As investment and export were losing steam, Indonesia’s economic growth by 2015 was only predicted to grow by 5.2% slightly below World Banks projection released July 2014 last at 5.6%.
Economic growth was predicted to be 5.1%, lower than the predicted 5.2%. this was disclosed by Indonesia Economic Quarterly December 2014 edition entitled when investment exceeded expectations in 2015.
High domestic expenditure sustained growth. If Indonesia managed to strengthen economic foundation and improve investment climate then higher economic growth could be attained.
Still, many challenges had to be met. By end of October capital expenditure was only 38% and preparations for Government’s capital expenditure was only 38% of financing preparations for 2014, way below that of 2012 and 2013 of the same period.
Deficit in current transaction was only slightly reduced, i.e. USD 6.8 billion or 3.1% of GDP in Q 3 this year. The gradual downturn was predicted to continue and deficit in current transaction was predicted to reach 2.8% in 2015.
Oil price increase triggered inflation but the psychological shock was temporary [and the amount was permanent]. Inflation was estimated to reach 7.5% in 2015 and descend quickly before end of 2015 provide there was no other turbulence. Fiscal austerity came to more than Rp100 trillion which could be used for financing other sectors like education and health.
As known, Indonesia allocated only 1.2% of GDP for the health sector, the lowest among countries of the world. Better budgeting with allocation on social aid like education and health could accelerate poverty eradication.
Without extra support to the effort of poverty eradication, poverty level in Indonesia – i.e. 11.3% - would remain to be 8 percent in 2018. For that matter initiative from the new Indonesian Government was a good development.
Weakening investment and export and undesirable economic condition would pose as challenge to growth process.
The new Government had set ambitious target for development especially in the energy sector and infra structure as well as social programs. Some measures had been taken to strengthen governance in some important sectors with more effective execution.
It must be borne in mind the state of global economy today was challenge to Indonesia, with growth projection being revised down and commodity prices being under pressure. America’s economy was recovering but such was not the with Europe and Japan.
The rebalancing process in China was still continuing, resulting in growth slowdon. Commodity prices was still weakening, especially crude oil which shrunk to one third since June. Since Indonesia’s oil import was higher than export it had its effect on trading, but the main impact on economy also depended on the fiscal and energy sector.
Indonesia’s economy had been slowing down in the past years especially due to investment growth level and weak export. GDP growth in 2014 was projected at 5.1% slightly down against July at 5.2%, and higher revision for 2015 to become 5.2% against the previous 5.6% - further projected to increase to 5.5% in 2016. Deficit in current transaction was projected to descend at base case although slowly to become 2.8% of GDP in 2016.
The crucial decision to reduce oil subsidy on November 18 2014 was an example of a difficult policy but was necessary to be done. Other important measures needed were 3 points of World Bank’s focus i.e. 1. Collecting More 2. Spend better 3. Facilitating The business world.
On the fiscal sector, economic growth was constantly below GDP nominal growth in spite of slight step up of Rupiah related income. To support Government’s growth target, continued effort to increase income was an important thing.
Reformation in come policy through expansion of tax base, simplification of tax structure, simplification of tax classification and revision of certain taxes to keep up with international standard, could increase tax income and minimize economic distortion while reducing administration cost. To improve administration and promote taxpayers’ obedience through strategic approach might help to step up fiscal management performance.
One reason it why necessary to jack up income from tax was because Indonesia needed more expenditure in health service by quality and quantity especially to pursue universal standard of health insurance in 2019. Today people’s expenditure for health was still low, only 1.2% of GDP in 2012; ratio of health expenditure was the 5th lowest in the world.
To realize universal health, it was not only necessary to focus attention on stepping up access to service but also to allow affordable cost. Now it was important step up health service especially in East Indonesia.
Lastly Indonesia had to face the AEC challenge to be effective by 2016. That Indonesia might benefit from the regional economic integration it would be necessary to strengthen competitiveness of companies especially in terms of infra structure and workers competence and also to reform regulations whereby to lower cost to be borne by companies through coordination with Asean countries.
The conclusion was that in the next decade would have some factors which, when combined with proper policy could serve as propeller to growth: good demography with numerous workers. Urbanization trend and development in China. However Indonesia was also facing the risk of slow growth in the long run since the recent growth was on account of external factor, i.e. high commodity prices in 2003 – 2011 accompanied by low global interest since 2009.
In the future Indonesia needed to grow above 5 percent let’s say 7 percent to avoid the threat of joblessness. In the long run, economic growth of above 7 percent was needed so Indonesia could be high income country by 2030. To accelerate economic growth through increase of productivity of workers was most important because it might bring added value to workers minimizing the risk of joblessness and strengthen competitiveness of the private sector. It was also important open employment opportunities in manufacturing and service.
All were pursued by new of increasing productivity through structural change in Indonesia which needed enhancement of worker’s role, capital, and land. Indonesia needed consistent industrial strategy through collaboration with the private sector. Not less important was that Indonesia must exercise risk management and resistance to disasters. As known, Indonesia was disaster prone due to excessive construction of building. (SS)
Business News - December 17, 2015