T

he economy went through another year of trials and tribulations in 2015, marking a continuation of the slowdown that has plagued the country for the past few years, as economists point to several missed targets.

The most notable misses pertain to economic growth and tax revenues, with Moody'€™s Analytics economist Faraz Syed saying in an email that the economy would '€œexpand at a below-potential rate in 2015.'€

As 2015 draws to a close, full-year economic growth is set to be around 4.7 percent, far below the 5.7 percent target stipulated in the revised state budget and also below the 5.02 percent growth rate recorded in 2014.

Syed attributed the low rate to external headwinds, which had caused exports to fall, and raging forest fires that engulfed large parts of Kalimantan and Sumatra.

'€œThe Indonesian economy expanded at a sub-par rate of 4.7 percent yoy [year-on-year] in the first three quarters of 2015 and likely into the fourth,'€ he wrote in a separate report.

External headwinds, such as weak global prices and demand for commodities, have indeed hurt exports, which dropped 14.3 percent year-on-year in the January to November period, as shown by data from the Central Statistics Agency (BPS).

Experts at the World Trade Organization (WTO) have estimated that world growth in 2015 would remain stagnant at 2.8 percent and have applied the strongest downward revision in Asia due to China'€™s slowing economy.

Falling demand from China, in particular, hurt Indonesian exports.

Exports to that country '€” which is one of Indonesia'€™s main trading partners '€” have so far fallen by 20.5 percent on an annual basis.

'€œIndonesia'€™s reliance on [exports to China] has risen over the past decade, as China'€™s investment boom augured higher demand for Indonesian commodities, but that trend is over,'€ Syed added.

Meanwhile, in terms of tax revenue, the full-year achievement is estimated at Rp 1.1 quadrillion (US$80.54 billion) by year-end, equal to 85 percent only of the Rp 1.29 quadrillion target. Failure to reach the target prompted Sigit Priadi Pramudito to quit his job as Tax Office head.

The poor tax revenue performance, according to Bank Mandiri economist Andry Asmoro, has hampered economic progress.

'€œWe want to carry out so many projects, but we have limited funds, because we cannot realize the tax target. Like it or not, we have to set priorities,'€ he said, adding that the current administration seemed to lack that prioritization.
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'€œThe Indonesian economy expanded at a sub-par rate of 4.7 percent yoy [year-on-year] in the first three quarters of 2015 and likely into the fourth.'€

Overall, Andry agreed that various indicators showed worse results compared to 2014.

'€œThe situation is also partly caused by euphoria after Pak Jokowi [President Joko Widodo] took office. '€˜Oh, Pak Jokowi is here, growth will pick up,'€™ when in fact, we have been facing this downward cycle since 2011,'€ he said.

To make matters worse this year, the rupiah suffered a sharp depreciation against the greenback, and a significant amount of foreign funds was pulled out of the local stock market.

Data show that the rupiah has weakened by an average 9.5 percent throughout the year as the Indonesian Stock Exchange (IDX) recorded Rp 22.47 trillion worth of net sales.

Bank Danamon economist Dian Ayu Yustina said the currency'€™s movement had been '€œtoo volatile'€ in 2015 and acknowledged that nobody saw the renminbi devaluation coming.

'€œThe biggest shock that we didn'€™t expect was the CNY [Chinese yuan renminbi] devaluation. The volatility was also exaggerated by panic buying from domestic investors,'€ she said.

The devaluation in August sparked global concerns and caused emerging market currencies, including the rupiah, to tumble.

At one point after the devaluation, the rupiah even fell the most, touching the level of 15,000 per US dollar.

According to Dian, the sharp depreciation caused pessimism in the economy, with many companies postponing their expansion plans and consumers putting their spending on hold.

However, not all hope is lost. Dian said she expected to see some easing in the foreign exchange market and a more stable currency, with the rupiah moving between 13,800 and 14,100 per US dollar in 2016.

A Cabinet reshuffle has helped pave the way for better coordination and spending disbursement at the government level for next year as well.

Syed also lauded domestic reforms through economic policy packages that he said would be positive for the country'€™s medium- and long-term economic future.

The government has so far introduced eight packages since September in an effort to address structural issues. However, Syed proposed a pickup in infrastructure spending to offset external headwinds in 2016.

'€œSo far in 2015, infrastructure spending has been below the target. If infrastructure spending targets are hit next year, they will partially offset the external headwinds. In this scenario, growth could be closer to 5.5 percent in 2016.'€