Election has little impact on economy: Bank Indonesia

Election has little impact on economy: Bank Indonesia

JAKARTA - The economic spillover from the 2014 general election on gross domestic product (GDP) has proven to be insignificant, the central bank has said.

Election-related spending would add only 0.1 per cent to Indonesia's annual economic growth this year, mainly due to the smaller number of political parties competing in the election compared to the previous one, according to Bank Indonesia (BI) director for monetary policy Solikin M. Juhro.

That was lower than the maximum upside of 0.3 per cent to GDP growth that BI had initially estimated.

"Compared to the election five years ago, the campaign period has been relatively quiet," he told reporters on Monday. "We have surveyed some textile associations, which only received half the new printing orders this year, compared to the previous election."

Twelve political parties are competing in this year's election nationwide, compared to 38 parties in the 2009 election, due to stricter procedures and requirements for a party to be eligible to contest the election.

Indonesians are in the so-called "cooling off period", after a two-week campaign period that ended last week, before casting their votes on Wednesday.

Solikin noted that there were signs that some legislative candidates had refrained from spending big money this time due to the tighter monitoring system of campaign funds jointly formulated by the Corruption Eradication Commission (KPK) and the General Elections Commission (KPU).

"For example, there is a rule that only one advertising banner could be erected for each campaign zone," he said.

Indonesia posted only 5.78 per cent GDP growth throughout last year, its slowest rate in four years. BI has recently downgraded its annual economic growth forecast for 2014 to a range of between 5.5 to 5.9 per cent, compared to its initial target of around 5.8 to 6.2 per cent.

Finance Minister Chatib Basri predicted on Monday that Indonesia's GDP growth would only hit 5.8 per cent at the most in the first quarter of this year, while shrugging off concerns over the limited impact that this year's campaign season had on the economy.

He said Indonesia was on track to return to its 6-plus per cent economic growth in 2015 as soon as its current-account deficit - which hindered the country from posting higher GDP growth - improved to its sustainable levels.

"The interest rate policy could then be reviewed, government spending could be raised, so our growth can exceed 6.1 per cent in 2015," Chatib said.

BI jacked up its key interest rate by a cumulative 175 basis points last year to 7.5 per cent to cool down economic growth that showed some indications of overheating, such as a swelling current-account deficit.

The contribution of consumer spending to growth would be around 0.2 to 0.3 percentage points lower compared to that in non-elections years, mainly because of the bout of BI interest rate hikes, according to estimates from Japan-based Nomura.

"For the election in 2014, we do not expect first-quarter growth to be as strong as in previous election cycles, owing to the tighter policy environment," said Nomura economist Enrico Tanuwidjaja, who predicted Indonesia would post a full-year economic growth of 5.7 per cent this year.

 

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