Indonesia Economic Quarterly, June 2016: Resilience through Reforms


Key findings of the June 2016 Indonesia Economic Quarterly:

  • The World Bank recently downgraded the global growth forecast by half a percentage point but Indonesia’s economy remains resilient.
  • Pro-active policies have helped Indonesia’s economic resilience, including prudent monetary policy, higher public infrastructure spending, and deregulation measures to improve trade and investment. However downside risks have intensified – both international and domestic risks.
  • The World Bank projects GDP growth of 5.1% in 2016 and 5.3% in 2017 – unchanged from the March 2016 IEQ. Private consumption is expected to pick up slightly. The outlook will depend more on private investment growth as it responds to the recent economic reform packages.
  • Exports and imports continued to decline, both in volume and value terms, in Q1 2016. However, imports have dropped faster than exports, helping to narrow the current account deficit to 2.1 percent of GDP.
  • Revenue collection has declined, while at the same time expenditure has increased. Responding to weaker revenue outlook, the government has submitted a draft 2016 Revised Budget which anticipates significant revenues from the tax amnesty. Should inflows from the tax amnesty is less than anticipated, additional expenditure cuts may follow.
  • Consumer price inflation as of May was 3.3 percent year on year. The relatively modest headline inflation rate has masked high food price pressures. While global food prices have declined, food prices in Indonesia remain high. One of the reasons for high domestic food price inflation is trade protectionism. Several trade reforms, introduced in early 2016, indicate an important change in direction in trade policy, which can help ease food price inflation.
  • This edition of the IEQ sheds some light on the issue of high bank interest rates in Indonesia. The report also discusses how fiscal policy can help reduce inequality in the country. Savings from the reallocation of fuel subsidies in 2015 has helped, but more can still be done. Finally, this edition also highlights the challenges involved in reviving Indonesia’s manufacturing competitiveness.


More analysis related to this edition of the IEQ is contained in:

Marks, S.V., September 2015, “Non‐tariff trade regulations in Indonesia: Measurement of their economic impact”