Headline / October 2019
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.
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.
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.
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.
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|
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