Headline / October 2019

Surviving Economic Headwinds

By Muhamad Al Azhari

“Economic prospects are weakening for both advanced and emerging economies, and global growth could get stuck at persistently low levels without firm policy action from governments,” the OECD said in a statement accompanying the report.

The 36-member intergovernmental organization estimates that the global economy will grow at 2.9 percent this year and 3 percent in 2020. This would represent the weakest annual growth rate since the 2008 global financial crisis. Global economic growth stood at 3.6 percent last year.

The report also unveiled projections on the Indonesian economy, predicting that Southeast Asia’s largest economy would likely expand by 5 percent in 2019 and 2020.

“Trade weakness, especially in Asia, is holding back export growth [in Indonesia], but rising incomes, falling poverty rates and recent reductions in policy interest rates should help to ensure that private sector demand remains resilient,” the report said. This latest projection is 0.1 percent lower compared with the OECD’s May report and 0.2 percent less than last year’s 5.2 percent.

Despite the bleak outlook, the OECD report shows that Indonesia remains one of few emerging markets in Asia projected to maintain growth at the 5 percent level.

Only China, at 6.6 percent, and India, at 6.8 percent, are expected to beat Indonesia in terms of gross domestic product growth. The outlook for other emerging market nations, such as Brazil, Argentina and Turkey, is far bleaker. The OECD forecast that the Brazilian economy would grow by 0.8 percent, while Argentina and Turkey are expected to see their economies shrinking by 2.7 percent and 0.3 percent, respectively.

A Correction?

Werner Steinmueller, Deutsche Bank’s chief executive for Asia Pacific, commented on prospects in both the global and Indonesian economy in a recent interview with GlobeAsia.

He said he saw “a certain slowdown” in the world economy, but remained positive about the fundamentals.

“The reasons include the trade war between China and the United States. But let’s also keep in mind, we had many years of global growth of between 3 percent and 4 percent, which is a long time. I see a certain correction, but the global fundamentals are still very strong,” he said.

About the Indonesian economy, he said: “First, you can’t constantly grow at the same rate. Sometimes there are setbacks. Now that the election is done, the country has a clear strategy going forward. Globally, we shouldn’t forget that it is one of the countries with the highest growth rates, which is positive. In Europe, we have about 1 percent, but here, it is about 5 percent. This is far above the global growth rate and it is already a sizeable economy.”

Indonesia’s economic growth edged down slightly in the second quarter on weaker exports and an investment slowdown, which offset a boost from the elections and festive spending, Central Statistics Agency (BPS) data showed in August.

The country’s economy expanded 5.05 percent between April and June, compared with 5.07 percent in the previous quarter. That was the slowest in the past six quarters and far behind the government’s 5.2 percent target for this year.

According to GlobeAsia’s calculations, most of the top-100 groups operating in Indonesia, be it local or foreign-controlled, are enjoying higher revenue. Strong household consumption by the country’s population of some 260 million people has been the key behind the stable revenue of corporations in Indonesia.

However, even with such strong consumer demand, the Indonesian economy is not unchallenged, as global headwinds and fragility are expected to have an effect.

Astra International, Indonesia’s largest conglomerate, often seen as a barometer of the country’s economy due to the diversity of its business interests, saw its revenue increase 3 percent to Rp 116.18 trillion ($8.2 billion) in the first half of 2019. Despite this, profit declined 5.59 percent to Rp 9.8 trillion, amid weaker demand for cars, and lower crude palm oil prices.

Other groups in the top five on GlobeAsia’s list, including the Salim Group, Djarum Group, Sinar Mas Group and Gudang Garam Group, are also enjoying higher revenues.

Cautious Optimism

Most of the executives of the top-100 groups GlobeAsia interviewed, expressed optimistism about growth prospects in the Indonesian economy, although they are also worried about the impact global volatility might have.

Michael Widjaja, chief executive of Sinarmas Land, a well-entrenched market leader in Indonesia’s property sector, which controls three listed subsidiaries with a combined market capitalization of $3.73 billion as of Sept. 27, said he generally remained upbeat about the country’s economy, “but with caution, as conditions in the world are deteriorating.”

