Toward Inclusive Growth

While the economy continues to flourish, challenges remain to greater inclusiveness

By Gilang Ardana
Friday, May 18, 2018

Indonesia ended 2017 on a high note, with annual real GDP expanding at the fastest clip in four years, the current account deficit narrowing to a six-year low and the budget deficit reaching the lowest since 2014. These were the key takeaways from the Indonesian Economic Quarterly (IEQ) 1st Quarter 2018 report which was released on March 27, 2019.

The launch event was attended by Minister of Finance Sri Mulyani, who further outlined Indonesia’s overall economic performance in 2017 and the challenges ahead in 2018.

The World Bank outlined that 2017’s performance was supported by stronger investment performance throughout the year. Investment rose 6.2 percent, which was the highest growth in the past five years. It also supported the prudent fiscal policies taken by the government so the budget deficit could be kept below 3 percent.

While applauding this performance, the World Bank reminded the government to push for greater inclusiveness and openness of its economy to maintain growth.

“Indonesia can pursue to accelerate its growth, but the country should continue to better share influence of growth equally, open for competition, share the message that FDI [foreign direct investment] is welcome and level the playing field between the domestic and foreign market,” said the Bank’s Indonesia Country Director, Rodrigo Chaves.

“We do not recommend the government to take non-sustainable measures in managing its macroeconomics.”

The World Bank continues to advocate for inclusive growth as a key challenge in Indonesia’s economy.  The report pushes the country to strive for effective spending on priority sectors such as health, social assistance and education. It recommends that some of them be accomplished by reallocating expenditure to promote more inclusive growth.

Sri Mulyani later took the stage and shared her view that private sector engagement will be very crucial to keep the momentum of Indonesia’s economy. She also emphasized that Indonesia is working on “collecting more, spending better” by pushing reform of its taxation system and improving spending capacity.

“I have to admit that lot of work needs to be done to improve the spending side,” she said.

“Indonesia has taken a bold move in the beginning by focusing on spending what matters on human capital and infrastructure rather than general subsidies, but the quality of spending also needs to be looked at. If we don’t have the right design, we are going to waste the money. So allocation is important, but it is not sufficient.”

Sri Mulyani said that challenges to achieve better spending include the capacity of institutions in managing budgets and their governance and accountability. She reaffirmed the government will continue to work on those critical areas.

“We need to understand that the capacity of local and central government are not the same to make spending effectively, we will continue to push for greater accountability.

“[All of those] are already within the government programs, and we will continue to implement policy actions [to address those issues].”

 

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