lynch to Bank of America was announced. The beginning of the week was marked by extreme instability in global stock markets, with dramatic drops in market values on Monday, September 15, and Wednesday, September 17. On September 16, the large insurer American International Group (AIG), a significant participant in the credit default swaps markets, suffered a liquidity crisis following the downgrade of its credit rating. The Federal Reserve, at AIG's request, and after AIG has shown that it could not find lenders willing to save it from insolvency, created a credit facility for up to US$85 billion in exchange for a 79.9% equity interest, and the right to suspend dividends to previously issued common and preferred stock.

2. PROBLEMS

Countries in economic recession or depression

Many countries experienced recession in 2008. The countries/territories currently in a technical recession are Estonia, Latvia, Ireland, New Zealand, Japan, Hong Kong, Singapore, Italy, Russia and Germany.

Denmark went into recession in the first quarter of 2008, but came out again in the second quarter. Iceland fell into an economic depression in 2008 following the collapse of its banking system.

The following countries went into recession in the second quarter of 2008: Estonia, Latvia, Ireland and New Zealand.

The following countries/territories went into recession in the third quarter of 2008: Japan, Sweden, Hong Kong, Singapore, Italy, Turkey and Germany. As a whole the fifteen nations in the European Union that use the euro went into recession in the third quarter. In addition, the European Union, the G7, and the OECD all experienced negative growth in the third quarter.

The following countries went into technical recession in the fourth quarter of 2008: United States, United Kingdom, Spain, Indonesia and Taiwan.

Of the seven largest economies in the world by GDP, only China and France avoided a recession in 2008. France experienced a 0.3% contraction in Q2 and 0.1% growth in Q3 of 2008. In the year to the third quarter of 2008 China grew by 9%. This is interesting as China has until recently considered 8% GDP growth to be required simply to create enough jobs for rural people moving to urban centres. This figure may more accurately be considered to be 5-7% now that the main growth in working population is receding. Growth of between 5%-8% could well have the type of effect in China that a recession has elsewhere. Japan went into technical depression in the fourth quarter of 2008 with a nominal annualized GDP growth of -12.7%.Ukraine went into technical depression in January 2009 with a nominal annualized GDP growth of -20%.

Global responses

The G-20 countries met in a summit held on November 2008 in Washington to address the economic crisis. Apart from proposals on international financial regulation, they pledged to take measures to support their economy and to coordinate them, and refused any resort to protectionism.

Another G-20 summit was held in London on April 2009. Finance ministers and central banks leaders of the G-20 met in Horsham on March to prepare the summit, and pledged to restore global growth as soon as possible. They decided to coordinate their actions and to stimulate demand and employment. They also pledged to fight against all forms of protectionism and to maintain trade and foreign investments. They also committed to maintain the supply of credit by providing more liquidity and recapitalizing the banking system, and to implement rapidly the stimulus plans. As for central bankers, they pledged to maintain low-rates policies as long as necessary. Finally, the leaders decided to help emerging and developing countries, through a strengthening of the IMF.

Impact of Global Economic Crisis in Indonesia

Indonesia is suffering from gradually increasing impacts of the global financial crisis, with its export value growth in 2009 predicted to drop below zero.

Indonesian central bank (Bank Indonesia)'s Deputy Governor Hartadi A Sarwono said on Thursday that the country's export value is expected to drop 4.6 percent this year.

Hendri Saparini, director of the Econit Advisory Group, also predicted on Wednesday that the country's export value growth this year will stand at minus 5 percent.

"This year, it is not necessary to expect more from export activity, because growth in this sector will only stand at minus 5percent," he said. The opinions of both the central bank and the consultant group are echoes of the prediction made by the National Development Planning Board on March 11, which said that Indonesia's export value would fall by 6 percent this year. According to the government department, Indonesia's non-oil product export value will fall 20 percent or 21.6 billion U.S. dollars this year from 108 billion dollars in 2008.