“Things such as a global economic slowdown and the US-China trade war will affect our economy,” he said.

Michael complained that the property sector had been disincentivized over the past four years. “Government policies, such as the recent tax amnesty, and the elections, including regional, legislative and presidential elections, have slowed demand,” he said. “I don’t think we should give up, though. I still believe there are opportunities in times of crisis,” Michael added.

Tigor Siahaan, president director of Bank CIMB Niaga, Indonesia’s sixth-largest lender by assets, had a similar message. He remains “cautiously optimistic” about the Indonesian economy.

Tigor said he was upbeat that strong domestic demand would help the country maintain its growth momentum, but he was cautious about the negative impact uncertainty may have on the global economy.

“Many are talking about whether a recession is coming to the US; talk like that demands a careful response, because it could become a self-fulfilling prophecy,” he said.

CIMB Niaga, which is controlled by Malaysia’s CIMB Group, has managed to survive the challenging business environment. It booked 12 percent higher net income in the first half of this year at Rp 1.98 trillion, thanks to growing net interest income and a decline in its loan-loss provision.

CIMB saw its loan growth negatively affected by weaker demand from large corporations, but managed to offset the drag by boosting its consumer loans and improving the quality of its loans.

Rate Cuts and Looser Banking Regulations

Meanwhile, Bank Indonesia Governor Perry Warjiyo said on Sept. 19 that the central bank was anticipating a “prolonged impact from the trade war,” which is affecting trade volumes and global economic growth.

Indonesia, which saw its economy growing at a two-year low in the first half of this year, must also cope with higher oil prices, which have continued to weigh down the global economy.

As part of efforts to lift the country’s economy, Bank Indonesia trimmed interest rates for a third straight month on Sept. 19 while also relaxing some rules on lending. The central bank cut its seven-day reverse repurchase rate by 25 basis points to 5.25 percent, bringing the total cut this year so far to 75 basis points.

The latest round of easing by the US Federal Reserve lowered borrowing costs to prop up growth in the world’s largest economy. In a separate statement on the same day, Bank Indonesia explained that “the tit-for-tat imposition of higher import tariffs by the United States and China was stifling world trade volumes and global economic growth. The US economy is moderating on declining exports and nonresidential investment. In addition, economic growth in Europe, Japan, China and India continues to decelerate on weaker exports, which has fed through to lower domestic demand.”

“The global economic slowdown has triggered lower international commodity prices, including oil, leading to mild inflationary pressures. In response, many countries have introduced fiscal stimuli and relaxed monetary policy,” the bank said.

According to central bank data, the total outstanding loans distributed by Indonesian lenders stood at Rp 5,528.6 trillion, having increased 9.94 percent year-on-year. This growth represented a slowdown compared with May’s growth of 11.05 percent. Bank Indonesia said this was due to weaker demand for corporate loans.

For the whole of 2019, however, Bank Indonesia remains upbeat that total outstanding loans disbursed by the banking industry would increase to the 10 percent to 12 percent year-on-year range, before hitting 11 percent to 13 percent in 2020. The central bank is forecasting GDP growth of 5.1 percent this year and 5.3 percent next year.

Among the central bank’s efforts to stimulate growth is looser regulations on loan-to-deposit ratios, expected sometime this year. This will be done by changing the definition of deposits in its “macroprudential intermediation ratio.” Such policy is expected to add Rp 128 trillion to the calculation for deposits, which means it would give commercial banks room to lend more.

Bank Indonesia will also relax its rules on loan-to-value ratios for property loans and vehicle financing, which would lower down payments on such loans by up to 10 percent.

Fiscal Policy

In another effort by the Indonesian authorities to prop up growth, Finance Minister Sri Mulyani Indrawati said, as quoted by Reuters, that the government might allow its 2019 fiscal deficit to widen further than 1.93 percent of GDP, from an initial target of 1.84 percent, as the country seeks to maintain growth momentum, while on the other hand, working hard to arrest a shortfall in tax revenue.

