Indonesian President Joko Widodo said government reforms to boost the economy in Indonesia are starting to pay off, enabling it to embark on the biggest infrastructure plan in the nation’s history.
Conditions are much better now than when he took office three years ago, with economic growth back at above five per cent and the currency rebounding, Mr Widodo, known as Jokowi, said in his speech at Bloomberg’s Year Ahead Asia Conference in Jakarta on Wednesday.
“These positive developments are thanks to one thing and one thing only: reform,” he said.
The economy in Indonesia grew more than five percent every quarter this year and is forecast by the government to expand 5.4 per cent in 2018. While that’s still below the seven per cent target set by Mr Jokowi when he came to power three years ago, a recovery in exports and rising investment are underscoring the strength in Indonesia’s economy, he said.
Mr Jokowi has been rewarded for his economic reforms with an investment-grade credit rating from S&P Global Ratings this year and a flood of foreign investment in the nation’s bonds. After dropping to its weakest level since 1998 in September 2015, the rupiah has gained nearly nine per cent against the US dollar.
Foreign Borrowing Indonesia, which is rated by Moody’s Investors Service at Baa3 with a positive outlook, should continue pursuing economic reforms, Michael Taylor, managing director and chief credit officer for Asia Pacific at Moody’s, said at the conference. The measures have started to bear fruit in the form of higher foreign direct investment, he said.
Still, the nation is heavily reliant on external borrowing and a shift toward more domestic sources of financing would be a positive development, he said.
The government has worked hard on reforms, including removing fuel subsidies to free up funds to finance building roads, railways and ports, the president said.
“We are on track to complete the most amount of infrastructure ever built during a five-year period in Indonesia,” he said.
Mr Jokowi, who is yet to commit to running for re-election in 2019, still faces plenty of economic challenges. Indonesia has a poor record of tax compliance and he needs to raise revenue to help keep the budget deficit under control.
While Indonesia has jumped 19 places to be ranked 72 out of 190 countries in the World Bank’s latest ease of doing business index, the nation still needs to reduce regulatory uncertainty to spur foreign investment.
That’s a sentiment echoed by Thomas Lembong, chairman of Indonesia’s Investment Coordinating Board, known as BKPM.
“We definitely admit that the top complaint of investors is regulatory uncertainty,” Mr Lembong said in an interview on Bloomberg TV. Having joined the public sector from the business world, “I’m quite startled by how under-developed our policy-making processes are,” he said. “The way we formulate policy has fallen far behind the cutting edge.”
The president is aware of the challenges and is making an effort to reform the bureaucracy, Mr Lembong said.
“Government needs to be a public servant, and supportive, rather than talking a lot,” he said. “We need to be a great listener, and that’s what President Jokowi is.” The dramatic growth of the digital economy in Indonesia will continue to boost Indonesia’s growth, Mr Jokowi said.
“Indonesia is today experiencing a historic boom in e-commerce,” he said, citing the rise of three so-called unicorn companies. “Given the size of our domestic market we will have many more in the years to come.”