Photo by President Office

JAKARTA (TheInsiderStories) – Soon after assuming the highest office in the land, President Joko Widodo got a brutal lesson in economic reality, learning the hard way that Indonesia’s economic prospects are inexorably bound up with the external environment, particularly the force of US Federal Reserve policy and China’s stalling economy.

During the 2014 Presidential campaign, Widodo boasted that Indonesia’s economy would grow at 7 per cent annually. However, in the first quarter of 2016, the economy couldn’t even chalk up 5 per cent, largely due to weak demand for Indonesian commodities, as its biggest buyer, China, faced its own economic slowdown.

In his 3rd year, Jokowi expressed optimism that the global economy would recover, and with several attempts to ensure the business and investment climate stayed attractive, economic growth of 5.1 per cent this year seems within reach.

He said Indonesia is expected to become the world’s fourth-largest economy by 2045, when it celebrates its 100th birthday, boasting a population of 309 million people and gross domestic product of US$9.1 trillion.

“The speed of service has become one of the keys for improving public trust,” Widodo said, in a talk delivered at the Indonesia Trade Expo 2017 on Oct. 12.

In addition, he underlined the importance of political stability, security, and the current level of economic growth. He promised to increase infrastructure growth all over Indonesia and shape the country into a top destination for foreign investors.

To achieve such targets, he has revoked many of the 2015 bylaws which were part of the government’s deregulation efforts, introduced over a period of months in 14 economic policy packages aimed at improving the business climate and attracting more foreign investment.

This attempt has started to yield encouraging results.

The World Bank currently ranks Indonesia 91st among 190 global economies, in its annual ‘Ease of Doing Business’ survey, similar to last year’s ranking but still significantly better than the 117th position it averaged between 2008 and 2016.

Indonesia is ranked just above Kenya in the World Bank’s ranking, but well behind ASEAN competitors Vietnam (82), Brunei (72), Thailand (46), Malaysia (23) and Singapore (2), despite having the region’s largest economy and domestic market.

In May, Indonesia received a sovereign rating upgrade to ‘investment grade’ from Standard and Poor’s, thus marking a return to a situation before the 1997 Asian Financial Crisis during which all big three agencies rated the nation investment-worthy.

In the World Economic Forum’s 2017-2018 Global Competitiveness Report, Indonesia is ranked 36th, up from 41st in the same report last year.

The Swiss institution found Indonesia has improved its performance across all indicators, mainly driven by its large market size and a relatively robust macroeconomic environment. Ranking 31st and 32nd in innovation and business sophistication sub-rankings respectively, Indonesia is one of the top innovators among emerging economies.

But in contrast, Indonesia is lagging quite far behind in terms of technological readiness (80th), despite having made steady progress on that front over the last decade.

Indonesia also ranks first for public trust in the government, based on data released by the Organization for Economic Co-operation and Development in its ‘Organization at a Glance 2017’ report, published on July 17, 2017.

Despite all such high-ranking achievements, Widodo’s administration is still left with so much homework for the next two years.

Chairman of Indonesia People’s Consultative Assembly Zulkifli Hasan said during three years of Widodo’s administration, achievements in the infrastructure development have been quite significant. However, he noted few improvements in income levels, despite the rising cost of basic goods.

“There is also the issue of unemployment: many undergraduate and high school graduates have not been able to find jobs,” said Zulkifli to TheInsiderStories.

Maybank Indonesia economist Juniman said declining purchasing power over the past three years is considered a major challenge for Jokowi’s administration.

This is shown by the growth of household consumption data of the Statistics Indonesia (BPS) for the last three years. In 2014, household consumption was growing by 5.14%, but decreased to 4.96% in 2015. According to him, the issue of purchasing power also has an impact on slowing credit growth.

“People’s purchasing power is not falling, but it does not improve; stagnant purchasing power means it is difficult to boost the economy,” Juniman told TheInsiderStories.

Juniman argues that the problem of welfare equity is reflected in the level of gap (gini ratio) that has not seen significant improvement.

“Actually, what the government is doing is right – building Indonesia from Sabang to Merauke – it only takes time, but we must point out that the distribution of wealth is still a major problem,” he said.

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

 

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