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[News] Indonesia's Economy To Move Ahead After Election
Posted at: 22 May 2019

Infrastructure development — a hallmark of Mr Widodo’s presidency — is likely to continue shaping his second term after official results from Indonesia’s election last month were released on Tuesday that confirmed he won with a near 11 percentage point advantage over Prabowo Subianto, a former general. Indonesia is already drafting a new $400bn infrastructure plan and other civil works projects, such as a proposal to shift its capital out of Jakarta.

Under Mr Widodo, the economy has grown at an average annual rate of 5 per cent — lower than the 7 per cent goal he set in 2014 and lower than south-east Asian economies such as Cambodia, the Philippines and Vietnam — but still healthy. The south-east Asian nation remains a commodity titan — it is the world’s top palm oil producer — and is an important global supplier of coal, copper, gold, tin and nickel.

But for Indonesia to improve the wealth of its citizens and become more competitive globally, observers say Mr Widodo will need to focus more on structural reforms of the labour market, education and healthcare and allow greater openness to foreign direct investment.

Sri Mulyani Indrawati, Indonesia’s finance minister, thinks the focus should be on productivity rather than simply on the country’s big consumer base as the world’s fourth largest nation by population.

Gareth Leather, Asia economist at Capital Economics, argued economic growth “won’t get anywhere near” Mr Widodo’s 7 per cent target without a more competitive manufacturing sector. “And to do that [the] one big thing that needs to change is labour market rigidity.”

Manufacturing’s contribution to Indonesian GDP dropped by about 10 percentage points in as many years to 27 per cent in 2017, according to the World Bank.

Indonesia’s next president would also need to attract more foreign direct investment — which slumped 8.8 per cent year on year in 2018 — to boost growth. Failing to grow by at least 6 per cent annually could stop Indonesia from building enough income per capita to support what will become an ageing population 30 years from now.

(source: The Financial Times)