I.
Theoretical
Review
In
this ‘Analysis of Factors Affecting
Indonesian Economic Growth and Indonesian Capital Market for 2007 – 2013’,
there are several terms that should be deemed crucial for us and require us to
have the same understanding in order to go deeper into each comprehension and
practical analysis (next sub titles). Every each definition and theories
brought several factors and variables that are obviously reffering to the
factors we should count on as the topic of this short paper.
A.
Economic Growth
and Economic Development
Economic
growth is an occurance when in certain period of time/year, national income
(National Products/GDP/GNP) changes or increases, without concerning the
population growth and so on. Meanwhile, economic development is an economic
growth that may cause changes, especially in decreasing population growth and
structural-economic improvement, to form national income with distribution of
employment (S. Kuznets, HB. Chenery).
The
two definitionis led us into a discussion: “Which kind of improvement we want
from the society?” Of course, rational answer will choose the economic
development because the economic development doesn’t only consider the increasing
amount of national income, but also considering other factors that affect the
normality of national income such as, income dispersion, employment, and
population growth. Such a thought may ease us to practically think about the
effectiveness and efficiency of any kind of national income report, whether it
is developing a nation or not (will be explained in next sub titles).
B.
Three Approaches
of Measuring National Income
From
the basic learning of macroeconomics, in order to ease us measuring the factors
and considering things happened in Indonesia around 2007 – 2012, we might agree
altogether the three approaches to measure national income. Like it is stated
above, the methods/approaches are really useful in order to both calculate and
qualify the factors indicating the economic growth (development).
·
Production
Approach: considers the whole nation’s total production values.
·
Income
Approach: emphasize about the factors of endowment’s incomes. Wages represent
the income of employees, rent represents the income of the natural resources’
owner, interest reffers to the income of financial capital owners, and profit
represents the income of the business owners. The four dimensions are briefly
explaining the flow of income nationally.
·
Spending
Approach: considers the whole economic actors’ spending as income because all
of spendings will go to them again as consumptions. Consumptions here represents
the consumers’ spending, while investments represent the firm’s spending. Of
course, our note should be emphasized on the nett export where our national
income is deducted by the imports we are conducted to the foreign countries.
C.
Capital Market
and Financial Economics
A
stock represents a share of ownership in a corporation. Thus, the owner of the
stocks are the owner proportionally to the company and also having a right for
the company’s profit. With the volatility of the bargain of capital market’s
stock prices, it is important for companies in decision making. A higher price
for a firm’s share reffers that the company may issue larger funds for the
company’s operations. In finance, capital market is critically important, since
it is one of the most favorite financial markets in every part of the world,
especially in Indonesia whose domestic investors are continuously growing day
by day. In capital market, we shouldn’t forget too that this is one of the
intermediarries that is indirectly flowing funds to firms / businesses /
individuals. Terms like primary-secondary market, dividends and capital gain as
the income of operationg in having account in capital market, time horizon
behaviors of investing in the capital market, liquidity, brokers’ companies,
and the relation to banks (investment bank) are direct and indirect correlation
to the capital market. BI rate and money supply also support the movement of
the capital market. One more important insight is the general functions of
capital market to be:
·
Capital
provider for firms
·
Facilitator
of income distribution and production capacity
·
Inventors
of job vacancies
·
National
economic development indicator
II.
Analysis of
Indonesian Economic Growth
There is one question for our
discussion: “does the two representative growth of GDP really show the economic
growth?” In theoretical review, we just discussed that the type of economic
growth that a country rationally should achieve is the economic development. De
we have the economic development by seeing those statistical improvement?
Roughly saying: Yes. With average of only 1.49% of population growth (from
2000) and more than 6% of GDP growth per year from 2007, we can say roughly
that the improvement really represents economic development since the GDP is
increasing GDP increases as the denominator for GDP per person is decreasing.
However, we can still claim that
Indonesia is still struggling after the 1998 crisis for the Gini ratio for
income dispersion. The condition was led by the high competition environment
built by the end of reformation era. Stability is really critical during the
time until now. That’s why stable economic development is really targeted by the
government for the national improvement. To highlight our evaluation for 2007 –
2012 Indonesian economic growth, let us separate the comprehensions into these
points:
A.
