THE INFLUENCE OF WORLD POLITICAL AND ECONOMIC DEVELOPMENT

THE INFLUENCE OF WORLD POLITICAL AND ECONOMIC DEVELOPMENT ON ASIA ECONOMY Prof. Dr. Sri Adiningsih Chairperson of the Presidential Advisory Council Yogyakarta, 20 May 2017 STIE YKPN SEMINAR

NAFTA (2016) Population: 469. 9 million person GDP PPP: 20, 345. 4 Int $ FTA Canada – Chile 1997 FTA: Chile – Mexico 1999 i FTA: USA – Chile 2004 FTA: USA – Singapore 2004 FTA: USA – Australia 2005 FTA: Mexico – Japan 2005 FTA: Chile – Brunei – NZ – Singapore 2006 NAFTA U. S. A. , Canada, Mexico GLOBAL ECONOMIC INTEGRATION EU (2016) Population : 515. 1 person million GDP PPP: 39, 317. 2 Int $ PRC (2016) Population: 1, 3682. 7 person million GDP PPP: 15, 398. 6 Int $ EU 25 countries EU-MEXICO FTA expanding to Latin America FTAA (by 2005) MERCOSUR Argentina, Brazil, Paraguay, Uruguay Japan-Korea-China FTA (launched November 2012) Japan-Korea FTA (under negotiation) expanding to Eastern Europe ACP-EU Countries in Africa and the Caribbean (approx. 70 countries) under negotiation Japan-Mexico EPA (signed agreement) JAPAN (2016) Population: 126. 9 peron million GDP PPP: 41, 274. 6 Int $ Japan-Mexico EPA (signed agreement) ASEAN-Japan Comprehensive Economic Partnership (AJCEP) SAPTA Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, Sri Lanka AFTA Indonesia, Malaysia, Philippines, Singapore, Thailand, Brunei, Vietnam, Laos, Myanmar, Cambodia India - ASEAN FTA Japan’s Bilaterals: • Japan-Singapore EPA • Japan-Philippines EPA • Japan-Thailand EPA • Japan-Malaysia EPA • Japan-Indonesia EPA China - ASEAN FTA Australia-New Zealand-ASEAN FTA 2017: 654 RTAs, 274 in force (as of May 5, 2017) Korea - ASEAN FTA ASEAN (2016) Population: 625 person million GDP PPP: 3, 852. 3 Int $ Sumber: WTO

EXTERNAL CONDITION 1. 2. 3. 4. Brexit Trump’s Executive Orders The future of the EU Geopolitical risks (conflict between the United States and North Korea continues to escalate)

BREXIT §The U. K. holds a referendum on whether to leave the European Union (EU) (June 23, 2016) §The referendum result is announced, with 52 percent of voters choosing to leave the bloc (June 24, 2016) §Theresa May becomes prime minister of the United Kingdom (UK) (July 13, 2016) §May tells her Cabinet that she won’t try to keep Britain in the EU by the “back door” and that “we’re going to make a success” of Brexit. She identifies ending the free movement of people as a U. K. red line (Aug 31, 2016) §May says she will trigger Brexit talks by the end of March (Oct 2, 2016) §May tells lawmakers in London that “this is an historic moment from which there can be no turning back (March 29, 2017) Source : Bloomberg (2017)

TRUMP’s EXECUTIVE ORDERS NO TRUMP’S EXECUTIVE ORDERS SIGN 1 Enhancing public safety in the interior of the United Stated Jan, 25, 2017 2 Border security and immigration enforcement improvements Jan, 27, 2017 3 Protecting the Nation from Foreign Terrorist Entry into the United Jan, 25, 2017 States 4 Promoting Energy Independence and Economic Growth March, 28, 2017 5 Establishing Enhanced Collection and Enforcement of Antidumping and countervailing duties and violation of trade and custom law. March, 31, 2017 6 Buy American, Hire American April, 18, 2017

