The Fiscal Policy Agency, Ministry of Finance (BKF) hosted two FKP presentations on 21 July 2016 in Jakarta. The first presentation, by Hidayat Amir and Anda Nugroho (both of BKF), was based on research which tries to examine the effect increase in Indonesia’s import tariff on consumer and non-consumer goods to economic indicators. The data used on the research are from 9,652 commodities imported by Indonesia and aggregated into 95 commodity groups. The model used in this research was based on the 2008 Input-Output (IO) table classification.
The result of the research suggests that the impact of import tariff on non-consumer goods to macroeconomic indicators such as real GDP, aggregate employment, real wage, disposable income, and consumer price index are more severe than the impact of the tariff on consumer goods. From the increase of import tariff, the taxation revenue is also impacted but with differing outcomes: for consumer goods, net tax revenue increases by Rp 1,911 billion, whereas for non-consumer goods the increase is Rp 4,639 billion.
This research drew several conclusions. First, the policy to increase an import tariff for both consumer and non-consumer goods can successfully slow down import and therefore potentially address the problem of trade balance deficit. But the policy will also cost the economy decreased growth and partial lost in aggregate demand. Second, the policy to target non-consumer goods brings higher negative effect to the economy due to the impact of raising import tariff for non-consumer goods not only through the demand side but also the supply side of the economy. The policy for non-consumer goods causes an increase in investment price index that affect the production capacity to decline. As a result, the industries pay less to the labour and then reduce the household disposable income.
The second presentation, by Ferry Irawan and Adelia Surya Pratiwi (both of BKF and AIPEG) was focused on efforts to strengthen the role of the financial sector to promote strong and equitable growth through infrastructure development. To do so, huge investment financing is needed but to rely solely on state financing is not enough. Additionally, the Government of Indonesia has to maintain the budget deficit under 3 percent of Gross Domestic Product (GDP) and total outstanding debt to be less than 60 percent of GDP. Given these constraints, private investment both directly through financial institution and indirectly through financial market needs to be promoted. However, compared to other countries in the region, financial institutions and market in Indonesia still needs to be far improved. The presenters proposes a macro strategy to increase the role of the financial sector in providing financing for development, especially through unconventional sources such as through capital market and non-bank institutional investors including insurance and pension funds.