JAKARTA (TheInsiderStories) – Despite the expected challenges facing the global economy this year, Indonesia and other Southeast Asian countries are well-positioned to generate ongoing economic growth.

Lead Economist of World Bank Indonesia, Frederico Gil Sander, said at Indonesia’s 6-Month Economic and Political Review seminar that Indonesia, Southeast Asia’s largest economy, would see stable economic demand fueling economic performances amid external challenges.

“We expect the domestic economy to see sustained growth from continuing investments in key infrastructures and strong domestic demand,” said Sander in his opening address at the seminar, which was organized by the Foreign Policy Community of Indonesia (FPCI) in Jakarta on Wednesday (07/31).

“We are confident of the strength of Indonesia’s economic fundamentals to weather global and domestic uncertainties so as to overcome the complicated political pressure in the first half (1H) and bright prospects until the end of the year,” he added.

According to Sander, ASEAN was seeing positive economic prospects, with the opportunities expected to come from continuing resilience in the domestic market as supported by favorable demographics, continuing investment in infrastructure and a healthy macro balance sheet thanks to lower and manageable leveraging.

Sander explained how the world was currently facing volatility, uncertainty, complexity, and ambiguity. He said global economic moderation, which had started in the second half of 2018, was showing signs of a continuing trend toward early 2019.

Explaining factors contributing to global economic volatility, Sander said interest rate hikes globally, spearheaded by monetary policy moderation by the United States (US) Federal Reserve, have led to the rising cost of the economy.

“Starting in late 2018, we are seeing global and regional trade slowing down as a fall-out of the escalation in the US-China trade war,” he said.

“We’ll see rising political risks and policy uncertainties from events such as the US domestic political and fiscal gridlocks post-mid-term election, Brexit, geopolitical issues, as well as elections. These factors also contributed to heightened volatility across different asset classes as markets re-assess outlooks and risks,” he noted.

The seminar’s featured speakers included Chief Economist of Bank Mandiri, Andry Asmoro, Board of Experts of Indonesia Merchant Association Yongky Susilo and Executive Director of Saiful Mujani Research & Consulting (SMRC), Djayadi Hanan.

Asmoro and Susilo shared Sander’s insight into Indonesia’s positive economic prospects.

“Looking at the monetary policy, we’ll see Indonesia having far better economic prospects for 2019 when compared to 2013 and 2018,” Asmoro said.

However, the challenge that Indonesia is expected to face is the economic slowdown experienced by China. The trade war has reportedly led to China’s economic slowdown. Its economic growth was recorded at 6.6 percent last year, a drop of 6.9 percent from 2017.

While Susilo said Indonesia was expected to see gross domestic product growth of 5.3 percent this year, an increase of 5.17 percent from last year. He also highlighted the government’s efforts to boost investment by issuing Finance Minister Regulation on the tax holiday, which replaced the early regulation.

Under the new regulation, investments of between Rp100 billion and Rp500 billion will get a 50 percent tax deduction for five years. The tax holiday has also been extended to new investments worth a minimum of Rp100 billion and 18 pioneer industry sectors.

“The previous regulation on the tax holiday only attracted investors from Switzerland, the Netherlands, and Indonesia. However, since the new regulation was issued, it has attracted investors from China, Hong Kong, Singapore, Japan,” Susilo said.

Susilo’s note in line with 1H investment realization report by the Investment Coordinating Board days ago. The board reported that the country recorded realization investment Rp395.6 trillion (US$28.26 billion), up by 9.4 percent in the same period last year.

The increase was higher than the 7.4 percent in the same period last year as investors resumed their business expansions following a time of wait-and-see ahead of the April elections, Susilo said.

Foreign direct investment (FDI) realization grew by 4 percent year-on-year (YoY) to Rp 212.8 trillion in the first six months of this year. Despite the seemingly sluggish growth, it was better than the achievement in the same period last year when it contracted by 1.1 percent YoY, he said.

“Indonesia remains an attractive destination for FDI, mostly due to its large domestic market and relative political stability. The elections passed pretty quietly and did not harm confidence. On the other hand, the regulatory and legal environment remains difficult and complex and both are frequently cited as a source of concern for investors,” he said.

Some of the difficulties he cited were in regard to the Patent Law, local-content restrictions, import quotas, and work permits. In addition, investors expressed hope that more sectors would be opened to foreign ownership through the revision of the negative investment list.

“We have a good working relationship with the economic ministries and we expect that to continue under President Joko Widodo’s second administration. I am pleased to hear the President stressing reform and greater openness in his next Cabinet,” Susilo added.

About Cabinet, Executive Director of SMRC, Hanan said the most important issue for Widodo should be how to balance the need to form a professional, technocratic Cabinet and the necessity to accommodate the interests of his coalition.

In the end, the new Cabinet is expected to be a mix of professionals handpicked by Widodo and those proposed and backed by political parties. But whatever its final composition, the primary goal of Widodo’s Cabinet should be to improve governance in his second term in order to deliver his programs.

Written by Lexy Nantu, Email: lexy@theinsiderstories.com