Indonesian Economy Makes Marginal Improvement

November 19, 2015Indonesiaby EW News Desk Team

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The Indonesian economy continues to stagnate amid low commodity prices and slow domestic demand, according to Bloomberg. GDP growth came in at 4.73 percent from July to September, missing analyst expectations by a slight margin.

President Joko Widodo struggles to improve the economy, especially as the world economy slumps and domestic investment plummets. Government officials’ project that growth will be in the range of 5.0 percent for 2015, but Indonesia will post the slowest rate of growth since the 2008 crisis.

Indonesia may have grown at a disappointing rate in the third quarter, but it is still a better performance compared to previous quarters. Widodo campaigned as a populist reformer, but his policies have failed to turn the economy around thus far.

Economics professor Arianto Patunru believes the economy will improve next year, as analysts expect infrastructure investment and new policies to take effect. With that, certain unknown factors remain, such as a devastating wildfire raging since August diminishing resources and causing local economies to suffer.

The state of the world economy will also play a vast role in Indonesia's success, but the primary problems are a lack of consumption and slow productivity. To stimulate activity, the central bank cut the main reserve requirement to boost lending but kept primary interest rates intact to maintain currency stability.

However, banking authorities worry over the possibility that the U.S. Federal Reserve will raise interest rates, and Fed chair Janet Yellen signaled that this might occur sooner rather than later. This caused additional uncertainty within the Indonesian economy, including doubt over the Chinese economy and the status of the yuan.

Moreover, infrastructure spending, which is a vital aspect of the economy, caused the economy to perform better, but more spending is necessary. On the plus side, Australian Prime Minister Malcolm Turnbull visited the president in hopes of repairing ties between the two nations, while resuming trade and infrastructure investment agreements. Fallout between Australia and Indonesia started in April, when Indonesia executed two Australians over drug offenses.

Australian infrastructure investment in Indonesia is worth $647 million, and trade between the two countries stands at $10.6 billion. Indonesia's controversial policy of executing people over drug crimes has drawn the ire of human rights organizations and various countries, but the world community will not ostracize the Southeast Asian country anytime soon because it is the largest market in the region. However, Indonesia has plenty of work ahead, the nation remains in a solid position to make further progress.

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