Chatib Basri, the Finance Minister of Indonesia, said that the government will focus more on infrastructure development in order to support the third economic policy package which was announced last week by Coordinating Minister of Economic Affairs Hatta Rajasa. Previously, in August and December 2013, the government had already implemented two policy reform packages aimed at safeguarding financial stability as the country had been plagued by a wide current account deficit, high inflation, large capital outflows and sharp rupiah depreciation.
Last week, Rajasa informed that the third policy package aims to curb Indonesia's current account deficit by making it more attractive for foreign businesses (through tax incentives) to re-invest their profits in Indonesia. Although Basri did not mention a deadline for implementation of the new policy package, Rajasa stated last week that he expects it to come in effect in the first quarter of 2014.
Through prudent fiscal management, the Indonesian government managed to reduce the wide current account deficit to a sustainable level of below three percent of GDP. As inflation has eased and the rupiah shows a strong performance since the start of the year, many analysts say that Indonesia has escaped from the ranks of the fragile five (Brazil, India, Indonesia, South Africa, and Turkey). This term, introduced by Morgan Stanley, refers to the over-reliance of these five countries on foreign capital.
When more details about the third policy package are known, it will be reported on our website.