THE FUTURE OF EU France’s recent election is a vote of confidence in the EU. The newly elected French President, Emmanuel Macron is elected as French President (May 8, 2017) said that said he will, “. . . work to mend ties between Europe and its citizens, ” as fears of a “Frexit” dissipate Germany’s big election year. With three state elections and the Bundestag vote in the fall, 2017 is set to be a decisive year in German politics. With Chancellor Angela Merkel up for a fourth term and the populist Alternative for Germany (Af. D) party attempting to cash in on anti-migrant sentiment, one thing is clear - German politics won't be the same by the end of 2017 Source : BBC; DW. com (2017)

CRUCIAL MOMENT IN ASIA China’s economic reform toward a market-oriented economy began in 1978 and has been recognized as essentially successful China has been a member of WTO since 11 December 2001 Economic reforms in India were initiated in the early 1990 s India has been a WTO member since 1 January 1995 Major structural reforms took place in ASIA economies, including Indonesia during and immediately after the Asian Financial Crisis in 1997– 1998

ECONOMIC HIGHLIGHTS Source : IMF; World Bank; CEIC (2017) Note : Emerging & Developing Asia includes People’s Republic (PRC), India, ASEAN – 5 = Indonesia, Malaysia, Philippines, Thailand, Singapore

POPULATION SHARE OF TOTAL WORLD POPULATION, 2005 – 2016 (PERSON BILLION) Source : World Bank; UNDESA; CEIC (2017) Note : Emerging & Developing Asia includes People’s Republic (PRC), India, ASEAN – 5 = Indonesia, Malaysia, Philippines, Thailand, Singapore

INFLATION, 2005 – 2016 (%, YOY) Source : IMF; CEIC (2017) Note : ASEAN – 5 = Indonesia, Malaysia, Philippines, Thailand, Singapore

NATIONAL CURRENCY PER USD 2005 - 2016 Source : IMF; CEIC (2017)

STOCK MARKET INDEX 2005 - 2016 Source : CEIC (2017)

REAL GDP GROWTH 2005 – 2016 (%, YOY) Source : IMF; CEIC (2017) Note : Emerging & Developing Asia includes People’s Republic (PRC), India, ASEAN – 5 = Indonesia, Malaysia, Philippines, Thailand, Singapore

SHARE OF GLOBAL GDP, 2005 - 2016 (%) Source : IMF; CEIC (2017) Note : Emerging & Developing Asia includes People’s Republic (PRC), India, ASEAN – 5 = Indonesia, Malaysia, Philippines, Thailand, Vietnam

ECONOMIES COMPETITIVENESS Source : Doing Business (World Bank); Global Competitiveness Report (World Economic Forum); Human Development Report (United Nations Development Programme)

INTRA AND EXTRA ASIA TRADE, 2005 – 2015 (USD TRILLION) Source : ADB (2016) Note : Asia refers to the 48 Asia and the Pacific members of the Asian Development Bank (ADB), which includes Japan and Oceania (Australia and New Zealand) in addition to the 45 Developing Asian economies.

INTRA AND EXTRA ASEAN TRADE, 2006 – 2015 (USD BILLION) Source : ASEAN SECRETARIAT (2017)

GDP PPP PER CAPITA 2005 – 2016 (CURRENT INTERNATIONAL $) Source : IMF; CEIC (2017) Note : Emerging & Developing Asia includes People’s Republic (PRC), India, ASEAN – 5 = Indonesia, Malaysia, Philippines, Thailand, Singapore

POVERTY & INEQUALITY IN SEVERAL ASIAN ECONOMIES 0, 360 (2006) Source : ADB (2016)

INDONESIA CASE

INFLATION RATE AND IDR EXCHANGE RATE 2005 – 2017* * = March 2017 Source : BPS; CEIC (2017)

REAL GDP GROWTH BASED ON EXPENDITURE 2011 – 2017* (%, Yo. Y) • = Q 1 2017 • Source : BPS; CEIC (2017)

UNEMPLOYMENT 2005 – 2017* • = Ferbruary 2017 • Source : BPS; CEIC (2017)

Poverty in Indonesia 1970 - 2016 Source : BPS; CEIC (2017)

GINI RATIO, 2005 - 2016 Source : BPS; CEIC(2017)

