Optimism about Indonesia's GDP Growth; Purchasing Power a Concern
Despite accelerated macroeconomic growth of Indonesia so far in 2017, people's purchasing power remains bleak. However, a number of Indonesian businessmen remain confident that Indonesia's economic conditions will improve in the second half of the year.
Shinta Widjaja Kamdani, Chief Executive Officer (CEO) at the Sintesa Group, said the Indonesian economy is actually in a good condition, overall, in the second half of 2017. This assumption is supported by a number of factors such as Indonesia's stable macroeconomic conditions with inflation and the current account deficit under control, while the Indonesian rupiah has been stable this year against the US dollar. Moreover, crude oil prices are stable (and have actually improved compared to the situation one year ago).
However, Kamdani added that Indonesians' bleak purchasing power forms a threat to Indonesia's economic growth and therefore she advises the government to remain focused on improving consumers' purchasing power, specifically now it seems certain that the government will not achieve its target of collecting IDR 1,300 trillion worth of tax revenue in 2017. Secondly, she advises the government to remain focused on infrastructure projects as the accomplishment of these projects triggers the so-called multiplier effect.
Regarding the medium-long term, Kamdani stated that the government's push for infrastructure development is the correct approach. However, it will also require an improvement of the quality of human resources in Indonesia. This should then lead to a more just society (with a declining degree of income distribution inequality). Currently, Indonesia is still characterized by a high degree of inequality. A recent study shows that the top one percent of Indonesians control about half of the country's wealth (Credit Suisse Research Institute's seventh Global Wealth Report).
Agus Salim Pangestu, President Director of Barito Pacific, is optimistic that Indonesia's accelerating economic growth will continue in the second half of 2017, primarily supported by infrastructure development. The availability of better physical infrastructure in Indonesia should attract more (foreign and domestic) direct investment. This should then constitute a great boost for the economy.
In the first quarter of 2017 Indonesia's gross domestic product (GDP) expanded 5.01 percent year-on-year (y/y), the fastest Q1 growth pace since 2014.
Indonesia's Quarterly GDP Growth 2009–2017 (annual % change):
| Year | Quarter I |
Quarter II | Quarter III | Quarter IV |
| 2017 | 5.01 | |||
| 2016 | 4.92 | 5.19 | 5.01 | 4.94 |
| 2015 | 4.71 | 4.66 | 4.74 | 5.04 |
| 2014 | 5.14 | 5.03 | 4.92 | 5.01 |
| 2013 | 6.03 | 5.81 | 5.62 | 5.72 |
| 2012 | 6.29 | 6.36 | 6.17 | 6.11 |
| 2011 | 6.45 | 6.52 | 6.49 | 6.50 |
| 2010 | 5.99 | 6.29 | 5.81 | 6.81 |
| 2009 | 4.60 | 4.37 | 4.31 | 4.58 |
Source: Statistics Indonesia (BPS)
Garibaldi Thohir, President Director of coal miner and energy company Adaro Energy, believes market conditions are improving in Indonesia, especially in the coal mining sector due to rising investment in energy infrastructure as the construction of new coal-fired power plants in Indonesia gives rise to growing domestic coal demand. However, he adds that the coal price remains volatile and difficult to predict (in fact the coal price highly depends on Chinese policies in the mining industry). Due to the unclear situation in the coal mining sector, Adaro Energy has been eager to diversify its business. Earlier it entered the power generation sector but now it is also seeking to enter other sectors, including the water treatment sector.
Meanwhile, without explaining the exact challenges, Lippo Group founder Mochtar Riady said conditions in the second half of 2017 will become increasingly complex for Indonesia and therefore require hard work, unity and creativity. He emphasized the need for a focus on improving the nation's digital economy, services-oriented economy and the importance of free competition within the economy.
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