Indonesia needs more progress on pledged improvements to stave off slowdown

Source:Global Times Published: 2017/10/19 19:48:39

Few central banks have been busier over the last 22 months than Indonesia's. Despite eight easing moves, however, growth is stuck at 5 percent, lagging China, India, the Philippines and Vietnam. Consumer spending was down an average 1.1 percent in July and August year-on-year.

Foreign investors are heading for the door, dumping more than $2 billion of shares in the third quarter - the biggest ejection of foreign funds from Indonesian stocks since the 2013 Federal Reserve "taper tantrum."

The problem is that President Joko Widodo, popularly known as Jokowi, hasn't fulfilled bold pledges to accelerate structural upgrades, to implement projects to improve roads, bridges, ports and power grids, and create well paid jobs. Nor has he eliminated a current-account deficit that stood at $4.9 billion in the second quarter - another sore point. The World Bank now lists the rupiah among Asia's most vulnerable currencies.

To be sure, Indonesia is not on the verge of crisis. Jokowi deserves credit for increasing accountability and transparency since taking office, and he has pushed a successful amnesty tax plan to spark investment at home. He has also kept up predecessor Susilo Bambang Yudhoyono's anti-corruption campaign. In the last year alone, Jakarta moved up to 36th place from 41st in the World Economic Forum's latest global competitiveness index. But if Jokowi wants Indonesia to join the Group of Seven by 2030, as consultancy McKinsey predicts, he must get much more out of the two years he has left in office. That means implementing an ambitious $350 billion infrastructure program, upping investment in education and training, and attracting more multinationals. The latter will require him to curb the forces of economic nationalism at home.

Monetary easing isn't enough. Two-hundred basis points of rate cuts since January 2016 haven't ignited household or business spending or quickened top-line growth. Jokowi needs to simplify investment rules, police a graft-prone bureaucracy and streamline state enterprises. Reducing bottlenecks would cheer boardrooms from Samsung to Toyota to Unilever. So would tackling land, labor and tax laws. There's no time to waste, as US President Donald Trump threatens trade wars and favors a weaker dollar.

With a 68 percent approval rating and a comfortable legislative majority, Jokowi has the power to turn things around. If he doesn't use it, sales of Indonesian assets might accelerate as investors wage a bigger tantrum - targeting Indonesia.

The author is William Pesek, a Reuters Breakingviews columnist. The article was first published on Reuters Breakingviews.

Posted in: INSIDER'S EYE

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