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Exports, investment cushions for economy: World Bank
The World Bank has reminded Indonesia not to be complacent after weathering down the recent impacts of global economic turmoil, suggesting that the government should continue enhancing competitiveness and participation in the global supply chain, particularly through exports and foreign direct investment (FDI)
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span>The World Bank has reminded Indonesia not to be complacent after weathering down the recent impacts of global economic turmoil, suggesting that the government should continue enhancing competitiveness and participation in the global supply chain, particularly through exports and foreign direct investment (FDI).
Without improvement in exports and FDI, the country’s current account deficit will still be under pressure in 2019 as external turbulences are likely to continue next year, the Washington-based lender said during the publication of its flagship Indonesia Economic Quarterly (IEQ) report in Jakarta recently.
“Indonesia’s sound macroeconomic framework has indeed paid off but it does not mean [...] it should be complacent,” said World Bank acting country director for Indonesia and Timor Leste Rolande Pryce.
“Making Indonesia more resilient to international shocks is why we focus on policy reforms to boost trade and foreign investment,” she added.
The December edition of IEQ highlighted a generally optimistic forecast for Indonesia in 2019, as the result of the presidential election in the first half of next year should encourage investors and business owners.
With such optimism, the country’s current account deficit might recover to 2.5 percent against GDP next year, said World Bank Indonesia lead economist Frederico Gil Sander on the same occasion.
Bank Indonesia announced last month that the current account deficit had reached 3.4 percent as of the third quarter of 2018.
“Unless counterbalanced by higher exports and foreign direct investment, we feel that the pressure on the CAD is likely to remain next year,” Gil Sander said. “If there is further volatility of capital flows next year, the situation that we observed this year up to October [...] will recur next year.”
He quoted data from the December edition of the IEQ, which estimated annual investment growth of 7.5 percent in 2019, slightly above this year’s forecast at 7.2 percent.
While export growth might weaken to 7.2 percent from 7.3 percent in 2018, imports were expected to see slower growth at 10.7 from 13.8 percent.
The indicators had led the bank to estimate 5.2 percent GDP growth for 2019, unchanged from this year’s figure, which had been lowered from the previous estimate of 5.3 percent.
Responding to the forecasts, Investment Coordinating Board (BKPM) head Thomas Lembong said the government would strive to bring in more investment through fiscal incentives and allow foreign funds to enter more sectors.
Examples of incentives include the recent issuance of the 16th economic package, which comprises more tax holidays and tax allowance policies, as well as a revision to the Negative Investment List.
“We will continue to relieve the Negative Investment List even in the next four months [...] there is no need to wait for the election,” Thomas said during the seminar.
Thomas also acknowledged the need to bring in foreign talent in up-skilling Indonesia’s own workforce.
However, such a need had been overshadowed by politically-charged claims of foreign worker influx.
A study shown at the seminar points out that the claim was nowhere near correct, as only 60 out of 100,000 workers in Indonesia were foreigners. The share was far beneath other Southeast Asian countries, such as Thailand, which has a 4,470 out of 100,000 ratio, Malaysia with 12,350 and Singapore with 43,050 foreign workers.
“This paranoia about foreign dominance in our country is a fabrication by politicians. The workforce actually needs far more foreign workers,” Thomas said.
