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Indonesia will struggle to maintain domestic consumption next year: Economist
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A woman buys vegetables at a traditional market in Jakarta recently. Bank Indonesia (BI) said on Aug. 1 that inflation would improve Indonesia’s household consumption in the second quarter of 2016. (Tempo/File)
T
he Indonesian government would find it difficult to maintain domestic consumption growth at 5 percent year-on-year (yoy) in 2017 if its fiscal and monetary policies continued to run at the current slow pace, an economist has said.
Center of Reform on Economics (CORE) executive director Mohammad Faisal said regarding fiscal policy that despite government expenditure being significantly higher than in 2015, disbursement was not stable, even showing signs of a slow down as growth had been negative 2.97 percent yoy in the third quarter.
"Government expenditure contribution to gross domestic product [GDP] growth might be small, only 7 to 8 percent, but it can greatly affect domestic consumption," he said during a media briefing in Jakarta on Tuesday, adding that the government's infrastructure projects had given local people substantial income for consumption.
In the monetary policy, he added, the transmission of Bank Indonesia (BI)'s reference rate cut to the banking industry was still slow. Banks still had problems improving non-performing loans and were trying to maintain profitability amid rate cuts.
Pemeringkat Efek Indonesia (Pefindo) economist Ahmad Mikail said that the transmission would take effect during the second or third quarter. Given that the monetary policy would be sluggish, the government had to accelerate spending in the first quarter to boost domestic consumption.
"The government must stimulate domestic consumption by spending early because we can not rely heavily on exports and investment next year," Mikail said. (evi)
