Despite the expected challenges facing the global economy this year, Indonesia and other ASEAN countries are well-positioned to generate ongoing economic growth.
Maybank Indonesia’s president director, Taswin Zakaria, said at the 2019 Maybank Economic Outlook seminar that Indonesia, Southeast Asia’s largest economy, would see stable economic demand fueling economic performances amid external challenges.
“We expect the domestic economy to see sustained growth from continuing investments in key infrastructures and strong domestic demand,” said Taswin in his opening address at the seminar, which was held at Ritz Carlton Pacific Place in Jakarta on March 11.
“We are confident of the strength of Indonesia’s economic fundamentals to weather global and domestic uncertainties in the political year of 2019,” he added.
According to Taswin, ASEAN was seeing positive economic prospects, with the opportunities expected to come from continuing resilience in the domestic market as supported by favorable demographics, continuing investment in infrastructure and a healthy macro balance sheet thanks to lower and manageable leveraging.
“We also expect monetary policy pressures on regional central banks to ease this year compared to last year amid a less hawkish and more dovish Fed and a benign inflation outlook,” he said.
Taswin explained how the world was currently facing volatility, uncertainty, complexity and ambiguity, known as a VUCA World.
He said global economic moderation, which had started in the second half of 2018, was showing signs of a continuing trend toward early 2019.
Explaining factors contributing to global economic volatility, Taswin said interest rate hikes globally, spearheaded by monetary policy moderation by the United States Federal Reserve, have led to the rising cost of the economy. “Starting in late 2018, we are seeing global and regional trade slowing down as a fall-out of the escalation in the US-China trade war.
“We’ll see rising political risks and policy uncertainties from events such as the US domestic political and fiscal gridlocks post-mid-term election, Brexit, geopolitical issues, as well as elections. These factors also contributed to heightened volatility across different asset classes as markets re-assess outlooks and risks,” he noted.
The banking executive said the volatility was expected to persist in the near future due to market and asset repricing, which came mainly from the outlook of the economies of the US and China going forward; the twists and turns in major central banks’ monetary policies as well as lingering risks in policy and political fronts as we await the outcome of US-China trade talk and Brexit negotiations.
The seminar’s featured speakers included Bank Indonesia (BI) Deputy Governor Mirza Adityaswara, the Finance Ministry Fiscal Policy Agency head Suahasil Nazara, Maybank group chief economist SuhaimiIlias, Nielsen Indonesia executive director Yongky Susilo and Japan’s former vice minister of finance for international affairs, Eisuke Sakakibara.
Mirza and Suahasil shared Taswin’s insight into Indonesia’s positive economic prospects.
“Looking at the monetary policy, we’ll see Indonesia having far better economic prospects for 2019 when compared to 2013 and 2018,” Mirza said.
However, the challenge that Indonesia is expected to face is the economic slowdown experienced by China. The trade war between the US and China has reportedly led to China’s economic slowdown. Its economic growth was recorded at 6.6 percent last year, a drop of 6.9 percent from 2017.
Mirza warned that China’s economic slowdown was expected to affect commodity prices.
In a paper titled “Recent Economic Development & Fiscal Policy”, Suahasil said Indonesia was expected to see gross domestic product (GDP) growth of 5.3 percent this year, an increase of 5.17 percent from last year.
Suahasil also highlighted the government’s efforts to boost investment by issuing Finance Minister Regulation No. 150/010/208 on the tax holiday, which replaced Finance Minister Regulation No. 130/2011 and No. 105/2015.
Under the new regulation, investments of between Rp 100 billion and Rp 500 billion will get a 50 percent tax deduction for five years. The tax holiday has also been extended to new investments worth a minimum Rp 100 billion and 18 pioneer industry sectors.
Suahasil disclosed the progress that the government had made regarding investments following the issuance of Finance Minister Regulation No. 150/010/208 on the tax holiday.
From April last year, as many as 12 companies were granted tax holidays with a total investment plan of Rp 210.8 trillion compared to five companies with a total investment plan of Rp 39.4 trillion recorded under a previous regulation from 2011 to March last year.
“The previous regulation on the tax holiday only attracted investors from Switzerland, the Netherlands and Indonesia. However, since the new regulation was issued, it has attracted investors from China, Hong Kong, Singapore, Japan, the Netherlands and Indonesia,” Suahasil said.