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Indonesia should focus on economic reform: World Bank
World Bank country director for Indonesia Rodrigo Chaves
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World Bank country director for Indonesia Rodrigo Chaves. (Kompas.com/Icha Rastika) (Kompas.com/Icha Rastika)
World Bank country director for Indonesia Rodrigo Chaves. (Kompas.com/Icha Rastika)
Indonesia needs to focus on effective implementation of its economic deregulation packages, improving public spending and strengthening stimulus measures in order to withstand global economic uncertainty in 2016, said the latest World Bank report.
According to World Bank country director for Indonesia Rodrigo Chaves, Indonesia and its neighbors face challenges ahead, particularly with China rebalancing its economy and the US Federal Reserve (Fed) preparing to normalize its monetary policy.
However, Indonesia's growth performance remains better than most exporters, since the government has been able to maintain a pro-active policy approach.
'Effective implementation of economic reforms will provide a much-needed boost to investor confidence,' said Chaves during the launch of World Bank's Indonesia Economic Quarterly (IEQ) October 2015 edition in Jakarta on Thursday.
In the second quarter of 2015, Indonesia experienced a slowdown in gross domestic product (GDP) growth, which remains at 4.7 percent. This condition is inevitable due to weakening global trade and lower commodity prices caused partly by China's shifting monetary policy from investment to household consumption. Another reason is the moderating fixed investment and domestic consumption affected by rising food prices.
Fortunately, said Chaves, the government has recognized the need to improve business confidence and the investment climate to enhance growth. Public capital spending for the first nine months of 2015, for instance, has increased by 21.4 percent in real terms, compared to the same period of 2014.
Additional government measures, including allocating more budget to strengthen social programs and infrastructure development, are also expected to help GDP return to a higher sustainable pace of growth.
According to Finance Minister Bambang Brodjonegoro, budget allocation reform is a fundamental start for Indonesia's strengthening of investment and growth.
'We need to improve our public spending and shift our focus by redirecting spending of energy subsidies to infrastructure development. We will also increase [funding allocations] to rural areas to boost the economy,' said Bambang, adding that infrastructure development is a basic requirement of growth.
Currently, the World Bank estimates that Indonesia's GDP will grow by 5.3 percent in 2016. However, uncertainty due to the possible increase of US interest rates, China's economic slowdown and the risk that El Nino may push up rice prices by up to 10 percent pose great challenges for Indonesia's growth effort.
Thus, World Bank leading economist for Indonesia Ndiame Diop suggested the government focus on short-term stimulus and structural reforms through policy packages.
'Efforts to support businesses and people as well as additional reforms will enhance the investment climate and accelerate growth. Further measures to support manufacturing and tourism growth and exports will also help Indonesia's growth and prevent current low account deficits from rising again when the growth has strengthened,' said Ndiame. (kes)(++++)
