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Jokowi sets modest 2019 growth target
President Joko “Jokowi” Widodo, who is seeking reelection next year, has not set his sights high for the final year of his first term, setting a modest growth target for 2019 after the recent escalation of external pressures
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President Joko “Jokowi” Widodo, who is seeking reelection next year, has not set his sights high for the final year of his first term, setting a modest growth target for 2019 after the recent escalation of external pressures.
In his financial note address before lawmakers on Thursday, Jokowi said the government was targeting 5.3 percent growth in 2019.
The target is lower than the 5.4 percent growth target outlined in the 2018 state budget, which the government also said was unlikely to be achieved this year.
It is also a far cry from the 7 percent annual growth target Jokowi promised during his presidential campaign in 2014.
“According to the projection of Indonesia’s economy, on which the 2019 budget will be based, the economy is still expected to be very dynamic and challenging,” Jokowi said.
The government’s proposed 2019 budget will be discussed by the government and the House of Representatives in the coming months before being passed into law.
Finance Minister Sri Mulyani Indrawati said the trade protection policies of the United States and the Federal Reserve’s planned hike in 2019 had increased the risks to the global economy.
These escalated risks have been reflected in several emerging markets, as shown in Argentina, Venezuela and more recently Turkey, Sri Mulyani added.
“We calculated the economic growth [target] of 5.3 percent in 2019 on the basis of these escalating risks,” she said.
For most of this year, the rupiah has suffered from external pressures stemming from the Fed’s interest rate hikes as well as the ongoing trade tensions between the US and China, which has triggered global capital readjustments with portfolio investors leaving emerging markets in search of higher returns in advanced economies.
The rupiah was traded at Rp 14,619 per US dollar on Thursday, according to Jakarta Interbank Spot Dollar Rate, far below the Rp 13,300 level seen in January. The currency has weakened 7.04 percent year-to-date, Bank Indonesia (BI) data reveals.
The current rate is lower than the Rp 13,400 level assumed in the 2018 state budget. For 2019, the government has assumed the rupiah exchange rate will reach Rp 14,400 per US dollar.
Eric Sugandi, an economic observer with the Asian Development Bank Institute, said the increased deficit in the current account as well as the US Treasury’s rising yield was behind the rupiah rate calculation of between Rp 14,200 and Rp 14,500 per US dollar in the proposed budget.
“The widened current account deficit [CAD] is a sign of weaker economic fundamentals resulting in the weakening of the rupiah,” he said, adding that “If we want the rupiah to be stronger than Rp 14,000 per US dollar, the CAD needs to be narrowed”.
The CAD widened to US$8 billion in the second quarter, equal to 3 percent of gross domestic product (GDP), but remained within the level that BI considers safe for the economy.
The government has also pledged to reduce imports and boost exports — the core of its strategy to reduce the CAD to help stabilize the rupiah — including by expanding the use of 20 percent biodiesel mix to non-subsidized fuel and halting some of its infrastructure projects that have high import contents.
State revenue is projected to reach Rp 2.14 quadrillion in 2019, while government spending is also expected to rise to Rp 2.43 quadrillion next year.
The revenue and spending expectations have also resulted in a lower deficit projection in 2019 of Rp 297.2 trillion, equal to 1.84 percent of GDP — the lowest fiscal deficit since 2012 when it reached 1.86 percent of GDP.
Gadjah Mada University economist Tony Preasetiantiono said the proposed 2019 budget was realistic and sound.
“The government seems to have learned a lot about drafting the state budget, which is now more realistic and workable compared to those drafted at the beginning of Jokowi’s term, which were too ambitious,” he said.
He also lauded the government’s move to lower the fiscal deficit next year amid high debt maturity in 2019, which is projected to reach Rp 409 trillion.