In July, the minister flagged an estimated Rp 134.3 trillion shortfall in revenue collection this year. However, she said the government would likely spend Rp 119.5 trillion less than planned, thus offsetting the soaring budget deficit.

Indonesia had based its 2019 revenue target on the assumption that its economy would grow at 5.2 percent. The government booked revenue of Rp 1,189.3 trillion, while spending Rp 1,388.3 trillion in the first eight months, resulting in a deficit equal to 1.24 percent of GDP.

During a visit to the offices of GlobeAsia’s parent company, BeritaSatu Media Holdings, in Jakarta recently, Tax Director General Robert Pakpahan said the tax office was also eager to provide incentives to encourage greater investment in the country. The government recently launched a super-deductible tax policy for companies implementing vocational and research programs.

The policy allows companies to mark up their spending on vocational education for employees by up to three times in their tax reports.

This will result in higher virtual costs and lower profits, thus lowering their tax liabilities. Companies may also mark research expenses up by four times. “This is in line with our vision to have excellent human resources,” Robert said.

Apart from the super-deductible tax policy, the government has also simplified procedures for tax holidays and tax allowances, seeking to make Indonesia more attractive to investment.

Regarding tax holidays, Cornel B. Juniarto, senior partner at Hermawan Juniarto & Partners – a member of the Deloitte Legal Network – highlighted this as the hottest issue for large Indonesian corporations. However, “investors often find it difficult to benefit from this facility,” he said.

Tax holidays provide for corporate income tax cuts reductions of between 50 percent and 100 percent over five to 20 years. The calculation starts from the beginning of commercial production, depending on the value of the planned investment.

Second-Half Slowdown

In a report GlobeAsia received on Sept. 27, DBS Group Research said Indonesia was likely to see a further slowdown in the second half as the economy lacks stimulus. The country’s economy saw a boost from the simultaneous presidential and legislative elections in April, followed by Ramadan and the Idul Fitri holiday in May and June, all of which have jacked up private consumption and state spending.

However, the report said private consumption was likely to slow in the second half, due to the weak subsidies the government was pouring into the economy. Meanwhile, consumption outside Java was likely to be affected by lower prices of commodities such as crude palm oil and coal.

DBS Group Research analysts David Arie Hartono, Andy Sim and Cheria Christi Widjaja said commodity and agriculture-based industries employ about a third of the total Indonesian workforce.

However, the report said job creation appeared to remain strong in the second half, thanks to the government’s accelerated infrastructure development programs, which have also jacked up construction workers’ incomes. Christmas and the New Year’s celebration are, as usual, also expected to boost domestic consumption.

Statistics agency data shows Indonesia recorded its lowest rate of unemployment in more than a decade this year, which is another positive sign that the economy is improving, the report said.

Other than these factors, the DBS Group also expects strong activity in the retail sector, be it from brick-and-mortar retailers or e-commerce platforms.

“The biggest threats that can erode company profits could come from a fluctuation in the rupiah exchange rate. The rupiah volatility is a potential risk in the second half, as this correlates strongly with [Indonesia’s] high reliance on imported consumption products,” the DBS Group said in its report.

“Every depreciation of the rupiah will erode companies’ margins,” it added.


