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Harambe: Bloomberg: Indonesia’s Trillion-Dollar Economy Is About to Get a Reboot (8/14/19)

 Bloomberg: Indonesia’s Trillion-Dollar Economy Is About to Get a Reboot  (8/14/19)

Indonesian President Joko Widodo is set to unveil measures to lift Southeast Asia’s largest economy from the stagnation that’s marked his first term, amid rising risks from a global slowdown and escalating trade war. 

Jokowi, as Widodo is known, is set to lift government spending to a record in the 2020 budget due Friday, and is expected to set a higher target for economic growth.

The president, who will begin a second five-year term in October, may also project a lower fiscal deficit target, while expanding the infrastructure drive that underpinned his first term. 

With growth slowing to a two-year low last quarter, Jokowi will need to balance the need to stimulate the economy in the short term while pursuing longer-term reforms that can boost manufacturing and exports, creating jobs in a country of more than 260 million people. The president may announce steps to overhaul labor laws, address the labor force’s skills gap and shore up tax collection needed to fund welfare programs. 

Growing Pains

Indonesia's GDP growth has been hovering around 5% since 2014 

Source: Indonesian Ministry of Finance

* GDP growth figures for 2019 to 2020 based on most recent government forecasts 

“They definitely have to keep in mind the external risks in drafting the budget, but I think Indonesia has plenty of fiscal space to generate growth internally,” said Euben Paracuelles, an economist at Nomura Holdings Inc. in Singapore. “If anything, this could be an opportunity to get legislative support to run a more expansionary fiscal stance in the face of greater external risks.” 

The president heads into his second term with an increased majority that gives him greater authority over parliament and a mandate to push his agenda. He’s pledged to implement tough reforms to attract foreign investment and unleash the potential of Southeast Asia’s only trillion-dollar economy.

Here’s a look at what’s expected in Jokowi’s 2020 budget, to be presented to parliament Friday:

Outlook

With global demand waning and the U.S-China trade war escalating, Indonesia’s economy may struggle to clear 5% growth, where it’s hovered for several years. Gross domestic product rose5.05% in the second quarter, its slowest pace in two years and the third quarterly decline in a row. 

Jokowi is expected to settle for the mid-point of a growth range of 5.2% to 5.5% agreed by the government and parliament. That could still put Indonesia on course for the fastest expansion since 2013.

Spending Boost

Jokowi has lifted government spending almost 40% since 2014

Source: Badan Pemeriksa Keuangan

* Data for 2019 is budget target in trillions of rupiah

The budget deficit may be set in a range from 1.52% to 1.75% of gross domestic product, the government has said. That’s narrower than the 2019 estimate of 1.93%, and well below the legal limit of 3%.

Labor Reform

Indonesia’s labor force is larger than the combined populations of the U.K. and South Africa, but it has a productivity problem. Jokowi is promising sweeping changes, from making it easier to hire and fire workers to increasing funding for vocational training, to make Indonesia more competitive and attract foreign investment.

Steps to improve of labor-force quality could help Indonesia boost its economic potential, as the output gap -- the difference between actual and potential output -- has shrunk almost to zero. The president is expected to boost spending on education to lift workers’ skill levels, seen as a crucial step toward achieving economic growth of more than 6%.

“The government had repeatedly said its focus will be on human-resource development and social security,” said Dian Ayu Yustina, an economist at PT Bank Danamon in Jakarta. That would likely mean an increase in allocations for the relevant ministries, she said.

Infrastructure

Nation-building was the key theme of Jokowi’s first term as he rolled out new roads, ports and railways. That’s set to continue with the government drafting ambitious plans for more than $400 billion in projects, from 25 airports to new power plants. 

The 2020 budget will be about “refining the spending focus toward improving quality,” said Aldian Taloputra, an economist at Standard Chartered Plc in Jakarta. Infrastructure will continue to be a “big-ticket item” as the government proceeds with a raft of projects already on the books, he said.

Tax Cuts

A plan to lower corporate tax also aims to boost Indonesia’s competitiveness. Jokowi wants to attract more foreign investment and revive the country’s manufacturing sector, which accounted for less than 20% of GDP in the second quarter compared to 26% a decade ago.

Lacking A Competitive Edge

Indonesia has one of the highest corporate tax rates in Southeast Asia 

Source: KPMG corporate tax rates table 

Jokowi said in July he would seek parliamentary support to reduce corporate taxes to 20% or lower. That can help Indonesia compete with regional rivals like Vietnam and Thailand in luring companies seeking to relocate business away from China amid the trade war. 

With the government having already announced a slew of tax incentives for certain sectors, plans for additional tax benefits for companies makes it clear “stimulus for growth will be key,” Bank Danamon’s Yustina said.

https://www.bloomberg.com/news/articles/2019-08-14/indonesia-s-trillion-dollar-economy-set-to-get-a-fiscal-reboot

Cutebwoy:  China is approaching the launch of its digital currency. And it reveals its security advantages.

China is preparing to launch their cryptocurrency, which has become a solution for many in China in the midst of a trade war with the United States.

An official of the People's Bank of China (Central Bank of China), The People's Bank of China( Central Bank of China), was quoted as saying that the ready-made currency was ready to operate.

The official did not give a specific date for the launch of the new currency, a reversal of China's policy towards cryptocurrencies, which Beijing initially decryed.

