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Article : Indonesia’s
Economic Reforms to Boost Growth in 2016
News from Country Offices | 30 March 2016
JAKARTA, INDONESIA – Indonesia’s economic growth is
expected to rebound this year as consumers and private investors respond
favorably to the government’s public investment and structural reform efforts,
says a new report by the Asian Development Bank (ADB) released today.
“Despite global financial market volatility, the
wide-ranging economic reforms carried out by President Joko Widodo’s
administration have bolstered market confidence and are showing positive
results,” said Steven Tabor, ADB’s Country Director for Indonesia. “It is critical
for Indonesia to implement its ambitious public investment program, to deepen
and maintain the momentum of these reforms to boost productivity, attract
investment, and nurture new sources of growth.”
In its flagship annual economic publication, Asian Development
Outlook (ADO) 2016 ADB projects Indonesia’s Gross Domestic Product (GDP) growth
to gradually improve from 4.8% in 2015 to 5.2% this year, and to 5.5% in 2017.
The forecasts follow 5 years of decelerating growth in Indonesia.
Public investment is projected to increase in 2016, as
new infrastructure projects initiated last year gather momentum. Higher public
capital spending and ongoing reforms to deregulate the economy will provide
additional opportunities for private investment. Household spending is expected
to pick up in 2016, while net external demand is not expected to contribute to
growth.
Growth in fixed investment increased by 5.1% in 2015
as the government ramped up investment in infrastructure and introduced reforms
to revive Indonesia’s appeal for private investors. After a slow start, public
investment rose sharply in the second half of the year, when the bulk of the
capital investment program was implemented.
The government’s ongoing policy reforms are expected
to further stimulate private investment, particularly over the medium-term. The
government has unveiled 10 reform packages since September 2015. These,
together with higher public capital spending, are steadily improving the
country’s investment climate.
Long-term challenges include diversifying economic
activity to reduce dependence on a narrow range of commodities. Mr. Tabor said
this was an important step in the context of fading global appetite for
commodities.
“Expanding the manufacturing sector can help, along
with a stronger focus on sectors that can deliver strong growth such as
tourism, high-value agriculture, marine fisheries, aquaculture, and
e-commerce.”
The ADO also notes that the country’s total exports
are less than 1% of global trade in goods and services. This highlights the
tremendous potential that expanding trade has for boosting demand for
Indonesian goods and services, providing that a firm commitment to openness and
global competitiveness is maintained.
The ADO recommends that the government push ahead with
its deregulation packages, while continuing to remove impediments to private
investment. Mr. Tabor said reforms should be expanded to address barriers to
micro- and small-enterprise development, deepen financial markets, improve land
titling and registration, and address labor market rigidities.
ADB, based in Manila, is dedicated to reducing poverty
in Asia and the Pacific through inclusive economic growth, environmentally
sustainable growth, and regional integration. Established in 1966, it is owned
by 67 members – 48 from the region.
Diakses : Selasa, 19 April 2016. Pukul 18.45
Analysis:
Indonesia’s economic growth is
expected to pick up next year, buoyed by rising public investment and continued
economic reforms. A key driver of the expected growth is stronger public
spending, which has been delayed largely by slow fund disbursement. Policy
reforms are expected to stimulate private investment. The government unveiled a
package to revive investment that further simplifies or removes regulations
that hinder business, expand tax incentives, accelerates strategic projects,
and allows foreign ownership of high-end properties. Household consumption is
expected to remain fairly robust. A pay rise for civil servants and tax breaks
for low-income earners will foster consumer spending. There is a risk to this
growth prospect coming from global financial market turbulence, but the
country’s resilience against market volatility has improved, partly due to a
more flexible exchange rate and market-driven adjustment to bond yields. The
ADO also notes that the country’s total exports are less than 1% of global
trade in goods and services. This highlights the tremendous potential that
expanding trade has for boosting demand for Indonesian goods and services,
providing that a firm commitment to openness and global competitiveness is
maintained.
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