100 Top Groups 2019

RANK GROUP OWNERSHIP REVENUE 2018 REVENUE 2019
1 Jardine Matheson (Astra International) Henry Keswick and family $14.7 billion $17.07 billion
2 Salim Group Anthoni Salim $12.1 billion $13.5 billion
3 Djarum Group Robert B. Hartono and Michael Hartono $9 billion $10.2 billion
4 Sinar Mas Group Eka Tjipta Widjaja $8.7 billion $9.5 billion
5 Gudang Garam Group Susilo Wonowidjojo $7.5 billion $8 billion
6 Philip Morris International (Altria Group) Foreign/US $7.1 billion $7.5 billion
7 Lippo Group Mochtar Riady $7 billion $7.4 billion
8 Royal Golden Eagle Group Sukanto Tanoto $5.7 billion $6 billion
9 Alfamart Group (Sumber Alfaria Trijaya) Djoko Susanto $4.3 billion $4.8 billion
10 CT Corp Chairul Tanjung $3.6 billion $4.1 billion
11 Charoen Pokphand Sumeth Jiaravanon and Benjamin Jiaravanon $3.5 billion $3.7 billion
12 Adaro Energy Edwin Soeryadjaya, Boy Thohir, TP Rachmat $3.1 billion $3.6 billion
13 Temasek Group Government of Singapore $3.3 billion $3.5 billion
14 Bakrie & Brothers Aburizal Bakrie $3.1 billion $3.2 billion
15 Barito Pacific Group Prajogo Pangestu $2.4 billion $3.2 billion
16 Unilever (Mavibel BV) Foreign/Dutch $2.9 billion $2.95 billion
17 Triputra Group TP Rachmat $2.8 billion $2.9 billion
18 Indika Energy Group Agus Lasmono and Wiwoho Basuki $1 billion $2.9 billion
19 Wings Group Eddy William Katuari $2.8 billion $2.85 billion
20 MUFJ Indonesia Foreign/Bank of Tokyo-Mitsubishi UFJ Financial Group, Inc (MUFG) $2.8 billion
21 Japfa Comfeed Handojo Santoso $2.1 billion $2.5 billion
22 Northstar Group Patrick Walujo and Glen Sugita $2.1 billion $2.4 billion
23 Erajaya Sembada Budiarto Halim $1.7 billion $2.4 billion
24 Tiphone Mobile Indonesia Hengky Setiawan $2.1 billion $2.2 billion
25 Indo Tambangraya Megah Tbk (Banpu Minerals) Foreign/Thailand $1.65 billion $2.1 billion
26 Gajah Tunggal Group Sjamsul Nursalim $2 billion $2.1 billion
27 Panasonic Gobel Group Rahmat Gobel $1.8 billion $1.9 billion
28 Teladan Group Wiwoho Basuki $1.9 billion
29 Argo Manunggal The Nin King $1.6 billion $1.85 billion
30 ABC Group Husain Djojonegoro $1.7 billion $1.8 billion
31 Bank CIMB Niaga Group CIMB Group SDN Bhd $1.78 billion
32 Mayora Indah Jogi Hendra Atmaja $1.4 billion $1.7 billion
33 AKR Corporindo Haryanto Adikoesoemo $1.3 billion $1.7 billion
34 Bank Panin Group Mu’min Ali Gunawan $1.6 billion $1.65 billion
35 XL Axiata Group Private $1.6 billion $1.6 billion
36 Bayan Resources Dato Low Tuck Kwong $1 billion $1.6 billion
37 Qatar Investment Authority (Indosat Ooredoo) Foreign/Qatar $2.1 billion $1.6 billion
38 Kalbe Farma Group Boenjamin Setiawan $1.4 billion $1.55 billion
39 Bentoel Investama (BAT) Foreign/UK $1.4 billion $1.5 billion
40 Lion Air Group Rusdi Kirana $1.3 billion $1.4 billion
41 Kompas Gramedia Group Jakob Oetama $1.3 billion $1.4 billion
42 Ciputra Group Ciputra $1.3 billion $1.35 billion
43 Maybank Indonesia Tbk Maybank Malaysia $1.2 billion $1.3 billion
44 Medco Energi Arifin Panigoro $900 million $1.3 billion
45 TNT Group Teddy Thohir $1.1 billion $1.2 billion
46 FKS Multi Agro Agro product trading $910 million $1.09 billion
47 Heidelberg Cement Group (Indocement) Foreign/Germany $1 billion $1.08 billion
48 Sritex Group (Sri Rejeki Isman) Iwan S. Lukminto $734 million $1.07 billion
49 Bosowa Group Aksa Mahmud $1 billion $1.05 billion
50 MNC Investama Hary Tanoesoedibjo $970 million $1.05 billion