Production
Approach
In this approach, the most interesting thing
is that construction business took the biggest part of the PDB proportion. This
is obviously happening because we know that the government wanted
infrastructure business to develop for recent 5 years. That’s why, one of the
most important factor here is the government
policy that can be said as a driver of economic develpoment. In Indonesia
itself, we may see that because of the government project, the country can
drive the economic development and pushed its GDP to rise. In this production
approach, we may see how Indonesian government set up its strategy too. With
cheap factors of production and open market for long term use, construction
projects are essential. Even though now we are still lacking with foreign
balance trade deficit, we may see that the strategy is to set up development in
all sectors too in the end.
B.
Income Approach
For income approach, time by time from 2007 –
2012, government sets up stabilized interest rate, BI rate, and wages accross
all provinces. Many people criticize that the standard of living in Indonesia
is still lacking. Yes, it is surely true, but there are some perspective too
showing that the government is eager to build private companies move on,
especially in SMEs (Small and Medium Enterprises) with continuously growing
allocation of loan policy from banks (commercial banks) too and the
psychological behavior for people to start rely on other more value added
financial instruments, such as stocks, rather than fixed interest rate which is
lower than yearly inflation.
C.
Spending Approach
Budgeting has a
significant role of Indonesia economic growth too. Many businessman are
cautious for what kind of policy the government wants to make every year.
That’s why many of them react according to the government budget to see how /
to what direction the national economic growth wants to expand. Thus, the
national budget (APBN) has critical role to affect the national economic
development. Indonesian consumers do not also have really positive price index.
It is quite sensitive not to buy in recession time (2008) when some convenient
goods were more expensive. From the report of 4 major national spendings (C, G,
I, and Xn). Indonesia has had tendency to increase the Investments and
Government expenditure, while deficit in high utilization of nett export is had
to build the national economy and infrastructure which still relies on
international finance.
D.
Structural
Concerns (Macro and Micro Aims of the Country)
·
Law of Engels: the continuous industrial
development will develop the consumption on industrial goods, rather than
stable consumption (or even sensitive consumption) on agricultural goods.
That’s why Indonesia still prefer to industrialize and build construction for
the economic development.
·
Industrial and infrastructure effectiveness
and efficiency is critical to the national development, since it has two main
characteristics: compulsory (in high tech and high information-bargaining era)
and inducive (to diverse the industry into several competitiveness that a
country has). For example, in Indonesia it has been both a challenge,
obstacles, and market to build more sufficient infrastructure to utilize the
big population and dispersed market location, in order to reach economic
efficiency.
·
Comparative advantage of agricultural sector
for Indonesia, rather than industry by the developed nations.
·
To finance businesses in Indonesia, especially
for local people (even though it is not easy to control and train with less non
performing loan), government even surpress the interest rate below the
inflation (by maintaining the both to be stable) in order to support to local
businesses to show off. Such a policy has been practiced since Gus Dur era,
when Indonesia relied on its most SMEs to recover its economic condition. Thus,
both fiscal and monetary policy makers have been important variables affecting the
economic development.
·
Privatization of state-owned corporations is
one of good example of how policy supported the national economic development
(that later connected to the analysis of Indonesian capital market too).
·
Fiscal policy that should prioritize the
national economy independency, started from the reformation era, until now,
many attempts built by the government to have healthy financial reports and
budget.
o
Expansive fiscal policy to recover
international debts continuously.
o
Rationalize excessive subsidies, even more for
the imbalanced subsidies, like BBM and foods have been continuously decreased.
o
Balance of fund dispersion. The very practical
example is the application of the income tax increasing in 2007 – 2008, in
order to continuously reach the national economic independence.
o
To reach the three purposes up there, there
are three principles that should be had: (1) Information transparency as shown
from the starting of the beginning of 2000’s to provoke the public
understanding of rational national development; (2) Careful drafting process,
as shown by top-down and bottom-up budgeting; and (3) Intensive
legislative socialization in order to build good communication.
·
In micro perspectives, these issues are raised:
o
Financing, marketing, and development of SMEs
in global environment.
o
Extinction of fertilizer and food reliability
(that made much effort in maintaining agricultural businesses).
o
High tech agribusiness challenges (especially
to preserve the comodities).
