This Week's Headlines (March 23 - 29, 2024)

28 Mar 2024

This Week's Headlines

Apindo calls on incoming govt to raise deficit cap to 5%


The Indonesian Employers Association (Apindo) has called the incoming administration of president-elect Prabowo Subianto to relax the state budget’s mandated deficit cap to 5 percent of GDP.  


Currently, the budget deficit is capped at 3 percent as per Law No. 17/2003 on state finances, which also mandates that the government’s outstanding debt should not exceed 60 percent of GDP.  


Apindo chairperson Shinta Kamdani said on Monday that raising the deficit cap to 5 percent would give the government more leeway to finance development projects for at least the next five years.  


The association’s call comes after the General Elections Commission (KPU) declared on March 20 that Defense Minister Prabowo Subianto was the winner of the presidential election with 58.58 percent of the vote.  


“The thing that Pak [Mr.] Prabowo as president-elect can consider for the next five years is relaxing the maximum limit of fiscal deficit to GDP,” Shinta told on March 25. 


The 2003 law set a 3 percent deficit cap to avoid a financial crisis like the one in 1997-1998 that affected Indonesia and other emerging economies.  


The only time the government breached this limit was during the COVID-19 pandemic, the impacts of which pushed up the deficit to as high as 6.14 percent of GDP in 2020.  


That was the same year that the government lifted the cap, but doing so also led to a rise in the country’s debt-to-GDP ratio to almost 40 percent from around 30 percent in 2019. 


Prabowo has made statements on numerous occasions hinting at the possibility of a more expansionary fiscal policy.  


On March 5, he questioned the limits placed on the budget deficit and the debt-to-GDP ratio, respectively 3 percent and 60 percent.  


These limitations were adopted from the European Union’s Maastricht Treaty, which was introduced in 1992 and still forms the foundation of the bloc’s fiscal rules.  


Prabowo claimed that major EU countries did not meet these rules, saying that France, Germany and Italy were among those exceeding the fiscal cap.  


But Drajad Wibowo, an economist who was on the Prabowo campaign’s expert team, told The Jakarta Post in an interview on Thursday that the president-elect might not raise the budget deficit cap.  


“Prabowo understands very well the importance of fiscal discipline. Second, he also understands that no president or prime minister in the world can beat the market,” said Drajat, denying speculation that Prabowo was planning to stretch the deficit target.  


Many experts, however, expect many of his flagship campaign promises to increase the deficit.  


Drajad insisted that funding for these programs would come from the state revenue, in line with Prabowo’s idea of increasing the tax ratio.  


Among them is the free school lunch program, which targets more than 82 million students at elementary and secondary schools nationwide. The program is expected to cost at least Rp 100 trillion (US$6.4 billion) in its initial year before gradually rising to an annual budget of Rp 460 trillion by the time it is fully implemented in 2029. 


Source: The Jakarta Post 



Indonesia's Antam to start building new nickel smelter, HPAL plant in 2025


Indonesian state-controlled miner Aneka Tambang (Antam) (ANTM.JK), opens new tab aims to launch the construction of two nickel processing facilities next year under its partnership with China's Ningbo Contemporary Brunp Lygend Ltd (CBL). 


The projects are part of Antam's deal with CBL to develop an "ecosystem" to produce materials used in batteries for electric vehicles (EV), and part of Indonesia's bigger ambition to set up itself as a production hub for EVs. 


Antam and CBL concluded the first stage of the deal in December, through sales of shares in two of Antam's nickel mining units to CBL. 


This year, the companies involved are conducting feasibility studies for a rotary klin electric furnace (RKEF) plant to process nickel into crude metal and a high-pressure acid leach (HPAL) plant to extract the material used in EV batteries from nickel ores. 


"Next year, at the industrial park, we must (start) building the RKEF and HPAL plants," Nicolas Kanter, chief executive of Antam told reporters late on Monday. He did not give a specific location but Antam said in a statement last year it plans to develop the park in East Halmahera regency in North Maluku province. 


Among the items in the feasibility studies are the possibility of using natural gas to power the HPAL plant. Most nickel processing facilities in Indonesia are currently powered by coal. 


"We are looking into using gas power for the HPAL plant, but the feasibility study is needed to make sure the economic viability of the project is not significantly impacted," Kanter said. 


"We all want 'green nickel' for this project because all consumers now demanded that the ESG aspects are fulfilled," he added. 


Joint-venture units will be set up for each the RKEF and HPAL plants, he added. 


Source: Reuters 



Grant Thornton Predicts Indonesia's GDP Growth at 5.7% for 2024


Business consultant firm Grant Thornton Indonesia, in collaboration with Katadata Insight Center, forecasts a robust surge in Indonesia's Gross Domestic Product (GDP) growth, ranging between 5.3 percent and 5.7 percent for the year 2024. This upswing is attributed to heightened consumer spending linked to both the electoral process and the upcoming Eid al-Fitr holiday. 


Johanna Gani, CEO of Grant Thornton Indonesia, emphasized the pivotal role of the rapidly expanding middle class in propelling this growth. She anticipates a notable uptick in consumption across various sectors including logistics, transportation, infrastructure, media, textiles, garments, renewable energy, healthcare, and technology throughout 2024. 


President Joko "Jokowi" Widodo has set a target of 5.2 percent economic growth in 2024, surpassing the 5.05 percent growth achieved in 2023. 


In contrast, the International Monetary Fund (IMF) projects Indonesia's growth rate to reach 5 percent for both the present and upcoming years. Meanwhile, the World Bank forecasts a slight decline in growth for 2024 and 2025, with rates anticipated to settle at 4.9 percent annually. 


Looking globally, Johanna Gani anticipates a stable 3.1 percent growth in the global economy for 2024. However, she cautions that this growth will likely be moderate overall due to varying performances among countries and ongoing conflicts. 


Amidst a change in leadership with President Joko Widodo, Johanna notes a cautious stance among certain investors, despite sustained interest from foreign investors, particularly in government infrastructure projects. 


Furthermore, the emergence of the "New Era of Nickel" in Indonesia's mining sector is expected to gain traction, offering promising investment prospects, especially in light of the electric vehicle (EV) revolution. 


The new government is expected to maintain a focus on stability and economic development while upholding existing policies. Grant Thornton Indonesia has identified five provinces—North Maluku, Central Sulawesi, East Kalimantan, West Java, and Riau—as focal points for 2024, given their unique economic landscapes and potential for diverse investment opportunities. 


Source: Jakarta Globe