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Jakarta Post

Great momentum for economy

  • Editorial Board

    The Jakarta Post

Jakarta   /   Wed, July 3, 2019   /   08:50 am
Great momentum for economy Business matters: President Joko “Jokowi” Widodo stands among a number of businesspeople at Istora Senayan, Jakarta. (The Jakarta Post/Dhoni Setiawan )

More than 40 companies have lined up to raise about Rp 30 trillion (US$2.2 billion) in fresh capital through initial public offerings (IPO) and bond and rights issuances through the Indonesia Stock Exchange (IDX) within the next few months, according to the Financial Services Authority (OJK).

This is an indicator of a golden moment in the economy as the whole election process and its legal procedures have been completed with the Constitutional Court’s confirmation of incumbent Joko “Jokowi” Widodo as the president-elect, who will start his second term in October.

The financial markets are usually the first to react to any new developments in political and macroeconomic stability and policy predictability.

The top priority programs of the Jokowi administration are familiar to the business community: physical infrastructure, institutional capacity building to develop a clean, efficient and competent system of governance and business licensing, as well as a better-targeted vocational training system. Jokowi’s campaign promises suggest that these working programs and inclusive growth enhancement will even be stepped up.

Yet what makes Jokowi’s second and last term able to do many more great things for the nation is his own pledge that he would have greater political courage to implement bolder — though painful — reforms for the long-term good of the economy. His coalition’s majority in the House of Representatives is another form of political capital to help him carry through many more structural reforms to strengthen economic competitiveness.

Indeed, he needs to accelerate the pace of reform, most notably in energy and labor policies, considered one of the toughest set of labor rules in the world, in view of the uncertainty about the global economy and the United States-China trade war, which will most likely dampen Indonesia’s potential export growth.

The World Bank’s latest economic quarterly report, issued on Monday, revises down Indonesia’s growth by 10 basis points to 5.1 percent forecast for this year because of negative external factors. Though this growth rate is lower than the estimated potential growth of 7 percent, that pace is still respectable. That is about similar to the average growth projected in East Asia, including China, South Korea and Japan, and way higher than the 3 percent forecast for global growth.

Given the subdued market conditions for export, private and government consumption and investment will continue to be the main drivers of growth. This requires, in addition to massive reforms, prudent fiscal and monetary management to maintain a fairly stable exchange rate and low inflation to enable the central bank to ease its benchmark policy rate and introduce additional accommodative measures to stimulate domestic demand.

Hence, all in all, gradual growth (between 5 and 5.5 percent) will be more socially and economically feasible for the next five years if the government is really serious about reducing inequality in income distribution, regional development and wealth ownership. Emphasis on inclusive growth will require the government to spend more on agriculture and rural development, which are usually the laggards among the economic sectors.