·
In financial politics and regulations, there
have been several considerations about:
o
Import controls and Tariffs, represented by
experts that criticized the government attempts to be said as addicted to
imports that become one of factors to demote the national businesses. There has
been also issues about gap dispersion about what was being regulated by
governments and what was the reality of conduct by government, especially in
doing the import.
o
Structural monopoly: as I have described
above, I guessed that there are several parties to be quite suspicious about
why Indonesia still had high dispersion of income with such a low standard of
economic income. The answer is the structural monopoly. In Indonesia, we forbid
the conduct of pure monopolist, but in fact the critical businesses in
Indonesia are owned by mere several parties with central asset focus because of
being close and directly correlated to the bureaucratic government. The
solution is the practice of UU (Regulation) No. 5/1999 about fair competition
with anti conglomerat of structural businesses and the ownership publication if
BULOG.
o
Corporative restructurization of natural
resourced-based businesses to be more transparent to the economic development.
o
Provincial demand-based economic activities.
III.
Analysis of
Indonesian Capital Market
Understanding and Applications in Indonesia
Analyzing
the factors afftecting performance of the Indonesian capital market requires
the basic understanding of Indonesian financial markets. Here is its simple
understanding:
The
table is necessary for us to understand because it happened in developed and
developing countries, when the interest rate sometime exceeds significantly
from the inflation in the countries (that can be even 0% in developed
countries). If this occurs, then the capital market will be less attractive for
investors and if so, then the stock prices will fall down and investors would
prefer to deposit their money rather than invest it in capital market with high
risk. The long term effect from this occurance is that companies and businesses
may not be run well and the national economy will absolutely go down, until
there is no market power—no market power means no efficiency. Thus,
categorizing the each financial markets is essential for government to set up
fiscal and monetary regulations and for investors to know the financial
symptoms.
Now,
after understanding the brief concept of financial markets, we will go through
further analysis of factors affecting Indonesian capital market:
After
seeing the chart and discussing macroeconomic variables, causes, and factors
that may affect the performance of the capital market, I personally think that
maybe the best option for us to evaluate the chart volatility is by using two
basic methods: (A) Event and (B) Behavioral Studies:
A.
Event Studies
After all effect predictions in Indonesia
pasca oil recession before 2007, the reeality knocked down extreme critics that predicted the economy
fall down during the period. Unfortunately, in the year of 2007 itself, USA
faced economic crisis that related to many major businesses and investments,
especially in property and huge fund managers in USA even bankrupted. Facing
similar recession, this time many experts believed that the condition may not
affect Indonesian business operations. Actually, it may be said true in one
side, but on the other side it was the capital market operations that was
downsided by the crisis. Majority of Indonesian foreign investors (where
foreign investors prefer longer time horizon of investment rather than domestic
investors) are from the USA and this time the situation led to the recession of
JCI prices, even worse several critical financial intermediarries in Indonesia
invested the people’s money in the bankrupted USA fund managers. Fortunately,
the situation was handled quickly and was prevented to be widened and now
Indonesia is able to move on the continuous structural strategy of
infrastructure development: SEA GAMES, ASIAN GAMES & PARALYMPICS, PON, lots
of other nameable huge projects have been the force and motivation of Indonesia
build more efficient infrastructure that in the last supports the all the
national economy systems. Thus, the JCI recovered this time.
B.
Behavioral
Studies & Information
The effect of the volatility of JCI can be
said mostly caused by the behaviors of it investors. We must have been familiar
that common investors in IDX are short trader. Thus, they rely the public
information so much, such as regular financial statements, news, expansion,
regulations, and so on. In the case, information is published by all around the
world and the investors themselves can come from all around the world. The
information itself causes the expectation of the investors since we remember
that there are several types of investors in facing risks. For example, the
occurance of 2008 global crisis might have affected the Indonesian capital
market, but not with the GDP. Why was that? It was because of the dynamic
movement of investors, without knowing that even several MNCs in Indonesia are
able to stand independently from the holding companies.
IV.
Conclusion
Indonesian capital market is one of
the economic indicators to reach the national economic growth that should
surpass the macroeconomic factors, or else can be said where the economic
development is the sufficient aim of any economic growth. Indonesia as developing
nation is still struggling to overcome many political, regulatory, and
practical issues both in macro and microeconomy to execute better national
business operations. As our special notes today about the capital market,
knowing, educating, and developing the investors’ behaviors are critical to any
issues happening. In this case, accountable information takes really important
position to determine the capital market performance. After all, I still
believe that there is still open hope for Indonesia to reach both economic
growth and educated capital market operations.
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