Indonesian environmental activists have launched a geographic information system to democratize access to information on extractive industries in Papua. (Antara Photo/Olha Mulalinda)

Fiscal, Investment Climate Reforms Put Indonesia's Growth on Solid Footing: World Bank


JANUARY 18, 2017

Jakarta. The World Bank lauds Indonesia for its fiscal policy and investment climate reforms, saying they should accelerate the country's economic growth this year, despite increasing uncertainties in global economy.

The Washington-based development lender said in its latest Indonesia Economic Quarterly report that Indonesia, like many of its neighbors in the region, is exposed to increased volatility of global financial markets.

However, the country has set credible revenue targets in the 2017 budget, which should shield it against shocks stemming from the financial market and keep the right pace of its infrastructure development.

"The 2017 budget improves Indonesia's quality of spending, including sustained higher allocations for infrastructure, health and social assistance, and better targeting for energy subsidies and social programs for the poor," World Bank country director for Indonesia Rodrigo Chaves said on Tuesday (17/01).

The report suggested that the government has reallocated spending toward the priority sectors "where public spending is low and additional spending can have the greatest impact on poverty and growth" as well as maximized the effectiveness of spending. It's very important for Indonesia to sustain this reform momentum so that the country can meet its development goals."

World Bank now expects Southeast Asia's largest economy to expand by 5.3 percent in 2017 from 5.1 percent last year.

Indonesia's gross domestic product growth was 5 percent in the third quarter last year, slowing slightly from 5.2 percent in the previous quarter.

The report also highlighted Indonesia's success in moving up in the World Bank's Ease of Doing Business ranking to 91 from 106, thanks to reformed regulations on setting up businesses, buying electricity and paying taxes.

"The government's investment climate reforms have made it easier for businesses to open and operate, but boosting private investment for economic growth will require policymakers to move now on medium-term structural reforms," said Hans Anand Beck, acting lead economist at the World Bank.

Acknowledging Risks

Finance Minister Sri Mulyani Indrawti said the government is focusing on global risks that could creep into Indonesia's economy through trade and investment.

"Even though the prices are improving, volume-wise [Indonesia's export] is a little bit stagnant. That's a message for us, because this could be our weak side in competition with others," Sri said.

"The imports of raw materials and capital goods are still negative. This also tells a lot for projections on Indonesia's growth," she added.

Sri said that the government is well aware that markets remain jittery mainly due to the United States's monetary and fiscal policies, which affect the flow of capital into and out of Indonesia's stocks and bonds market.