The Road to Recovery
    Category: Issues & Ideas By : Aastha Saboo Read : 756 Date : Monday, May 09, 2016 - 05:07:29

    Santirta Martendano for Forbes Indonesia

    “The era of commodity boom is over,” declares Indonesia’s Finance Minister Bambang Brodjonegoro. Instead of commodities, the minister feels the country should focus more on manufacturing, infrastructure, services and other types of economic activity that don’t depend on extractive industries. Speaking at a recent Jakarta Foreign Correspondent’s Club event, the minister did note, however, that Indonesia is showing resilience to slower growth, as China’s slowdown had reduced commodity demand and prices. “It is now time for Indonesia to adopt a new strategy towards China,” says Bambang.

    Instead of looking at China as a consumer of Indonesia’s commodities, he thinks China should be a supplier of FDI to help Indonesia to develop its own manufacturing and infrastructure. He is realistic, however, that this approach may not be an easy task, as China is also facing oversupply in its own manufacturing, so it may not wish to help others build more capacity. However, one good sign is that the Chinese-led Asian Infrastructure Investment Bank (AIIB) has asked the minister to become its vice president.

    With the economy and household consumption both growing at around 5% last year, Indonesia seems to be successfully heading out of its slowdown. Some economic sectors including information, communication, transportation, plus construction have also seen a high growth, with the construction sector seeing demand from both private as well as government projects, and growth of 6.6% last year. While the trade balance was surplus, and current account deficit was much lower than last year at around 2%, inflation was well managed in the 3.3% range. The rupiah also finally reversed its long slide from last year to be one of the best performing currencies in the world at the start of 2016.

    However, juggling between long-term and short-term horizons for Indonesia still remains a big challenge for the government, says Bambang. The short-term is to ensure that majority of the population has spending power to keep themselves out of poverty, which means tackling inflation. The long term, on the other hand, means restructuring the economy to reduce a dependency on natural resources. “The only way to create growth is by domestic means. The government has to step in through the government spending to create growth,” he says.

    The emphasis in 2016 should be on infrastructure spending, he adds. This spending should be driven by state-owned enterprises and the private sector, he says. Any budget revision this year, says Bambang, will focus on creating efficiency. Second is promoting more investment, especially private investment from domestic and international sources. And lastly, the government spending itself has to be well-targeted, and needs to be focused on productive spending.