Why is Indonesian’s Purchasing Power weaken?

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Illustration, Photographer: Dimas Ardian/Bloomberg

GOVERNMENT PERCEPTION

Following the poor performance of some grocery, garment and automotive retailers that operate in Indonesia such as For 7 Eleven, Lotus, Matahari and Debenhams because of poor revenue within few years which gave tremendous financial burden for the company.

Surprisingly, President Jokowi responded there was nothing wrong the purchasing power of Indonesian society arguing that there be an increase in VAT revenue of 12.2%, which 2% higher than last year. He also refused the idea of the weakness of Indonesian purchasing power by stating that there are increasing revenue in the hospitality industry including hotel and restaurant from 4.43% to 5.87%.

Previously, in August 2017 Ministry of Development Plan Mr Bambang Brojonegoro consider this was a “mysterious case”, which was rather odd for an official who is responsible for designing and planning the economic development but left the impression that he did not know what was going on. At the same time, the head of the Investment Coordinating Board of the Republic of Indonesia, Mr Thomas Lembong seek this was rather strange considering the inflation rate was rather controllable at rate 3% in January- July 2017. Moreover, even the Ministry of Coordinating Economic Mr Darmin Nasution reject the opinion of the weakness of Indonesian purchasing power, but instead, he claimed purchasing power is seasonal.

Following that in October 2017, Jokowi gave another statement claiming that there is no a decrease in purchasing power but instead there is a trend of shifting of shopping habit from offline to online which shows from an increase of rent on warehouse 14,7% compared with previous year. Bureau Central of Statistic Indonesia also claimed there is no signed of household consumption but instead increased from 4.94% in quarter one 2017 to 4,95% quarter two 2017.

PEOPLE PERCEPTION

However, this is completely different from the perception of society and small-medium retailers. Based on my small scale recent survey on 29th October 8th, 2017, with 200 total respondents. And almost all of the respondent thought all price of goods and services varied increase. 48.2% of respondent thought it was 5–10% more expensive, and 31.1% of total respondents consider 11–15 % more expensive, 14.5% of respondents think above 16–25% and only 6.2% think its doubled within 3 years (Look at the Chart 1).

Chart 1 of Respondent Response on Increase of Price of Goods

58.5% of total respondents blame inflation and depreciation of the value of rupiah within the few years as the main culprit of the decrease of purchasing power. 24% think the price of gasoline (BBM) which rather uncertain following market price, which keeps changing influence the increase of the price of goods and service but it does not follow by the increase of their income (Look at Chart 2).

Although 73.2 % of respondent stated there was an increase of their income since 2014 until now, 66.4% had an increase between 1–10% and only 17% who had an increase in their salary/income above 15%, 16.6% increased above 16%. Whereas 26.8 % confirmed that their income did not increase at all.

Chart 2. Respond to Cause of Increase of Goods and Services

MARKET PERCEPTION

Similar perception also occurs within the small retailers from garment, shoes and bag retailer. Based on a sample interview with the business owners, most of them feel that there a significant decrease in revenue they got, compared in 2014.

One of the business owners has a store in the centre of wholesaler Pasar Butung Makasar, one of the biggest wholesaler of the garment in the eastern part of Indonesia, who sells clothing for kids and school uniform, she asserted that “I was confused why the customer hold they are and reduce their purchase.

Usually, we can make US$ 148 per day, but now it is hard to get US$40 per day, it is three times decrease in the past three years. Similarly, the store owner in Metro Tanah Abang, the biggest wholesaler in Southeast Asia, stated that “the business as not as good as before, even we tried to innovate through marketing our product on Instagram and Facebook, but the sale still gloomier than in the past few years.

Most of them think that it is because of the price of goods and service kept increasing in the past few years. This proves Jokowi’s claim on online shopping is not necessarily true. In fact, 54% of respondent prefer to buy their monthly needs Mall, 40% in the local market and only 6% who buy through online. Moreover, from that 6%, almost only 35% purchase accessories, following clothes in 32%.

MISSING LINK

It is clear that there is no same perception within the government as the policymaker with the market operators and the society in perceiving the weakness of the purchasing power of Indonesian society.

Jokowi is the economic team is too focused on macroeconomic development emphasizing on the large pie of infrastructure development, but neglecting the microeconomics factor which supposed to construct the fundamental of macroeconomic performance. However, it is a good picture, despite the large sum of budget allocated for development but, it is not reflected well in the economy. In fact the number of unemployment increase from 7.03 million in 2016 to 7.04 in August 2017.

It is because the development of infrastructure does not link with the performance of another industry and more likely, this project highly involved high skill labour. Plus, Jokowi is floating price on BBM which not followed by the increase of the quality of life the workforce has pushed the purchasing power of the society into the bottom.

The key of the stabilisation relies on the stability of price where government should avoid any anomaly which could trigger an increase in price goods and service. Otherwise, this will hurt the market and society itself.