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JAKARTA (TheInsiderStories) – As 2017 winds down, we can study how prospective investors took notice of numerous positive economic signals, which together may have convinced them to choose Indonesia as their investment destination.

Most international multilateral financial agencies project Indonesia’s economy to grow by at least 5.3 per cent next year, only slightly below the official 5.4 per cent the government posits.

While maintaining its prediction that the Indonesian economy will grow 5.1 percent this year, the International Monetary Fund (IMF) estimates the growth rate could potentially rise to 5.3 per cent in 2018.

The IMF’s estimates were based on a two-week evaluation conducted by its team of seven experts from Nov. 1 to 14, 2017.

The IMF team, Luis E Breuer said, analyzed data and interviewed government officials, Bank Indonesia executives, Financial Service Authority (OJK) leaders, private sector entrepreneurs and other stakeholders before coming to their conclusions.

The IMF official noted how our growth rate is relatively high when compared with other countries. In addition to the 5.3 per cent rate posited, Indonesia will also experience low inflation, a stable rupiah exchange and a well-managed current account next year, Breuer suggested.

He said that from a macroeconomic perspective, Indonesia will be in a “good condition” in 2018, and such a trend could potentially be sustained even longer.

In fact, in its 2017 World Economic Outlook, the IMF estimated Indonesia’s economic growth at just 5.1 per cent, unchanged from its 2016 prediction. The organization also saw the Indonesian economy to grow 5.3 per cent in 2018.

Meanwhile, the World Bank predicts that Indonesia’s economy will achieve 5.1 per cent growth next year – with three potential risks: slowing household consumption, weakening commodity prices, and global financial market turbulence.

World Bank Country Director for Indonesia Rodrigo A. Chaves warned of the need to be alert for household consumption decline, as it could severely affect state spending, given that more than half of Indonesia’s GDP is driven by household consumption.

Chaves said Indonesia should be wary of a decline in commodity prices next year. Although the government has diversified the economy in recent years, Indonesia still relies heavily on revenue from commodities.

“A fall in commodity prices could undermine the exchange rate and put pressure on state revenues,” he warned at the 2017 Indonesian Economic Quarterly event held yesterday.

The third risk is the interest rate hike by the U.S central bank, which could easily trigger financial market turmoil. On Wednesday, Dec. 13, the Fed officially raised its benchmark interest rate by 0.25 per cent to 1.25-1.50 percent.

“This turmoil could lead to sudden capital outflows from developing countries like Indonesia,” Chaves remarked.

The World Bank previously predicted Indonesia’s economy would grow moderately in 2018: GDP is projected at 5.3 percent, or 0.1 percent lower than the government’s target set in the 2018 State Budget.  State revenues are pegged at Rp1,886 trillion, slightly lower than the preliminary government target of Rp1,895 trillion.

Furthermore, the Asian Development Bank (ADB) estimates Indonesia’s economy may grow 5.3 per cent in 2018. According to the ADB Representative for Indonesia Winfried Wicklein, Indonesia’s economy will remain strong despite global uncertainty.

He attributes this to a supportive fiscal policy, a high budget for public infrastructure development, health, and education. In addition, the investment climate is improving.

“We suggest economic expansion is likely to continue through next year,” said Wicklein.

Private investment is expected to increase slowly. In addition to improving the business climate, investment flows are supported by an ‘investment grade’ rating on Indonesia’s long-term debt. The rating is expected to accelerate capital inflows, including foreign direct investment (FDI).

In terms of growth in household consumption, Winfried believes it will still be stable. Although the government reduction of energy subsidies resulted in an increase in electricity prices, household spending remained relatively strong.

He suspects that consumer confidence is still robust thanks to the stability of the rupiah and controlled inflation. “The downward trend in inflation is mainly the result of new efforts by the government to hold food prices through better logistics management and food distribution centers in the regions,” he said.

Finance Ministry Sri Mulyani Indrawati also expressed her doubt that the country’s economic growth would reach the 5.2 per cent target set by the government in the State Budget of 2017.

She projected the country’s economic growth this year is now likely to be around 5.05 per cent or below the government’s target of 5.2 per cent.

“It is estimated that the overall economic growth for the full year 2017 will be 5.05 percent,” Indrawati said at a press conference on Dec. 20.

Minister said the estimated actual economic growth takes into account economic growth in the fourth quarter of 2017, which is projected within a range of 5.15-5.17 percent.

Indrawati explained that all components of economic growth in the fourth quarter of 2017 will be positive and contribute towards the end of the year. She expects the momentum improvement of economic performance by the end of 2017 to be a provision of increased activity in 2018, mainly from investment and exports.

“Next year, we expect steady export momentum and increased investment and above six or seven percent growth over the year,” she said.

Written by Elisa Valenta, email: elisa.valenta@theinsiderstories.com