Confidence in Indonesia Economy Boosted by Jokowi’s Policy Reforms
Jakarta. The Economist Intelligence Unit says it expects Indonesia’s economic growth to power ahead at an average of 6.1 percent a year from 2015 to 2019, faster than a leading business lobby’s own prediction of 5.8 percent this year.
The EIU, an independent business within The Economist Group that provides country, risk and industry analysis, said in a report on Wednesday that Indonesia’s economic rebound from 2014 growth of 5.02 percent — the weakest pace in five years — “will come from an improvement in the business environment stemming from structural reforms initiated by Jokowi’s administration.”
“In addition, as Indonesia becomes better integrated into global supply chains, its manufacturing sector can grow and boost exports,” it added.
The report was released at the Indonesia Summit 2015 business forum hosted by The Economist Group in Jakarta, featuring investors, government officials and high-profile company executives discussing macroeconomic and political issues affecting Indonesia.
Benedict Bingham, the country representative for the International Monetary Fund, said Indonesia had enjoyed solid growth with sound macroeconomic polices, strong commodity prices and renewed political stability since 1998.
However, he identified lack of investment in infrastructure and a challenging business climate as the Achilles’ heels of the country’s economic model.
“Indonesia needs to have a trade policy with a shift from the domestic market looking outward to the global market. The challenge in 2015 is to lay the foundation for the long-term journey and maintain growth optimism to attract investment. Growth has to generate jobs,” he said.
“There’s been good policies that allow the government to spend resources better, such as collecting savings from the fuel subsidy reform,” said Rodrigo Chaves, the country director for the World Bank.
“The challenge is in international financial conditions. In view of tighter liquidity conditions, Indonesia will need to work harder for growth,” he said.
Still, Chaves was upbeat about economic policy and direction under Joko’s administration, which has been in office less than four months.
“We’re positive on the new era. [Joko] has made early progress and better governance of resources,” he said.
This includes the scrapping of a decades-old subsidy on low-grade gasoline, which the government estimates has freed up more than Rp 120 trillion ($9.33 billion) in the state budget. The ending of the subsidy was aided by the fall in oil prices.
But stakeholders have expressed concern that an increasingly volatile political climate, sparked by Joko’s nomination of a corruption suspect to be chief of police, could undermine his economic policies.
The fiasco that has erupted from the nomination has seen the police apparently going into retaliation mode against the nation’s vaunted Corruption Eradication Commission, or KPK, with the standoff only “adding to the legal uncertainty” for doing business in the country, said Indonesian Builders Association secretary general Andi Rukman Karumpa.
But Indonesia retains its appeal to international investors, said James Riady from the Indonesian Chambers of Commerce and Industry, or Kadin, adding he was confident that the government could meet its own projection of 5.7 percent growth in 2015, as set out in the state budget.
“This will be an achievement [if Indonesia can meet its targeted growth] and make Indonesia stand out among other countries,” James said on Tuesday.
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Source: The Jakarta Globe