3 April 2020 (closed)
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Throughout the year 2016 the economy of Indonesia was plagued by major challenges stemming from abroad. In fact, most countries around the globe have been busy to soften the impact of low global economic growth on the local economy. In the case of Indonesia, authorities have unveiled a series of 14 economic policy packages aimed at improving investment, trade and purchasing power. Although it remains difficult to implement these packages in full force (due to the low quality of human resources at the local government level or conflicts of interests), they have helped to push Indonesia's economic growth into higher gear.
Local Indonesian news agency Bisnis Indonesia interviewed Vice President (and political veteran) Jusuf Kalla and asked him about his forecasts and views of the Indonesian economy in 2017.
Question: It seems the Indonesian economy is currently rebounding from the prolonged economic slowdown in the years 2011-2015, although there remain big challenges. What is your opinion about the short-term and medium-term outlook of the Indonesian economy?
Jusuf Kalla: It is not easy to predict the future, not even the short-term future considering the complex existing economic picture. As stated by the International Monetary Fund (IMF) the world economy has been (growing) "too long, too low", while there are no signs yet that this situation will change. In fact, we are heading from one crisis to the other: China's slowdown, Brexit, uncertainty about the USA, and the list can go on and on.
Problematically, Indonesia is not free from these developments abroad and therefore it is difficult to predict even the near-term outlook for Indonesia. However, a positive point is that commodity prices, and especially the coal price, are on the rise. This would mean the government can count on more tax revenue from the mining sector in 2017. Hopefully, the rise of commodity prices will persist as it also boosts local economies in Indonesia, particularly Kalimantan and South Sumatra.
Question: Looking back at 2015 there existed quite some pessimism about the Indonesian economy. In 2016, however, sentiments changed into optimism, for example because of a better-than-expected first phase of the government's tax amnesty program. Can this momentum be sustained into 2017?
Jusuf Kalla: In terms of economic growth, Indonesia's performance is not great but also not bad. It is somewhere in between. Regarding the tax amnesty program, there are three positive effects: (1) on the short-term additional revenue - around IDR 93 trillion - and fund repatriations into Indonesia support fiscal stability as well as the Indonesian rupiah exchange rate, (2) on the medium-term additional funds in Indonesia's banking sector can be used for economic development, and (3) on the long-term the program should boost the tax ratio of Indonesia from currently around 11 percent to 13 percent.
Question: What are the priorities of the Indonesian government? For example the 35,000 MW power program or other infrastructure development?
Jusuf Kalla: We can not prioritize any specific sector. We need to focus on all sectors, and because the sectors are usually interdependent, they will grow together. We are blessed to have more than 255 million people in Indonesia. This means we cannot only produce but also consume a lot of products and services. This should give rise to a high degree of economic activity and growth.
It is also important to safeguard political stability. Generally, Indonesia's political climate is stable. However, the issues surrounding the Jakarta gubernatorial election are problematic. Still, overall, Indonesia has strong political stability.
Question: Generally, what is your opinion about the Indonesian economy in 2017?
Jusuf Kalla: Based on the results of the tax amnesty program, Indonesia will continue to expand in 2017. However, investors and entrepreneurs are less focused on the government's fiscal stability, they prefer to look at the (potential) market. I believe we need to boost manufacturing in Indonesia, instead of importing numerous products from abroad to meet domestic demand. For example, a lot of food items are imported from Malaysia.
Question: Besides boosting domestic production, does domestic consumption also needs to get a boost?
Jusuf Kalla: Of course, but that depends on people's income. In order to consume more, people need to earn more money. Moreover, a consumption-driven economy is only possible when people have considerable savings. What we see now is that income has fallen in Kalimantan and Sumatra due to low commodity prices. This has made people consume less in recent years. Therefore, optimal government spending is vital, particularly if the private sector is hesitant to invest. Government spending on important projects (for example infrastructure) causes the multiplier effect that gives rise to new employment opportunities for the local population.
Comparison Economies of Indonesia and Regional Peers in 2015:
in billion USD
|GDP per Capita
|GDP per Capita PPP
annual % growth
% of population
% of labor force
in billion USD
Source: Bisnis Indonesia