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Jakarta Post

Stronger performance brings back confidence

After observing relatively weak economic performance over the past couple of years, the government is projecting a strong start for the final half of its term on the back of improving domestic factors and relaxing external pressure.

Anton Hermansyah and Grace D. Amianti (The Jakarta Post)
Jakarta
Fri, March 24, 2017

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Stronger performance brings back confidence President Joko "Jokowi" Widodo (left) and Vice President Jusuf Kalla lead a limited Cabinet meeting at the Presidential Office in Jakarta on Feb. 16. (Antara/Wahyu Putro A)

After observing relatively weak economic performance over the past couple of years, the government is projecting a strong start for the final half of its term on the back of improving domestic factors and relaxing external pressure.

Amid a weak global economy, Indonesia, under the leadership of President Joko “Jokowi” Widodo, struggled to maintain economic growth at 5.02 percent last year after reaching only 4.79 percent in 2015, the lowest rate in six years. Jokowi, a successful furniture businessman prior to his entrance into politics, was inaugurated as the country’s seventh president in October 2014.

For this year, the government initially set a target of 5.1 percent economic growth in the state budget. But on Thursday, it came up with an optimistic view that it can do significantly better.

“Looking at domestic factors, it is possible for us to achieve [economic growth of] 5.2 percent, or even 5.3 percent, in the absence of external pressure,” Finance Minister Sri Mulyani Indrawati said in a hearing with lawmakers on Thursday.

Providing an illustration, Sri Mulyani pointed out how the country’s exports had started to pick up after seeing a 3.95 percent year-onyear (yoy) decline in value last year.

Central Statistics Agency (BPS) data show exports in the first two months of this year increased by around 19 percent to nearly US$26 billion from the same period in 2016.

“We are hoping that this momentum can continue,” the minister said, before highlighting other supporting factors such as strong domestic consumption and increasing capital expenditure (capex) among state-owned companies.

Since his first day, the President has pledged to push through massive infrastructure development as his key strategy to spur growth. He has also been obsessed with achieving rice self-sufficiency and improving the country’s position in the global ease-of-doing-business ranking.

Amid the pinch of a sluggish global economy and falling energy prices, Jokowi last year managed to get the nod from lawmakers for the government’s tax amnesty, which was expected to be a major alternative source of state revenue.

A public perception survey released earlier this week by Jakarta-based pollster Indo Barometer suggested that Jokowi’s approval rating had risen from 58 percent in October last year — when he completed his first two years in office — to 66.4 percent this month, paving the way for his possible reelection.

The survey, which has a 3 percent margin of error and a 95 percent confidence level, interviewed 1,200 people in 34 provinces between March 4 and 14.

Another positive indication has emerged from local companies’ confidence in spending big for expansion.

Multinational rating agency Fitch Ratings predicted that the aggregate capex-to-revenue ratio of Indonesian corporations would rise to 17 percent in 2017 compared to 15 percent last year.

“Fitch expects Indonesian corporations to invest more capex in the next two years as companies prepare for better consumer sentiment, led by the improvement in economic activity,” the firm said.

In its latest report, the World Bank also shared optimism that Indonesia could reach 5.2 percent economic growth in 2017.

However, the bank has forecast the budget deficit to be 2.6 percent of 2017 gross domestic product (GDP), wider than the 2.4 percent deficit target set in the 2017 budget, due to higher spending on public infrastructure projects and loss of income due to welfare-oriented programs, such as the heavily subsidized micro credit (KUR) program.

Separately, Bank Central Asia (BCA) economist David Sumual said the government must introduce other innovative measures post-tax amnesty, which ends this month, to boost tax revenue.

He also warned about the importance of maintaining political stability to maintain investors’ appetite, especially after two massive, religious-driven rallies by Muslim groups late last year to push for the prosecution of Jakarta Governor Basuki “Ahok” Tjahaja Purnama, a close ally of Jokowi’s, for alleged blasphemy.

“Political stability will definitely become a key to attracting more investment this year,” he told The Jakarta Post.

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