Government Vision & Mission The road changes to Indonesia Sovereign, Independent & Personality Nawa Cita 3. Developing Indonesia from border by strengthening areas and villages in the context of a United Nation 5. Improve quality of life of Indonesian Life 6. Increasing productivity and competitiveness 7. Realizing economic independence by accelerating domestic economic strategic sectors

National Development Agenda 2015 -2019 I. Human Development q Free 12 -year compulsory education : Indonesian Smart Card (2016 = 17. 9 million students) q Indonesia Health Card (2016 = 91. 1 million person) q Prosperous Family Card (targeting 25% poor family) q Labour Training/Internship (Vocational and Skill Training Center in Papua : Carpentry, Hospitality/Tourism, Electronics; The Center for Vocational and Extension Service Training CEVEST : Scholarship for several majors, i. e manufacture, welding, automotive, electrical, electronics) q Certification (Presidential Instruction No 9/2016 : giving instruction to Ministries to focus in improving competencies through Competency Standard National Working Indonesia II. and certificate of competence) Increasing productivity and competitiveness q Infrastructure Development (toll road, airports, railways; Presidential Regulation No 3/2016 regarding Acceleration for Priority Infrastructure, consisting of 225 infrastructure projects, 35000 megawatt electricity procurement program) q Institutional (14 Policy Packages) q Incentives (to make easier doing business and providing facilities within Special Economic Zone; giving tax incentives for labour intensive industry) q Logistic (to cut dwell times to 2. 5 days) III. Developing Local Economy q Rehabilitation / Irigation Development (3 Million Ha) and Developing 49 Dam until 2019 q Suppress interest rates of People's Business Credit (the government distribute KUR worth IDR 100 trillion, interest rate 9%) q Traditional Market(Developing/Revitalizing 5000 local markets until 2019, Realization : 2015 =1002 market; 2016 = 878 market) q Tourism Development (10 prioritized tourism destinations; free visa entry for 169 countries) Source: RPJMN 2015 – 2019; Coordinating Ministry for Economic Affairs ; Office of Presidential Staff (2016)

State budget for the Priority Program : Infrastructure, Education, Health 2011 -2017 Government spending on infrastructure, education, and health showed an increasing trend. Note : - 2011 – 2016 = Revised State Budget - 2017 = State Budget 2017 Sumber: Kementerian Keuangan dan CEIC (2016)

Uniting Indonesia and boosting economic growth The aim of infrastructure development is to create a comprehensive national connectivity hence able to boost economic growth Connectivity Projects IMPACT LAND • Integrated public transport system • Increase road capacity • Building monorail and new train rail Cheaper transportation cost & logistic cost Cheaper exchange of goods & services SEA • Building dry port • Port revitalization • Water transportation construction AIR • Building airport for cargo • Building airport for economy Source : Committee for Acceleration of Priority Infrastructure Delivery /KPPIP (2016) National products become more competitive

REDUCING ECONOMIC INEQUALITY hundred of infrastructure projects (particularly transportation infrastructure for land, sea & air) being built to reduce inequality between java & outside java Infrastructure availability will reduce inequality that occur between Java & outside Java Hence 101 connectivity projects were designed 17 airport construction projects 52 toll road projects 19 train projects 13 port projects Source : Committee for Acceleration of Priority Infrastructure Delivery /KPPIP (2016)

Improving Educational access and Infrastructure ENHANCING EDUCATIONAL ACCESS THROUGH DISTRIBUTION OF INDONESIA SMART CARD, PROVIDE SCHOLARSHIP, CONSTRUCT/REBUILDING SCHOOL & CLASSROOM Repairing/ Improving Distribution of the quality of Indonesia Smart classroom through Card school rehabilitation 11, 633 Classroom 17, 927, 308 Students Source : Ministry of Education and Culture (2016) Building new school in area which educational participation rate is low 726 New School Construct new classroom to increase school capacity 14, 233 New Classroom

Establishing Healthy Indonesia IN 2016 THE GOVERNMENT CONTINUES TO INCREASE THE NUMBER OF INDONESIA HEALTH CARDS AND HEALTH FACILITY THAT SERVES AND PAYING DUES TO THE POOREST 172, 620, 269 91, 166, 408 Indonesian citizens The aid recipients have become Indonesian Health members of the Card Health and Social Security Management Agency/ BPJS Kesehatan(per 13 January 2017) 25, 654 Health facilities to serve Indonesian Health Card’s patients Source : Coordinating Ministry for Economic Affairs; Cabinet Secretariat (2016) In 2016, IDR 20 trillion to pay Indonesian Health Card for 40% of Indonesian poorest people

