JAKARTA (TheInsiderStories) – Indonesia has weathered substantial global volatility thanks to sound macroeconomic fundamentals and strong policy coordination, according to the World Bank’s December 2018 Indonesia Economic Quarterly released today (12/13).
The Fund estimated Indonesia’ economic growth around 5.2 percent in 2018 and 2019, or slightly higher than 2017 at 5.07 percent. It said, the momentum of investment is expected to continue to rise in 2019 to support the growth.
“Some challenges for Indonesia such as falling oil prices could have a negative impact on other terms of trade, the global influence of trade disputes is getting worse, financial market pressures that have been felt by developing countries,” Frederico Gil Sanders World Bank‘s Lead Country Economist for Indonesia told reporters.
Stronger domestic demand, still led by investment, is expected to outweigh the drag from the external sector, amid slower global growth and continued global trade policy uncertainty, he said.
Investment growth remained a key driver of the economy, with construction investments rebounding from the previous quarter. While private consumption eased slightly, a surge in government consumption kept total consumption growth on an even keel, said Sanders.
Rodrigo A. Chaves, World Bank Country Director for Indonesia and Timor-Leste added, with monetary and fiscal policies securing macroeconomic stability, he believed the Indonesian economy expanded at a robust 5.2 percent in the third quarter.
“The government’s coordinated monetary, fiscal and exchange rate policies have helped Indonesia to emerge relatively unscathed from the recent bout of external turmoil,” he stated.
Then, continued structural reforms that reduce domestic vulnerabilities will further enhance economic resilience and allow for even better management of global volatility, should it return in the future, said Chaves.
Going forward, external conditions are likely to continue to pose substantial risks to Indonesia’s growth outlook. The persistence of uncertainty regarding global trade tensions and the possibility of further tightening of United States monetary policy may lead to further capital outflows and financial volatility among emerging market economies, including Indonesia.
“Although pressures on the Rupiah have eased, Indonesia should further strengthen its external position by accelerating efforts to increase exports and investment,” added by Sander.
He continued, measures such as implementing free trade agreements and revising the negative investment list to reduce restrictions to investment from abroad will boost Indonesian competitiveness and create good jobs that can move more Indonesians into the middle class.”
Commenting on the World Bank report, chairman of Investment Coordinating Board, Thomas Lembong admitted this year foreign direct investment has dropped, the first time in the current administration. In 2017, the agency also not succeed in making a breakthrough like in previous years, he said.
“Some steps that will be taken to to strengthen competitiveness, include the revision of the negative investment list, opening up more and more sectors that are opened to foreign investors,” said the chairman.