Morgan Stanley: Indonesia to Continue Economic Reform under Widodo's Second Term
President Joko Widodo inaugurated Bitung Special Economic Zone in North Sulawesi province, Morotai in North Maluku province, and Maloy Batuta Trans Kalimantan in East Kalimantan province - Photo by President Office.

JAKARTA (TheInsiderStories) – An international financial institution Morgan Stanley, projected that the quick polls victory of incumbent Joko Widodo-Ma’ruf Amin against the contender of Prabowo Subianto-Sandiaga Salahuddin Uno opened the gate for the continuation of the second structural reform policies to encourage higher economic growth in Indonesia, including in infrastructure.

In its report entitled Incumbent Wins: What’s Next after the Dust Settles?, Morgan Stanley Asia economists stated there were several steps in structural reforms that the government needed to do.

First, increase productivity and competitiveness in the non-commodity sector. The aim is to diversify the engine of economic growth and anticipate weak commodity prices. At the same time, it can increase export capacity and reduce import requirements.

“This step will help diversify growth drivers and overcome the impact of low commodity prices. Higher competitiveness in the non-commodity sector can increase growth potential,” said Deyi Tan, Zac Su, and Jonathan Cheung in a press release last week.

Second, the government needs to ensure that funding is truly directed at the productive sector, such as infrastructure and education, to release the dependence on Indonesia’s economic growth on commodities such as coal.

Third, the government is advised to evaluate policies related to the competitiveness of Indonesian workers so that wage growth is consistent with increased productivity, and helps companies maintain their profits.

Finally, the government must try to increase investment to attract more foreign direct investment (FDI), including foreign direct investment in the non-commodity sector.

“Attracting productive FDI in the non-commodity sector will help hoist Indonesia’s growth potential, enlarge export capacity, and reduce import dependence,” the researchers wrote.

The sustainability of development is precisely seen in the policy priorities on Widodo’s campaign agenda for the last 8 months, where he will focus on industrialization through the development of special economic zones and accelerating infrastructure development, continuing fiscal reforms to increase economic competitiveness, and institutional reforms to improve governance.

Furthermore, Morgan Stanley estimates that Indonesia can fight global flows in 2019, with growth rising to 5.3 percent in 2019 after experiencing healthy growth due to the sluggish global economy since last year.

Morgan Stanley noted that in Widodo-Kalla’s current government, there were significant developments in terms of infrastructure, fiscal reform, business climate, and efforts to reduce poverty and inequality.

On the infrastructure side, for example, government spending in this sector increased from 1.8 percent of GDP and 10.2 percent of the total State Budget in 2013 to 2.8 percent of GDP and 18.5 percent of the State Budget in 2018.

On the side of fiscal reform, efforts made include increasing the tax base, improving tax information and data systems, hoisting tax compliance, and overcoming tax deductions, including through the tax amnesty program in 2016.

In addition, the improvement of the business climate is carried out through 16 economic policy packages that cover various sectors and simplification of business licensing processes and regulations to facilitate the growth of digital economic sectors, such as e-commerce and financial technology (fintech).

Widodo was also declared successful in reducing the poverty rate from 11.5 percent in 2013 to 9.7 percent last year and inequality through the “Kartu Sakti” programs, namely the Family Hope Program, National Health Insurance and an increase in the School Operational Assistance program.

As known, even though the new General Election Commission officially announced victory on May 22, but from the quick count conducted by various survey institutions, the presidential and vice-presidential candidates Widodo-Amin excelled in the range 54-56 percent of the Subianto-Uno pair, get 44-46 percent of the vote.

Written by Daniel Deha, Email: daniel@theinsiderstories.com