Indonesian Finance Minister Sri Mulyani Talks Economic Growth
Indonesian Finance Minister Sri Mulyani Indrawati believes economic growth of Indonesia in 2017 can exceed the target that was set by the central government in the state budget. While the official target in the 2017 State Budget was set at 5.1 percent year-on-year (y/y), Sri Mulyani expects to see the growth rate at 5.2 percent (y/y) on the back of rising consumption and investment, while she predicts an end to the trend of falling imports and exports.
Meanwhile, the gross domestic product (GDP) growth target for Indonesia in the following year - 2018 - was lowered from 6.0 percent (y/y) to 5.6 percent (y/y) by Indonesian President Joko Widodo earlier this week, moving further away from his 7 percent (y/y) economic growth pledge he made when he run for presidency in early 2014.
However, we should forget about this pledge for two reasons: (1) it was made during Widodo's presidential campaign when he had to paint a positive and ambitious picture in order to gain popularity, and (2) the global economic picture worsened in the first years of his presidency and therefore Indonesia's export performance has actually had a negative contribution to the nation's economic growth. This is primarily caused by weak growth in China and uncertainty in the global economy. Only recently, commodity prices halted their slide. This bleak global macroeconomic picture was also a surprise to influential institutions such as the World Bank, International Monetary Fund (IMF) and the Asian Development Bank (ADB). All these institutions were rapidly adjusting (downward) their global and regional growth forecasts during those years.
Despite the downward revision of the 2018 economic growth target, Sri Mulyani emphasizes Indonesian President Widodo is not satisfied with the growth figure and therefore the government will use all instruments and policy tools to revitalize and strengthen growth.
Sri Mulyani emphasizes Indonesia remains among the biggest growers in Asia as the country showed an average 5.6 percent (y/y) growth rate over the past decade with domestic demand and investment growing sharply over that period (although the pace of investment growth fell after 2011 due to sliding commodity prices). Having a large population and expanding middle class there is big domestic demand in Indonesia which forms the main engine of the nation's economic growth (accounting for about 58 percent of total economic growth). Moreover, this huge domestic demand protects the Indonesian economy when the external conditions are weak. Therefore, when there is weak global demand (for example due to protectionism or bleak growth in key export market destinations such as China) or falling commodity prices, then Indonesia should manage to keep its annual growth rate above 5 percent (y/y).
We consider the new growth targets of Indonesia realistic and remain optimistic that Indonesia's macroeconomic acceleration will continue in the years ahead supported by an improving external picture and the Indonesian government's efforts to boost investment through deregulation (as well as other efforts to improve the investment climate).