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Jakarta Post

Indonesian consumers, investors need kicking

  • Fedina S. Sundaryani

    The Jakarta Post

Jakarta   /   Tue, December 6, 2016   /  07:23 am
Indonesian consumers, investors need kicking Visitors enjoy a dance show at Mall Malioboro, Yogyakarta's premier shopping mall (Shutterstock/TK Kurikawa)

Indonesia’s efforts to attain 5.1 percent economic growth next year may fall short without a significant boost to the two top contributors of the economy, consumer spending and investment, economists say.

Prominent economist Faisal Basri projected that growth would be hindered partly by heavy pressure on consumer spending, which makes up 55 percent of the nation’s gross domestic product (GDP), and amount to no more than 5 percent in 2017.

“Consumer spending is under heavy pressure, especially for lowincome people,” the University of Indonesia (UI) economist said Monday during a seminar in Jakarta discussing the outlook of Indonesia’s economy. “Consumption will slow down.”

Consumer spending contributes the most to the nation’s economy, having grown about 5 percent in the past few years. It is followed by investment, which accounts for 32 percent of GDP and grew 4.88 percent from January to September year-on-year. Government spending only accounts for 10 percent.

Wahyoe Soedarmono, a financial economist from the Sampoerna University’s School of Business, noted that it would be difficult for President Joko “Jokowi” Widodo’s administration to reach its ambitious 2019 goal of 7 percent growth without increasing the ratio of investments to GDP to 44 percent.

The government recently aimed for economic growth of 5.1 percent this year, slightly lower than the 5.2 percent target that was in the revised 2016 state budget, as it decided to reduce public spending in a bid to maintain a healthy fiscal balance.

The Rp 137 trillion (US$10.13 billion) cut to the state budget was made in early August after President Jokowi called for efficiency measures in the form of trimming less important spending. The move directly impacted government spending, which contracted by 2.97 percent in the third quarter.

The government has remained upbeat despite facing many predictions that its targets are unachievable.

Coordinating Economic Minister Darmin Nasution said infrastructure and deregulation would remain key priorities next year, along with other improvements to reduce the dependency of domestic industries on imports.

The infrastructure projects, as they roll out, are expected to have trickle-down effects triggering loan demand and pushing credit growth to between 7 and 11 percent in 2017, higher than this year’s prediction of 7 to 9 percent.

In order to achieve this, the government needed to extend financial inclusion across the country as it would help support any investment needs, economists said.

“We need to increase the proportion of national savings, which currently only hovers at about 33 percent, to 44 percent in 2019 in order to reach the 7 percent growth target, which can be fully supported by national savings,” Wahyoe said.

One way to boost financial inclusion is to take advantage of the fastgrowing information technology sector to reach remote regions that have no access to banking or financial services because of a lack of infrastructure.

However, he warned that any transactions through financial technology (fintech) should be integrated with a formal financial intermediary in order to minimize any possibility of corruption.

There are about 120 fintech firms, mostly startups, currently operating in Indonesia in separate segments, such as peer-to-peer lending, e-wallets, crowdfunding and financial settlements, the Financial Services Authority (OJK) data show.

Total transactions within the fintech platforms are forecast to reach $14.5 billion with an average annual growth rate of 18.8 percent expected by 2020, according to market statistics portal Statista. (win)

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