Their predictions have partly come true, seeing the country's export value dropped 17.7 percent month on month this January. Suffering from the export decreasing, Indonesia's export-related companies, including traders and manufacturers, have to expand lay-offs so as to save their costs. Sofyan Wanandi, chairman of the Indonesian Employers Association, said on March 13 that the country's unemployed population had grown to 240,000 by this month, most of which came from labor-intensive industries, though the governmental statistics showed that figure was 37,909. Nevertheless, the big unemployment inevitably reduced Indonesia's purchasing power and lowered market demands, while the country's major commodity supports remained adequate. Thus, Bank Indonesia, considering the low fuel price on the International market, predicted the country's inflation rate this year will go down to 5-7 percent, which gives it spaces to cut the benchmark interest rate. Bank Indonesia cut the bank's benchmark rate by 50 basis points from 8.25 percent to 7.75 percent on March 4, seeing the country's inflation rate in February recorded at 8.6 percent. That is the fourth time for the central bank to cut benchmark interest rate since last December. However, the commercial banks in Indonesia did not actively follow suit to cut their interest rates sharply, but only decrease the lending rate from 14.2 percent at the end of last year to 13.93 percent by the second week of March and the deposit rate from 8.75 percent to 8.32 percent, averagely. Those are not enough, said analysts, adding that banks should keep lending rates below 13 percent to guarantee the economy running at the targeted 4.5 percent economic growth. Therefore, many analysts and some officials in Indonesia had lost their confidence in the 4.5 percent economic growth this year, even Bank Indonesia on Thursday reduced its economic growth expectation to 4 percent. However, President Susilo Bambang Yudhoyono seems to remain optimistically about the figure. President Yudhoyono's confidence came from the government's plan of allocating a total 73.3 trillion rupiah (about 6.1 billion U.S. dollars) economic stimulus package. "Let us make the economic stimulus a success because it is the state's and people's money and therefore it should be aimed at the right targets and used as much as possible to improve the people's welfare," said the president on March 7, adding that he hoped the funds would be channeled in April. Of the package, 12.2 trillion rupiah (about 1 billion dollars) is for certain departments and ministries for infrastructure development across the country, which is 2 trillion rupiah more than the government's previous plan. The president said that infrastructure development would accelerate economic growth and enable maximum absorption of the work force amid the global financial crisis. According to the previous plan, the 10.2 trillion rupiah (about850 million dollars) could be used to create 1 million jobs directly and another 1 million to 2 million jobs indirectly. Besides, the money is also expected to bring 900,000 laid-off labor forces back to work. Furthermore, the Indonesian government supports the proposal of raising fiscal stimulus to up to 2 percent of gross domestic product (GDP), particularly in 2010, at the meeting of G-20 finance ministers and central bank governors in London. "The fiscal stimulus for 2009 is not a problem. The problem is the fiscal stimulus for 2010 that needs to be raised," Head of the Fiscal Policy Board at the Indonesian Finance Ministry Anggito Abimanyu said on Monday. Although he said the government has not decided about the fiscal stimulus for 2010, it is possible for the country to allocate stimulus funds worth about 105 trillion rupiah (about 8.75 billion dollars) next year.

In spite of the big meaning, the huge stimulus package will definitely increase the budget deficit of the Indonesian government. According to the Financial Ministry's official director general of budgetary affairs Anny Ratnawati, the deficit will hit 137 trillion rupiah (about 11.4 billion dollars) this year, accounting for 2.6 percent of the country's GDP, as against last year's 51 trillion rupiah (about 4.25 billion dollars), or 1 percent of the GDP. Ratnawati made that calculation when the stimulus package was still 71.3 trillion rupiah. With the additional 2 trillion rupiah, the country's budget deficit in 2009 will reach about 139 trillion rupiah (about 11.6 billion dollars). In order to cover the deficit, Indonesia has prepared standby loans worth 44.5 trillion rupiah (about 3.71 billion dollars) and is still seeking loans from other countries and international financial institutions.

Bank Indonesia' Sarwono said on Thursday that the government was in a process to finalize a standby loan worth 1 billion dollars from the Islamic Development Bank (IDB) and the French government. He also said that the government had received 5.5 billion dollars (from Japan, Australia and the Asian Development Bank) before that.

On the other hand, according to the Investment Coordinating Board (BKPM), Indonesia is expected to maintain a 20 percent foreign direct investment growth this year, which is another positive signal to the country's economic growth.

BKPM chief Muhammad Lutfi said on Feb. 24 that though investment growth was not too high this year compared with last year's 43.8 percent, in view of the current global economic crisis the country's economy was still better than that of other Asian countries.

3. DESCRIPTION-DATA

Impact of Global Financial Crisis on Indonesia Tourism Industry

Tourism industry involves travel agents, hotels, domestic and international airlines industries, and other tourism boards. Tourism industry in Indonesia is managed by Ministry of Culture and Tourism Republic of Indonesia.

