Indonesian Finance Minister Bambang Brodjonegoro is facing facts. He knows fixing Southeast Asia’s largest economy won’t be easy -- or quick -- and he’s toning down expectations for the pace of reform.
“To do a reform is not an easy one,” Brodjonegoro said in a Sept. 17 interview. “Maybe we want to do this kind of reform, but due to the external condition maybe we should go half of the planned reform, because then we need to take into account the current condition. If the current condition doesn’t really help the quick reform then maybe we should slow down.”
Battered by a plunging currency and an uncertain global monetary policy outlook, the government of President Joko Widodo is cooling down its economic ambitions less than a year after he took office promising growth of 7 percent or more. The shift in tone coincides with the trickling out of stimulus measures in recent weeks by a revamped economic team that’s so far focused on deregulation rather than big bang funding.
A month after the president’s 2016 budget predicted gross domestic product will increase 5.5 percent next year, Brodjonegoro now says he sees a pace of 5.3 percent to 5.5 percent. Reforms could be “much quicker and much bolder” in normal conditions of 5.5 percent to 5.6 percent growth, he said.
“It reflects both a greater dose of realism as well as the wider set of complexities facing the economy at this juncture,” said Wai Ho Leong, a Singapore-based economist at Barclays Plc. “Indonesia needs to focus on delivery, starting in the short term. The infrastructure ambitions offers an opportunity to show its ability to deliver on its promises.”
The president has struggled to overcome government spending and public works bottlenecks in his efforts to rejuvenate an economy growing at the slowest pace since 2009. In recent weeks, he’s been on a mission to break the impasse, reshuffling his economic team and forcing through the start of long-delayed projects like a power plant and dam.
Still, an increasingly protectionist approach toward trade and investment, government policy flip flops, and a build-up in private foreign-currency debt has caused angst among investors and analysts, including university lecturer and economist Iwan Azis, who taught Brodjonegoro and the current central bank chief.
“It’s the same story-- I don’t see any change. That’s why I have no reason to be optimistic,” said Azis, who lectures in economics at the University of Indonesia near Jakarta. Indonesia has failed to insert itself in the global manufacturing supply chain as Vietnam has in electronics, Azis says.
While Indonesia needs to shift to manufacturing from its reliance on commodities, it still can’t afford to abandon the resource sector, Brodjonegoro said. The country produces coal, tin, rubber and palm oil.
“To some extent, we need to pay attention to this commodity because at this time the export that has potential to Indonesia is still commodity,” he said. “We cannot afford to stay away from commodity and focus on manufacturing because the current condition is not good, even demand for manufacturing products isn’t as good as before.”
Brodjonegoro says Indonesia is facing “an unexpected moment” of global uncertainty that makes economic planning and forecasting difficult.
“We cannot see what is happening to global growth right now because it’s going anywhere, doesn’t have a clear pattern,” he said. “In that kind of situation, it should be accepted that all prediction is wrong.”
The president’s latest efforts to revamp the economy have seen him promise to adjust almost 100 rules to boost industrial competitiveness and improve business certainty.
Darmin Nasution, coordinating minister for economic affairs, said on Friday that 31 regulations had already been revised or removed, but downplayed the immediate impact.
“Please take notice, this is something that won’t immediately have an effect, this is about creating expectations and building belief,” he said. “In reality, it should be effective, and if isn’t, it means other factors are at play or it’s not big enough. Managing a company is not so difficult, but managing macro economy, most of it is beyond our control, all we can do is try to predict the effect.”