China's central bank began research on the digital currency five years ago, in 2014, before settling on the decision to use the new currency.

The trade war between Beijing and Washington seemed to have accelerated the Chinese authorities' efforts to create their own digital currency.

Bitcoin, the most expensive cryptocurrency, saw a quantum leap in its prices in 2019, as chinese buying began to buy.

In the face of mounting U.S. pressure, China devalued its currency, the yuan, prompting many Chinese to take bitcoin as a portfolio of gains.

Last week, the United States designated China as a currency manipulator, indicating that it would work with the International Monetary Fund (IMF) to eliminate china's "unfair advantage" by lowering the yuan against the dollar to its lowest level since Last December.

China's central bank says it is difficult to imitate or hack into its digital currency online, noting that it has developed complex rules to protect it.

He added that he had provided a prototype for the design of the new currency and the development of a two-tiertrading system, the first of which was the central bank's issuance of the new currency to banks.

The second tier is that banks offer this currency to the public, which is different from the trading of cryptocurrencies in the virtual world.

HarambeBloomberg: Zimbabwe Has a Plan to End 20-Year Standoff With Creditors  (8/16/19)

Zimbabwean Finance Minister Mthuli Ncube laid out a plan to end the nation’s two-decade stand-off with international creditors and dismissed rapidly accelerating inflation as “wage compression.”

On the eve of a planned demonstration to be led by the main opposition party over plunging living standards, Ncube, 55, also said the country would establish a Monetary Policy Committee within a month that will cut interest rates, begin selling bonds with maturities of as long as 30 years, and proceed with a plan to privatize everything from state telecommunications companies to timber plantations. By settling arrears with multilateral lenders, the nation hopes to access the finance it needs to revive the economy.

Ncube, a Cambridge-university trained economics professor, has reined in state spending and boosted tax revenue. Still, the introduction of a new currency in June, accompanied by a ban on the use of the dollar, has seen the rapid erosion of spending power with the Zimbabwe dollar now trading at almost 10 to the dollar after its predecessor, a quasi-currency known as bond notes, was officially said to be at parity as recently as February.

Now many of the country’s 400,000 civil servants, who form the bulk of the middle class, are earning less than the $1.90 a day defined by the World Bank as the line below which people are living in extreme poverty.

Annual inflation, the release of which has been suspended for six months, is officially 176% and shortages of fuel and bread are widespread. The government’s inability to pay for adequate electricity imports has crippled the economy with power outages of as long as 18 hours a day. The measures, which Ncube conceded were painful for citizens, are necessary if the country is to regain a sound economic footing, he said.

Fiscal Victory

“We can declare victory on the fiscal front,” Ncube said in an interview at his office on Thursday in the capital, Harare, across the road from the colonial-era government headquarters. “Everything that I say, I implement.”

Under a debt-settlement plan, which Ncube said he’s discussing with creditors, Zimbabwe would complete an International Monetary Fund Staff-Monitored Program in January. It would then:

Zimbabwe’s total external debt is $9 billion, which includes commercial loans.

IMF Resident Representative Patrick Imam said conditions are not yet in place for the fund to provide financial support for Zimbabwe. The IMF’s SMP is being used to support economic and governance reforms in the country.

“Zimbabwe needs to build a track record to prove that it can implement reforms to tackle deep-rooted problems, as the hurdle rate for a financially supported program is high,” Imam said in an emailed response to questions.

In order to regularize the nation’s monetary system, Ncube said the authorities will establish a nine-member Monetary Policy Committee. made up of “serious people,” within a month that will reduce interest rates from 50%. Within 12 to 18 months, the nation plans to sell domestic bonds with a duration of as long as 30 years to fund infrastructure. In time, it will approach international markets, he said.

‘Economic Gobbledygook’

While Ncube has won praise for imposing financial discipline on a notoriously profligate government, his statements on inflation strained the credulity of some analysts.

Ncube said annual inflation data showed that wages haven’t adjusted quickly enough to the new exchange rate, and not that the country is heading for hyperinflation.

“What people are feeling is really wage compression,” he said. “Prices adjusted instantly to the exchange rate, but wages have been too slow to catch up with the adjustment. The issue is about wage adjustment and I’m a big champion of wage adjustment.” 

The finance minister is talking “economic gobbledygook,” said Steve H. Hanke, a professor of applied economics at the Johns Hopkins Universityin Baltimore. “By my measure, Zimbabwe’s inflation is the second highest in the world at 570%.” Venezuela has the world’s highest inflation.

Even his supporters say that if his measures work, there is a lot of hardship in store for Zimbabweans. 

“This situation is something which can persist for anything between three to five years of pain,” said Lloyd Mlotshwa, head of equities at IH Securities in Zimbabwe, who praised the finance minister for raising fuel and power prices that were previously subsidized by the government. “What can shorten this period is if there are funds poured into plug the gap.”

https://www.bloomberg.com/news/articles/2019-08-16/zimbabwe-has-a-plan-to-end-20-year-creditor-standoff-ncube-says

What You Are Witnessing Is The Destruction Of The [CB] Economy- Episode 1944a

X22 Report:  Published on Aug 15, 2019

https://youtu.be/HjSAU3NH_fc?t=1

[C] Before [D], It’s Getting Ready To Blow - Episode 1944b

X22 Report:  Published on Aug 15, 2019

https://youtu.be/Akl_xVMOQBo?t=1