Fin Min: Indonesia’s economic growth is open to strengthen

Photo by Finance Ministry

JAKARTA (TheInsiderStories) – After being awarded investment grade from Standard and Poor’s, investor’s confidence on Indonesian economic prospect is growing. Capital inflow reached Rp122 trillion by end of May this year, a 58% jump compared to Rp77 trillion be end May of 2016.

The current positive credit rating, however, is not supported by capital market stability. Lower risk perception is expected to reduce borrowing cost for government. Since government bonds are considered as the benchmark for domestic market, a declining yield could prompt rate adjustment in credit market, which then help spurring more investments.

Being in the new rating group, could further push improve investment and expand its economic growth in the future? The Insider Stories has try to exposed the views of Finance Minister Sri Mulyani Indrawati view on Indonesian economy.

Below are the transcript:

Q: How do you see Indonesia’s economic prospect in the future?

B:  We have quite positive moment right now and the past three years. Our economic condition is challenged by both supply and demand sides. From the demand side, we need to keep it as economic mover. For this year and next year, we can rely on export activities as one of main economic growth driver. We hope to see investment growth at around 8 percent so that our economic growth can reach 6 percent.

On the sectors, I think our agriculture production is already well maintained. Meanwhile manufacture and services sectors could grow fast. We also need to make sure that the supply side should follow demand growth. Our manufacture sector as well as services sector are sensitive to Doing Business rating and environment.

Overall, I think our country can cover both demand and supply side. We need to keep consumption and investment growth for demand side.

Q: Where is our position in 2019?

A: If we can maintain growth from demand side — export can be strengthened and investment could grow by 6-8% — our economic growth can reach 6 percent.

Q: Do you believe that Indonesia is now in stronger position?

A: Overall, we are different from the post-Asian financial crisis for 3 things: First, we change the macro economy policy and minimize distortion on behavior of economic agent. Second, we change the governance of

financial sector to have consistently better governance and better risk management. Third, our regulator, OJK and Central Bank exactly become more independent and have the credibility to enforce, so I think it’s much better to create open market economy. Indonesia is also better from the shortcoming outside.

We always handle a shock to the economy. Now, the balance sheet is really different from Asian crisis situation.

We actually never disclosed the balance sheet of the state companies, the central bank, the banking system and corporate. Today all the balance sheets are disclosed and analyzed, the people have confidence about the governance on the balance sheets. We have confidence on debt exposures. Banks are healthy, so are the corporate balance sheet and household.

Q: Any other improvements?

A: On the management of macro economy, Indonesia now applies a fixed exchange rate, instead of floating exchange rate. And our fiscal policy now tells explicitly about level of deficit, then we can track and manage it within its tolerated level.

We have implemented the good corporate governance (GCG) principles so we can track and minimize external risks. In time ago, our financial institutions can be easily abused by corporate directors or its business crony.

There are some shopping posts that we have to accommodation such as the Asian Games, land bank for infrastructure projects, changes in macro assumptions. We can be better than 5.1% and falling oil prices can also affect the state budget. At the same time we are also discussing the 2018 APBN and in the next one month will finalize it.

Q: View neighboring Indonesia’s economy forward

A: Momentum is quite positive and if seen within the last three years. In total, Indonesia’s economy is faced with the supply and demand challenges of its ideas so we see from the demand side we have to keep him as the driving force of the economy. If in terms of demand side motor that can promise for this tahin and next year is the export, investment can be above 8% then the economy could be close to 6%. From the side of our demand side of the agricultural sector has created a stabilization of the production side. From the manufacturer side. The service sector is fast enough to grow. We also must make sure, not only from the side of demand as well, From the supply side kalua demandnya increased, lest we do not have the capacity to supply or produce. Agricultural sector has been quite good. In terms of manufkatur, jgas one of the most important ones that rely heavily on Doing Business, service sector as well. Over all, Indonesia I think is able to cover everything both in terms of demand and supply. To answer the demand we do with Consumption and Invetation.

Q: The macro assumption of APBN will be revised up / down because capital inflow is quite heavy into Indonesia?

A: ICP increased at the beginning of the year which caused the price of premium and diesel fuel far from its economic price for premium Rp6,450 a liter and Solar Rp 5,150 per liter. Subsidy for premium zero and diesel Rp500 a liter. The government’s focus keeps the momentum of economic growth.

For Revised State Budget for 2017 we must calculate the subsidy of diesel, electricity and Liquefied Petroleum Gas 3 kilogram. We will keep the deficit below 3 percent and for this year we expect the deficit to be slightly wider than 2.41 percent to 2.6 percent due to the change of macro assumptions.

Q: Impact of the higher oil price to Indonesian economy?

A: We will keep calculating the oil subsidy. To maintain the state budget remains credible we will continue to use the fuel subsidy assumption Rp77.3 trillion and if there is a difference Pertamina will absorb the excess.

Q: Tax ratio 13% is achievable to achieve or not?

A: It will be difficult to achieve but we will try to explore the tax revenue that is definitely in the hands of the government. We will also expand the data base. We can identify so that potential tax revenue can be better. We will also conduct international cooperation to achieve the tax target in 2018.

Q: Infrastructure spending? Shortfall?

A: The portion of infrastructure spending and social spending is 1/3 of GDP but later we will elaborate deeper. I have not been able to give an overview of the exposure. But we can detect shortfall Rp50 trillion. Therefore we want to raise the deficit around Rp 37-40 trillion so that the value of deficit around Rp 330 to Rp 367-370 trillion. (YW)