Blog Bambang says Indonesia Can Grow with Macro Stability

Bambang says Indonesia Can Grow with Macro Stability
Indonesia has ambitious economic growth targets, but its new government will be vigilant about global risks and destabilizing pressure points.

“The main priority is to improve the current account profile and manage exchange rate volatility. Growth will be achieved by strengthening our budget structure through enhanced revenue sources and more productive spending,” said Professor Bambang Brodjonegoro, Indonesia’s Minister of Finance in his keynote address at the AIC.

During his election campaign, President Joko Widodo promised sweeping reforms in order to raise the country’s annual GDP rate to 7% in 2017 from 5% last year. However, Indonesia’s current account deficit, which was 2.9% of GDP in 2014, is vulnerable to soft commodity prices, weaker economic growth in China and uncertain trajectories among developed countries.

Bambang outlined several ways that the current account deficit will be tackled. These include tax incentives for reinvestment of corporate dividends and for research and development to help manufacturing companies move up the value-chain. In addition, tourism will be boosted by easing visa requirements for 45 countries.

Divergent monetary policies among leading world central banks and the prospect of rising US interest rates also means that Indonesia’s currency is susceptible to capital outflows. Although it has performed better than many other currencies, the rupiah has fallen 4.81% year-to-date.

The new administration, which took office in November, estimates that it needs to spend about Rp5,000 trillion on infrastructure during the next five years. Bambang said that the bill should be shared by the government, state-owned enterprises and the private sector, notably through Public-Private-Partnerships. Expenditure on improved transport networks, power and ports, as well as on health and education should increase the nation’s productivity.

However, fiscal prudence remains essential. The recent abolition of the gasoline subsidy and reduction in the diesel subsidy will help the country’s budget deficit.

There are 255 million people in Indonesia and 45 million of them are working and eligible to pay tax.  Only 9 million of them however are registered tax payers and a staggeringly small 900,000 pay tax. The Directorate General of Tax is introducing new channels for tax payment as well as tougher supervision and law enforcement which could increase tax revenues by 31.4 percent next year, said Bambang.