Indonesia's Transition Year of 2015; Slowing GDP Growth and State Spending

However, Basri also reminded that domestic consumption in Indonesia will stay relatively strong, accounting for about 50 to 55 percent of the country's total economic growth. Another important contributor to domestic growth could be government spending due to the larger fiscal room that is given to the new government (inaugurated in October 2014) as the current ministerial budget projections are conform the baseline budgets.

The Indonesian government's GDP growth target for 2015 can be labeled pessimistic as it is lower than this year's target of 5.8 to 6.0 percent. As such, it could mean that the economy of Indonesia will further. Since 2011 when the country recorded a GDP growth rate of 6.5 percent, the pace of growth has declined.

Similarly pessimistic is the government's projection for the rupiah exchange rate at IDR 11,500-12,500 per US dollar in 2015. The current projection for 2014 is in the range of IDR 11,500-12,000 per US dollar. Deputy Finance Minister Bambang Brodjonegoro said that due to Indonesia's current account deficit, the rupiah cannot reach the level of IDR 9,000 to 10,000 per US dollar as it did in 2011 and 2012 (amid a commodity price boom). On the positive side, Bank Indonesia expects that the current account deficit will ease to a sustainable level of below 3 percent of GDP in 2014. Brodjonegoro believes the deficit can even improve more markedly to 2-2.5 percent of GDP.

Regarding inflation, the government targets 3 to 5 percent in 2015, slightly better than the target of 2014 (4.5±1 percent). However, Head of National Development Planning (Bappenas) Armida S. Alisjahbana expects inflation in 2015 to be higher, similar to the target of 2014 (4.5±1 percent). Alisjahbana further stated that the country's poverty rate should decline to 9-10 percent by 2015 (thus improving from the 10.54-10.75 percent projection for 2014) and unemployment should be pushed down to 5.7-5.9 percent amid an economic growth rate of around 6 percent.

Governor of Bank Indonesia Agus Martowardojo added that the government cannot be too optimistic when formulating the 2015 macroeconomic projections. Apart from possible external shocks (capital outflows) due to the US tapering issue and slowing growth in China - the world's second largest economy and an important trading partner of Indonesia -, internal factors can also limit domestic growth.

Due to the US monetary tightening, the year 2015 is labeled a 'transition year'. Therefore, the government will not introduce many new development plans or engage in large state spending. Finance Minister Basri said that ministerial spending will be conform the baseline budget, taking into account only the basic necessities for public management. This will give the new government more fiscal room to engage in the implementation of its own new development programs.

	State Budget Draft 2015	State Budget Draft 2014	Revised Outlook 2014	Realization 2013
GDP Growth annual percent change	5.5 - 6.3	6.0	5.8 - 6.0	5.8
Inflation annual percent change	3 - 5	5.5	5.4 - 5.7	8.4
Exchange Rate IDR/USD	11,500-12,500	10,500	11,500-12,000	10,451
Treasury Bills Interest Rate 3-month, percent	5.5 - 6.0	5.5	5.5 - 6.0	4.5
Indonesian Crude Oil USD $ per barrel	100 - 105	105	103 - 105	105.7
Oil Lifting thousand barrels per day	830 - 900	870	800 - 830	825
Natural Gas Lifting barrel of oil equivalent/day	1,225 - 1,250	1,240	1,200 - 12,225	1,215