Indonesia: After Political storm, Jokowi Faces Economic Clouds – 4 Sep 2017

  • During the first months of 2017, President Joko “Jokowi’ Widodo was an embattled leader grappling with Indonesia’s most serious political and religious tensions in two decades. Now, he has come through the storm looking stronger than ever.
  • His popularity is near record highs and, thanks to deft maneuvers against foes trying to exploit a blasphemy case against one of his allies, Jokowi has stamped his authority on the ruling coalition, parliament and the security forces.
  • The quietly spoken former furniture salesman may have proved his political mettle, but his next challenge is an economy that refuses to respond to conventional policies to fire up growth. That could dent his re-election chances in 2019, especially with a budget that won’t stretch to lavish government spending.
  • Indonesia’s GDP growth has shambled at around 5% for the past two years, too low to lift the country out of the middle-income trap, largely because domestic consumption – once the engine of the economy – and bank lending have been sluggish.
  • An unexpected cut in interest rates in Aug 17 highlighted the struggle to lift growth despite government initiatives, including a tax amnesty programme, an infrastructure drive, and a series of regulatory tweaks designed to make business easier.
  • The government has little fiscal room to breathe life into the economy: the budget deficit is already close to a legally mandated ceiling of 3% of GDP and parliament could impeach Jokowi if he allowed the deficit to run past that limit.
  • David Sumual, chief economist at Indonesia’s Bank Central Asia, said a hike in electricity tariffs and slow disbursement of subsidies to farmers have weakened the purchasing power of middle-to lower-income households. Meanwhile, higher-income groups are worried that the government is pushing for aggressive tax reform that will leave them less well off.
  • “The problem now is confidence in the prospect of the economy. People don’t want to spend,” David said.

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