51 Gunung Sewu Group Husodo Angkosubroto $980 million $995 million
52 Persada Capital Group Arini Subianto $970 million $990 million
53 Brasali Group Budi Brasali family $542 million $975 million
54 Sungai Budi Group Widarto Oey and Albert Oey $630 million $950 million
55 Tunas Ridean Anton Setiawan $925 million $930 million
56 OCBC-NISP Foreign/Singapore, OCBC $915 million $920 million
57 Sintesa Group Johnny Widjaja $785 million $900 million
58 Gunung Garuda Group Djamaludin Tanoto Family $866 million
59 Tempo Scan Pacific (Bogamulia Nagadi) Handojo Muljadi $883 million $850 million
60 Harita Group Lim Hariyanto $825 million $840 million
61 HSBC Group Foreign/UK $810 million $815 million
62 Central Cipta Murdaya (Berca Group) Murdaya Poo and Siti Hartati $805 million $810 million
63 Arsari Group Hashim Djojohadikusumo $800 million $810 million
64 Mayapada Group Tahir $800 million $805 million
65 Indorama Synthetics Group Sri Prakash Lohia $790 million $802 million
66 ABM Investama (Trakindo) A.H.K Hamami $668 million $800 million
67 Vale (CVRD Inco Limited) Foreign/Brazil $609 million $776 million
68 Metrodata Group Susanto Djaja $772 million $775 million
69 Ganda Group Martua Sitorus and Ganda Sitorus $765 million $770 million
70 Sugar Group Gunawan Yusuf $730 million $755 million
71 Holcim Indonesia (Solusi Bangun Indonesia) Foreign/Switzerland $670 million $741 million
72 Tembaga Mulia Semanan Foreign/Furukawa Electric & Supreme Cable $737 million
73 Catur Sentosa (Mitra21 Group) Budiyanto Totong $667 million $735 million
74 Darmex Agro Group Surya Darmadi $725 million $730 million
75 Fajar Surya Wisesa Winarko Sulistio and Intercipta Sempana $524 million $710 million
76 Musim Mas Group Bachtiar Karim $600 million $670 million
77 Rekso Group Soegiharto $650 million $670 million
78 Hadji Kalla Group Jusuf Kalla $620 million $650 million
79 Emtek Group Eddy Sariaatmadja and Fofo Sariaatmadja $542 million $640 million
80 Pan Brothers Ludianto Setidjo & Anne Patricia Sutanto $531 million $629 million
81 Bank Bukopin Kopelindo $779 million $628 million
82 Saratoga Group Edwin Soeryadjaja $601 million
83 Bintraco Dharma Simon Harto Budi and Sebastianus Harno Budi $510 million $590 million
84 Capital Financial Indonesia Dany Nugroho $470 million $585 million
85 Tudung Group (Garuda Food) Sudhamek AW $545 million $572 million
86 Rodamas Group Private Tan Siong Kie $540 million $550 million
87 Santini Group Sofjan Wanandi $540 million $545 million
88 Ace Hardware (Kawan Lama Sejahtera) Kuncoro Wibowo $424 million $520 million
89 Modern Group (Modernland, Modern industry) Luntungan Honoris $555 million $510 million
90 Pakuwon Jati Alexander Teja $407 million $501 million
91 Lautan Luas Jimmy Masrin $471 million $500 million
92 Mulia Group Eka Tjandranegara $448 million $490 million
93 Samudera Indonesia Shanti Poesposoetjipto $416 million $482 million
94 Rajawali Group Peter Sondakh $470 million $475 million
95 Lotte Chemical Titan Tbk Private $419 million $450 million
96 Humpuss Group Tommy Soeharto $415 million $450 million
97 MCash Integrasi Group Martin Suharilie and Michael Steven $446 million
98 Baramukti Suksessarana Group Wahana Sentosa Cemerlang $445 million
99 Fast Food Indonesia Dick Gelael $378 million $430 million
100 Ramayana Lestari Group Paulus Tumewu $401 million $407 million