Finance Minister Bambang Brodjonegoro said Indonesia's economic growth is set to accelerate in line with improving global economic conditions, Indonesia's push for infrastructure development, and rising purchasing power. At the same time the government's 2017 GDP growth projection also factors in several matters that curb Indonesia's economic expansion. These matters include the nation's limited production capacity, limited competitiveness (due to the weak quantity and quality of Indonesia's infrastructure), underdeveloped human resources, underdeveloped technological innovation, the long road toward food sovereignty (food self-sufficiency), and shallow financial markets.

The Indonesian government proposes a IDR 13,650 - IDR 13,900 per US dollar exchange rate in the 2017 State Budget, implying that the government expects the rupiah to depreciate in the period ahead. Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) stood at IDR 13,573 per US dollar on Friday (20/05). Over the past week the rupiah has been under pressure as analysts and investors increasingly speculate about a June rate hike in the USA.

Meanwhile, the government proposes a 3 - 5 percent (y/y) inflation target in the 2017 State Budget and the price of Indonesian crude at USD $35 - $45 per barrel. Next week the government and Indonesia's House of Representatives (DPR) will continue discussions about the 2017 State Budget.

Indonesian Government's Macroeconomic Assumptions:

  Government Proposal
   2017 State Budget
GDP Growth
annual percent change
            5.3 - 5.9
Inflation
annual percent change
               3 - 5
Exchange Rate
IDR/USD
      13,650 - 13,900
Crude Oil
USD $ per barrel
             35 - 45
Oil Lifting
thousand barrels per day
           740 - 760
Natural Gas Lifting
million barrels of oil equivalent/day
          1.05 - 1.15

Source: Finance Ministry

Finance Minister Brodjonegoro stated that, overall, government spending in 2017 will focus at four matters: (1) infrastructure development, transportation and national logistics, (2) bureaucratic reforms, (3) social protection, and (4) fiscal decentralization aimed at strengthening governance at the local level.

Regarding economic growth in 2016, Brodjonegoro is optimistic that the 5.3 percent growth target can be achieved despite a slightly disappointing GDP growth figure in Q1-2016 (at 4.92 percent y/y). Indonesia's central bank (Bank Indonesia), which left its interest rate policy unchanged at the May policy meeting last week, trimmed its forecast for Indonesia's GDP growth in full-year 2016 to the range of 5.0 - 5.4 percent (y/y), from the range of 5.2 - 5.6 percent (y/y) previously.

Indonesia's Quarterly GDP Growth 2009-2016 (annual % change):

Year    Quarter I
   Quarter II    Quarter III    Quarter IV    Full-Year
2016        4.92
2015        4.73        4.67         4.74         5.04         4.8
2014        5.14        5.03         4.92         5.01         5.0
2013        6.03        5.81         5.62         5.72         5.6
2012        6.29        6.36         6.17         6.11         6.0
2011        6.45        6.52         6.49         6.50         6.4
2010        5.99        6.29         5.81         6.81         6.2
2009        4.60         4.37         4.31         4.58         4.6

Source: Statistics Indonesia (BPS)

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