Stakeholders of Indonesia tourism industry consist of foreign embassies, international organizations, tourism associations, mass media written in English which is promoting Indonesia culture and tourism, travel writers, and tourism information centers (TIC).

UN-WTO (United Nations World Tourism Organization) predicts that due to financial crisis, until December 2008, the growth of world tourism sector will slow down about 2% to 3%, and as the crisis will still impact in 2009, the growth of world tourism sector next year will be in about 0% to 2%.

There was significant decrease number of arrival in several ports, such as in Polonia Airport decrease by 85%, Adi Sumarmo Airport decrease by 69%, and Soekarno-Hatta Airport decrease by 56%. However, the number of arrival in Ngurah Rai airport is not significantly decreased, notably this airport is known as the centre of Indonesia tourism. In total arrivals, there is about 19.65% decrease in number of visitors in September compared to in August 2008, from 599506 to 501018 visitors.

Even though there is decrease in number of visitors in September 2008, if it is compared to the number of visitors in year 2007, according to Ministry of Culture and Tourism, there was an increase percentage by about 12%. In the same period, January-September 2007 and January-September 2007, the press release of Ministry of Culture and Tourism stated that, “the number of international visitors who came to Indonesia in January to September 2008 totaling 4,570,492 visits or rose of 12.19% compared to the same period of 2007 totaling 4,073,983 visits. As an additional data, On October, international visitors came to Bali in 2008 was totaling 138,827 compared to 2007 totaling 111,080 or rose 24.98%. Also the number of foreign visitors are rose in each month during 2008, it makes the decrease number of visitors is not significantly affect the industry.

The other fact is USA visitors is not the highest population of foreign visitors in Indonesia.

The biggest number of visitors was ASEAN visitors for 45% and Asia Pasific visitors for 35%. The number of USA visitors was only 4% from total. This condition make some experts believes that tourism industry in Indonesia will be able to survive after the global financial crisis because USA residents that mostly affected by the financial crisis, are only small number of visitors, even though most country are affected by global financial crisis, the impact is not significant. Some experts also stated that the global financial crisis would only give psychology impact on countries, as long as it wasn’t economic crisis; the impact will not be significant.

From the promotion point of view, there is optimistic of the global financial crisis will not affect tourism industry in Indonesia because Indonesia had successfully run its tourism program in 2008 by holding a lot of events, such as Indonesia Tourism & Travel Fair (ITTF), ASEAN Tourism Investment Forum (ATIF), Asia Beach Games and World Film Festival in Bali, etc. Indonesia is also nominated in New 7Wonders of Nature for 2008-2010 periods by its 3 destinations, those are National Park Komodo Island, Toba Lake, dan Krakatau Island. The program promoting tourism Indonesia is continuing in 2009 with the theme Visit Indonesia year 2009: MICE and Marine Tourism with the target of 8 million visitors.

Indonesian tourism competitiveness in 2009

Indonesia is in the 5^th rank among 8 of 10 ASEAN countries and in the 15^th rank among 25 Asia Pacific countries. The highest position among ASEAN countries is reached by Singapore. However, among Asia Pacific countries, this country is in the 2^nd place and 10^th place among 133 countries, globally. On the 2^nd position of ASEAN, there is Malaysia which also reached 32^nd rank in the world and 7^th in Asia Pacific. Next, Thailand is number 3^rd in ASEAN, 8^th in Asia Pacific and 39^th in the world. On the other hand, Philippine and Vietnam are in number 7^th and 8^th in ASEAN, 86^th and 89^th in the world and 16^th and 17^th in Asia Pacific.

4. CONCLUSION

Global crisis that was happened in 2008, gave negative effect towards countries such as : Europe, Asia pacific, America and its districts. Indonesia is also one of the countries that was effected by this severe crisis, because it will cause some difficulties for companies and give loss for the country. Global economic crisis gives impact to tourism aspects and people are tend to save their money than spend it for recreation due to this crisis. So that, number of passengers are declined over 50% in some airports in Indonesia. However, Indonesia still creates many interesting events to attract tourists. By these events, Indonesia is able to keep its tourism until 2009 and reach 5^th rank in ASEAN. These make Indonesian tourism still exist because of devisa that was earned from international tourist even though the effect of the economic crisis gives damage to world’s economic in many aspects.