The Indonesian government admits that it is difficult to achieve the 5.5 percent gross domestic product (GDP) growth target that was set in the Revised 2014 State Budget (APBN-P 2014). In fact, Deputy Finance Minister Bambang Brodjonegoro stated that Southeast Asia’s largest economy will have to work hard to reach +5.3 percentage point GDP growth this year. “We have to be realistic. Hopefully GDP growth will improve in the second half of 2014 to a level of 5.3 percent. The current forecast for GDP growth in 2014 is 5.2-5.3 percent,” he said.
Brodjonegoro explained that Indonesia cannot push for higher economic growth (exceeding 5.3 percent) because government spending as well as the country’s exports do not contribute sufficiently to boost economic expansion this year, evidenced by the slowing pace of GDP growth in the first and second quarter of the year to 5.22 percent and 5.12 percent, respectively.
Indonesia's Quarterly GDP Growth 2009–2014 (annual % change):
|Year|| Quarter I
||Quarter II||Quarter III||Quarter IV|
Source: Statistics Indonesia (BPS)
Gross Domestic Product of Indonesia 2006-2013:
(in billion USD)
(annual percent change)
|GDP per Capita
Sources: World Bank, International Monetary Fund (IMF) and Statistics Indonesia (BPS)
In the first quarter of 2014 government spending showed a negative growth of -0.7 percent, significantly less compared to government spending in previous quarters. Meanwhile, Indonesian exports declined 1.0 percent in the second quarter of 2014, whereas in the second quarter of 2013 this figure still showed growth at 4.8 percent.
However, Brodjonegoro expects that exports will improve in the second half of 2014. This will then support economic growth in the remainder of the year. For example, from August onward, Freeport Indonesia resumed exports of mineral concentrate. Previously, the mining giant was unable to export this concentrate due to implementation of the ban on mineral ore exports (which came into effect in January 2014). However, renegotiations with the government led to the resuming of the company’s unprocessed exports (under certain conditions) and will boost total Indonesian exports in the second half of 2014. According to data from Statistics Indonesia (BPS), the value of Indonesian exports in the first six months of 2014 stood at USD $88.83 billion, a 2.46 percent decline from the same period last year.
“We hope to see more exports in the second half of the year as mining exports should improve,” Brodjonegoro said.
Looking at data from BPS, economic growth in Indonesia has slowed during the past four years and failed to meet government targets set in the state budget (except for 2010 when GDP growth was actually much higher than the target). Over the past year, Indonesia could not safeguard GDP growth of +6 percent mainly due to weakening investments and exports. Investments weakened as the government and central bank (Bank Indonesia) have been eager to foster financial stability to combat a widening current account deficit. For example, Bank Indonesia gradually raised the country’s benchmark interest rate (BI rate) from 5.75 percent in June 2013 to 7.50 percent in November 2013. Although this was a good strategy to combat inflation, support the rupiah exchange rate and combat the current account deficit, it also led to a slowing economy. Meanwhile, exports declined due to Law No. 4 of 2009 on Mineral and Coal Mining (New Mining Law). This law stipulates a ban on exports of mineral ore in an attempt to boost domestic processing facilities. However, as most of Indonesian commodity exports consist of raw commodities, it seriously impacts on the country’s export figures.