After Standard & Poor's (S&P) assigned investment grade status to Indonesia's sovereign rating, hence boosting positive perceptions about the Indonesian economy, the government should use this momentum to encourage public and private investment to push macroeconomic growth to the targeted range of 5.4 - 6.1 percent year-on-year (y/y) in 2018.
Bambang Brodjonegoro, Minister of National Development Planning (Bappenas), says investment currently only contributes 4 - 5 percent to Indonesia's gross domestic product (GDP). It will need to rise to around 8 percent of GDP to encourage macroeconomic growth to the targeted range next year. Indonesia should not merely rely on improving global conditions (including recovering commodity prices) to see strengthening growth at home.
The regional governments play a crucial role as they should not only invest themselves but also encourage domestic and foreign investors to engage in structural investment in the regions (for example establishing manufacturing factories). This is also where the bottleneck is. Human resources at the regional government level usually lack quality, while these regional authorities are also not always willing to implement the will of the central government.
Without sharply rising investment, Indonesia will most likely not see economic growth at the level of +5.6 percent (y/y) in the near future, especially as commodity prices remain at rather bleak levels (for example crude oil between USD $50 -$55 per barrel) amid weak demand from China.
However, Lana Soelistianingsih (Economist at Samuel Aset Manajemen) reminds that (foreign) direct investment can be undermined if certain central banks decide to raise interest rates (further) as this makes funding of business expansion more expensive.