President Widodo 3rd Year: Economy on Track

President Joko Widodo - Photo by President Office

JAKARTA (TheInsiderStories) – The economy is doing well and now the government has put in place all the necessary policies to achieve the growth trajectory that President Joko Widodo promised during the presidential campaign back in 2014.

Coordinating Minister for the Economy Darmin Nasution said on Monday (17/10) that during the first two years the government focused on laying the groundwork for his programs, and addressing lethargic bureaucracy by removing overlapping and unfriendly regulations. Now, as the President is about to finish his third year, the focus has shifted to consolidation of his programmes at all administrative levels.

Therefore, Nasution said there is no urgency to revise the long-term target, whereby the President declared a goal to achieve 7 percent economic growth by 2019.

“Economic growth, poverty, unemployment rate, and equality are moving to a positive side. Every macro indicator is still on track,” he said in a press conferences on government performance on Tuesday (17/10).

Annual GDP growth for 2016 came in at 5 percent, making Indonesia’s growth the highest among large emerging economies. The official poverty rate was 10.6 percent in March, just 0.2 percentage points lower than a year earlier.

In fiscal policy, the government continues to focus on re-shifting budget allocation for direct subsidies to more productive sectors, such as infrastructure development. The government has also begun to implement reforms to boost Indonesia’s investment climate and growth.

Measures taken to date include higher spending on public infrastructure, eliminating several layers of government regulations and opening up new areas of the economy to private investment. So far, government has built 568 kilometers of toll roads, 49 dams and 30 thousand kilometers of bridges.

“Infrastructure will exert an impact on everyone. With infrastructure we can control food prices, that used to be very high in any circumstances,” said Nasution.

Government has set a target of 1,850 Kilometers of road infrastructure development to be completed by 2019. Ministry of Public Works and Housing noted that in the 2018 state budget, toll road development would still get the largest allocation of infrastructure funds with Rp8.86 trillion, followed by water and agricultural projects at Rp7.42 trillion, utility projects at Rp2.52 trillion and low-cost housing construction at Rp1.51 trillion.

“In terms of infrastructure, we have achieved 60 percent of our target. Next year we will see many more projects completed,” said Danis Sumadilaga, Deputy Minister of Public Works and Housing.

The government will focus on developing outer areas, such as the eastern parts of Indonesia and its outermost islands. Widodo hopes the national development paradigm should no longer Java-centric, but Indonesia-centric – where development will be started and focused outside Java island. His favorite term: Development from the border.

Chairman of Indonesia Investment Coordinating Board Thomas Lembong adding infrastructure development is the new magnet to attract investor to district regions. In three years, investment rose 46 percent from a previous Rp463 trillion per year in 2014 to Rp678 trillion per year in 2017.

The biggest foreign investor in Indonesia in Q2-2017 was Singapore (US$ $1.6 billion), followed by Japan ($1.4 billion) and China ($1.3 billion). The top three sectors in which foreigners invested were (1) metal, machinery, and electronic industry ($1.1 billion), (2) mining ($1.0 billion), and (3) electricity, gas, and water supply ($990 million).

“Indonesian domestic capital formation is still lacking. We still depend heavily on capital brought in by foreign investors,” said Lembong.

Warning on Budget Pressure

Eric Sugandi, Chief Economist at SKHA Institute for Global Competitiveness (SIGC), said despite the progress that has been made, it’s still difficult for the government to balance between revenue and expenditures.

Indonesia’s tax revenue realization only reached Rp770 trillion (approx. US$57 billion) up to the end of September 2017, or a modest 60 percent of its full-year target.

With a legal cap on the fiscal deficit of 3 percent of GDP and revenues under pressure, Widodo still needs foreign investment to finance his ambitious infrastructure plan.

“Budget management is still weak; the fiscal transformation (re-allocate budget from subsidy to infrastructure) is exerting pressure, particularly if revenue is not optimized,” he stated.

Writing by Elisa Valenta, Email: elisa.valenta@theinsiderstories.com