Indonesian President Believes Economy Undergoing Crucial Transformation

July 10, 2015Indonesiaby EW News Desk Team

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President Joko Widodo believes his country is transitioning from an economy based on commodities to one centered on production and investment. The president's address comes on the heels of slow growth for the Southeast Asian country, which saw 4.7-percent expansion in the first quarter of 2015, the slowest growth rate since 2009.

President Widodo's legacy is on the line, as critics have noted his failure to propel the economy forward since he took office in October of last year. His cabinet has faced criticism for announcing policies before scrapping or changing them later. For instance, the government received numerous complaints from foreign companies about language test requirements for employees, causing the government to reverse the policy, and Widodo asked the government to forestall a plan that would have implemented a 10-percent tax on toll roads. The president wanted to place the toll road plan on hold to make way for another plan that would increase toll road tariffs. The government also reversed course on the reduction of fuel subsidies in recognition of higher oil prices and a weaker currency.

Authorities also made a shortsighted error before Widodo's time in office, when the government passed a 2014 measure that banned unprocessed commodities for export to boost local industry, forcing companies to construct smelters. Officials granted miners a reprieve until 2017 upon realizing the impact it could have on jobs and taxes, but the damage was already done as numerous miners have moved operations to Malaysia in response to the ban, which remains in effect under Widodo's rule. Widodo is also under external pressure to make changes within his cabinet to make the government more efficient.

Regardless of the political turmoil, the president has a variety of strategies to improve the economy. First, his cabinet plans to increase spending while luring in more investors from abroad. The government has a short-term target of generating growth between 0.1 to 0.3 percent for the year. Infrastructure development will be key in fostering long-term growth, and expansion will be in the range of 0.5 to 1.0 percent for 2016. According to International Monetary Fund and World Bank figures, Indonesia expects to post 5.0 percent growth for 2015, but the government expects 5.2 percent growth at the end of the year.

The president is trying to remain as optimistic as possible, as his country has suffered from the effects of low commodity prices worldwide, including a decline in exports. Indonesia is the world's largest exporter of nickel ore, including thermal coal and refined tin, notes Reuters. Gold mining is another top commodity for the nation, and Indonesia is home to the fifth biggest copper mine in the world.

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