Economic Stimulus Package q Package I : Boosting the competitiveness of national industry through deregulation, law enforcement and business certainty. q Package II : Ease Investment Services 3 Hours within industrial estates to attract investment q Package III : A decrease in the price of fuel oil, gas, and electricity; expansion receiver entrepreneurs People's Business Credit; simplification of land clearance in investment activities q Package IV : Implement a new formula to calculate the amount of the Provincial Minimum Wage; KUR Policies, Cheaper and Spreads; provide some sort of working capital loans to SMEs at lower interest rates at commercial rates, and preferred to company labor-intensive and prone to layoffs q Package V : Tax incentive for asset revaluation; Scrap double taxation on real estate investment trusts; Deregulation in Islamic banking q Package VI : the effort to drive economy in border areas by developing Special Economic Zones; providing water for public in a sustainable and fair way; accelerating paperless import license for raw material of medicine q Package VII : providing easiness in particular industries, which are the industries with many employee representatives or human resources; accelerate and simplify land certificate issuance, particularly for mobile street traders Source Coordinating Ministry for Economic Affairs; Cabinet Secretariat (2016) Sumber: : Kemenko Perekonomian (2016)

Economic Stimulus Package q Package VIII : One map policy with 1: 50, 000 scale; development of energy security by accelerating the construction and development of domestic oil refinery; incentive for aircraft’s maintenance, repair and operations q Package IX : Speeding up the construction of the electrical infrastructure; stabilize meat supply; deregulate logistics from village to global market q Package X : Protection improvement for Micro, Small, Medium Enteprises and Cooperatives as well as the change of Negative Investment List q Package XI : People's Business Credit which focused on export and real estate investment fund, the interest rate for micro-small-medium enterprises is set at 9%; dwelling time standard procedure; development of the pharmaceutical medical equipment industry q Package XII : Enhancing the ease of doing business in Indonesia by cutting procedures, permits and costs q Package XIII : Focusing on housing for low income people by simplifying the number and timing of licensing, removing or reducing unnecessary permits and recommendation needed to build the house for MBR q Package XIV : The e-commerce roadmap, which is expected to boost the expansion and improvement of community economic activities Source : Coordinating Ministry for Economic Affairs; Cabinet Secretariat (2016)

The Occurred Impacts The licensing process that previously took place tens or hundreds of days, was pruned very significant and increasing impact on national competitiveness Source: KSP (2016)

Tourism Sector Source: Ministry of Tourism of Republic Indonesia (2017)

Increasing route frequencies, decrasing logistic price Logistic Cost disparities among provinces in Indonesia has been decresing significantly and relatively more stable since the implementation of Sea Toll Program (with more frequent route). Increasing transportation pioneer routes Impact Reducing Commodity Price wheat oil sugar cement Special trasnportation route for livestock Routes served by public ships Routes served by private ships rice wheat oil cement plywood Source : Coordinating Ministry for Maritime Affairs of Republic Indonesia (2016) plywood Light steel rice wheat cement

GLOBAL GDP GROWTH IS PROJECTED TO PICK UP SLIGHTLY GLOBAL GDP GROWTH PROJECTION – WORLD BANK (%, YOY) GLOBAL GDP GROWTH PROJECTION – IMF (%, YOY) Source : East Asia & Pasific Economic Update ; World Bank (2016); World Economic Outlook; IMF (2017); Global Economic Prospoects; World Bank (2017)

GDP at PPP Rankings The rise of Indonesia through the world rankings throughout the period tp 2050 is very striking : rises from 9 th in 2014 to 4 th in 2050 Source : PWC (2015)

Conclusion • World Politics is dynamic the past decade. • The trend of World’s and Asia’s economy are generally tend to be more protectionist. • Economy of Asia is getting stronger among other region in the world and will be increasing even more in the future.