* This paper is the personal view of the author
Malaysia is in turmoil, Action Clean 4.0 involving various components of Malaysian civil society staged a massive demonstration in the center of Kuala Lumpur City for two days (29 and 30 August 2015). This movement was organized by eighty-four Civil Society Organizations chaired by Maria Chin Abdullah, a pro-democracy women’s activist who has been involved in social movements in Malaysia.
Clean Action 4.0 has had a broad impact on Malaysia. It not only disturbs political, social and security stability but also affects Malaysia’s economic stability. The economic impact was enormous, because it coincided with Malaysia’s global and domestic economy which experienced a downturn throughout 2015.
The Malaysian Ringgit (RM) exchange rate against the United States Dollar (US) has reached RM. 4.2318 / USD. This condition was the worst since the economic crisis in 1997-1998. During 2015, the Malaysian Ringgit has depreciated by 31% against the US Dollar. And, in the last week the depreciation of the Malaysian Ringgit against the US Dollar has reached 8%. The stock price index on the Kuala Lumpur Stock Exchange (KLSE) has fallen by 18% throughout 2015.
Economic growth prediction in 2015 is only 4.9%, the lowest in the last five years and inflation soars to reach 3.5%. Warning alarm sounds. The risk of greater economic turmoil is at hand. The crisis that occurred in Malaysia, of course, had an impact on the ASEAN region, including Indonesia. This reflects from the economic crisis in 1997-1998 hit Indonesia originated from regional factors, namely Thailand and Malaysia.
The exchange rates of the two countries plunged freely against the US dollar, causing massive capital outflows. Thailand and Malaysia lacked liquidity and experienced a financial crisis.
Facing the current crisis in Malaysia, the government must be careful so that events in 1997-1998 do not happen again. Unlike the conditions in 1997-1998, the strength of the Indonesian economy was stronger and socio-political stability was well controlled. However, there are several risks that the government must pay special attention to in relation to the crisis in Malaysia.
First, if the crisis in Malaysia drags on, which will have an impact on the economic crisis in the medium term, then this will have an impact on the performance of the Indonesian economy, especially the performance in the plantation sector and the palm oil processing industry. About 25-30% of the total oil palm plantations in Indonesia are controlled by Malaysian companies such as Sime Darby Group, Kuala Lumpur Kepong, Tabung Haji, Felda Group and Guthrie Group. Malaysian companies also have integrated palm oil processing (mills) and downstream industries in Indonesia.
Impact on the plantation sector
Economic pressures in Malaysia certainly affect the company’s performance. Thus, the rationalization of business activities will be carried out. One of the things that will be done is to close their business units in Indonesia or reduce business activities. This certainly has a big impact on the performance of the palm oil sector in Indonesia. In fact, the oil palm sector, both plantation and processing industry, is a sector that has a major contribution to the Indonesian economy. There will be a risk of mass layoffs (layoffs) by Malaysian palm oil companies. The export performance will also be disrupted because most of Indonesia’s exports are supported by the commodity palm oil.
Second, Malaysia is the third-largest investor in Indonesia. The value of Malaysian investment in Indonesia during 2014 reached USD. 1.77 billion, which is just behind Japan and Singapore. Apart from the palm oil sector, Malaysia also has investments in the financial sector, infrastructure sector, energy sector, automotive sector, mining sector, property sector, and tourism sector in Indonesia. If the economic crisis continues and gets worse in Malaysia, this will have an impact on investment realization.
Third, many Indonesian Migrant Workers (TKI) work in Malaysia which amounts to 2.5 millions of workers. If the economic crisis hits, it will impact TKI as they are at great risk of being laid off. The TKI will have to return to Indonesia and because of this, there will be pressure on the job market in Indonesia. In addition, it also has an impact on reducing the country’s foreign exchange from remittances of Indonesian migrant workers in Malaysia which reach USD. 1.3 – USD. 1.5 billion per year.
The three aspects above, of course, will cause a trickle-down effect for the Indonesian economy. The government must mitigate the impact of the crisis in Malaysia on economic development in Indonesia.
First by anticipating the impact of the decline in the performance of Malaysian palm oil companies operating in Indonesia. The government needs to implement a fiscal incentive policy such as a tax allowance or tax holiday so that the crisis pressure on Malaysian palm oil companies in Indonesia will not be hard to hit the company’s performance. But this policy needs special requirements such as the company must have a production unit in the downstream palm oil sector (downstream industry), have a commitment to developing renewable energy (renewable energy) based on palm oil such as biofuel, have a Roundtable Sustainable Palm Oil (RSPO) or Indonesia Sustainable certificate. Palm Oil (ISPO) and has been compliant with corporate tax payments.
Second, anticipating the withdrawal or delay of investment made by Malaysian investors. The government needs to establish intensive communication to ascertain the extent to which the impact of the Malaysian crisis has caused investment withdrawals or delays. In 2015, several Malaysian investment commitments in the infrastructure development sector were quite large. However, there are obstacles to land acquisition and permits. The government needs to accelerate improvements to land acquisition policies for infrastructure and improve licensing so that these obstacles can be resolved as soon as possible in order for Malaysia’s investment commitment in the infrastructure sector can be realized immediately.
Third, to find solutions for Indonesian workers in Malaysia in the event of massive layoffs, the government needs to prepare a legal team for workers who experience legal problems related to layoffs by companies. The government has to ensure that the layoff process does not harm the TKI. In addition, the Ministry of Foreign Affairs and the Ministry of Manpower, must map the potential layoffs for Indonesian migrant workers in Malaysia and coordinate with the Malaysian government so that the impact of the Malaysian crisis does not threaten the presence of Indonesian workers in Malaysia. Most importantly, the government needs to prepare workers who have been laid off to enter the labor market in Indonesia or prepare them for entrepreneurship.