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Economists urge more pro-investment policies

Stronger ties: President Joko “Jokowi” Widodo and Chinese President Xi Jinping agreed to boost Chinese investment in Indonesia during a bilateral meeting on the sidelines of the G20 Summit in Antalya, Turkey, on Sunday

Ayomi Amindoni (The Jakarta Post)
Jakarta
Fri, November 27, 2015

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Economists urge more pro-investment policies

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span class="inline inline-center">Stronger ties: President Joko '€œJokowi'€ Widodo and Chinese President Xi Jinping agreed to boost Chinese investment in Indonesia during a bilateral meeting on the sidelines of the G20 Summit in Antalya, Turkey, on Sunday. (Courtesy of the Presidential Office)

A senior economist from the Center for Economics and Business Research, Danae Kyriakopoulou, has praised the government for its recent economic stimulus packages aimed at attracting long-term investment suitable for Indonesia'€™s development.

"But now is a good opportunity for policymakers to look at opportunities in high-skill industries and manufacturing as well as services for better economic growth," Kyriakopoulou said at the Economic Insight South East Asia 2015 quarterly briefing in Jakarta on Friday.

Indonesia'€™s economic growth has faltered in recent years as commodity exports dropped, though it stood at a respectable 4.7 percent annual rate in the third quarter of 2015. Meanwhile, average ASEAN economic growth is predicted to be around 4.6 percent in the full year 2015.

According to the Institute of Chartered Accountants in England and Wales (ICAEW)'€™s director for South East Asia, Mark Billington, most ASEAN countries will see growth decline further in line with the economic slowdown in China.

He praised the Indonesian government'€™s plan to cut the corporate tax rate from 25 percent to 18 percent in 2016 in a bid to boost productivity and raise growth. "So a scheme to bring in investment has already been planned," he said.

The ICAEW's Economic Insight South East Asia 2015 report finds that 2015 has been an eventful year for the world economy. Lower gross domestic product (GDP) growth and the crash of the Shanghai stock market point to a significant slowdown in one of the world'€™s largest economies.

Meanwhile, the United States has also been a source of uncertainty this year, with many expecting the Federal Reserve to start raising interest rates. "A rate rise, when it comes, risks pulling capital out from emerging markets and back into the US," the report says.

Regarding these conditions, ASEAN policymakers face five main issues that will affect growth rates: a continuation of low commodity prices, China's slowing down, growth in other markets continuing to disappoint, generally weak world trade and uncertainty over a Fed rate hike.

These challenges will affect ASEAN economic growth. China's slowdown constitutes the most pressing danger: exports to China were the main factor powering ASEAN growth. Hence, ASEAN must refocus its export markets; diversification away from trade in goods is also deemed important.

The reports says that one way to diversify exports is to shift from raw materials to value-added products, as commodity prices will continue to remain weak for some time. Indonesia has seen a slump in coal exports of 18 percent so far this year, while Malaysia's ringgit plummeted to a 17-year low in August as oil prices fell.

In the long run, ASEAN economic diversification will lead to a wide range of benefits, including greater opportunity for product differentiation and lower volatility in export earnings, according to the report, but the temporary effects will be unwelcome for ASEAN economies, potentially triggering exchange rate crashes, holes in budgets and decreasing creditworthiness. (bbn)(+)

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