January 2017 Indonesia Economic Quarterly – Sustaining Reform Momentum

  • Indonesia’s economy has weathered recent global financial volatility and is well placed to mitigate future risks to its growth outlook thanks to solid economic fundamentals and policy reforms:

o   improved fiscal policy credibility and composition of government spending

o   low and stable inflation

o   robust private consumption growth

o   moderate budget deficit, current account deficit, and government debt.

  • Risks to Indonesia’s economic growth outlook:

o   ongoing financial volatility coupled with sluggish trade and subdued growth in advanced economies

o   continued deceleration of China’s economy

o   global policy uncertainty, particularly concerning global trade agreements and the pace of interest rate normalization in the US.

  • Projections for GDP growth remain unchanged from the October report: 5.1% for 2016 and 5.3% in 2017. Stronger growth in 2017 is subject to a pickup in private investment following monetary easing in 2016 and ongoing investment climate reforms.
  • Indonesia was among the top 10 improvers globally in this year’s Doing Business report. Indonesia’s ranking improved from 106 in 2016 to 91 in 2017, thanks in particular to a record seven reforms that eased starting a business, getting electricity paying taxes, registering property, getting credit, enforcing contracts and trading across borders.
  • Tax Amnesty revenue contributed to a lower budget deficit in 2016, but non-tax amnesty revenue collection weakened. The 2017 Budget features more achievable revenue targets but further tax administration and policy reforms are required to meet these targets.
  • Given revenue and budget deficit constrains, improving the quality of public spending is the government’s main mechanism to achieve its development goals in the short to medium term. This entails two separate actions:

o   reallocate spending to priority sectors where public expenditure is low and additional spending can have the greatest impact on poverty and growth (such as infrastructure, health and social assistance), and away from areas with little impact on productivity, such as subsidies and personnel spending

o   reallocate spending within sectors (particularly in agriculture and education) to programs that have the highest impacts on sectoral goals.

  • This edition of the report also looks at a recent video study of teacher behavior and instructional practices in 8th grade mathematics classrooms. The study found that, although student-centered learning approaches are encouraged in the national curriculum, the adoption of such instruction methods has been slow. Yet, the study also found that teachers who use student-centered teaching practices achieve better student learning outcomes. (Student-centered teaching focuses on interactive learning, drawing upon investigative and practical teaching practices with a connection to real world contexts.)