2017 Economic Challenges

Indonesia deserves to be optimistic to welcome 2017 amid the difficult global conditions at present. Indonesia is predicted by economic experts to become one of the countries able to survive the external pressure because of the large scale of its domestic economy, which is supported by prospects of gradually rising commodity prices.

The government through the Finance Ministry has set an economic growth rate target of 5.1 percent in 2017, but predictions from the world economic and monetary bodies are more optimistic. The International Monetary Fund (IMF), Consensus Economics and the World Bank believe Indonesia\'s economic growth in 2017 will reach 5.3 percent.  The Asian Development Bank (ADB) predicts 5.5 percent. The growth rate is higher than 5.0 percent in 2016.

Positive factors

At least there are several positive things which make us optimistic to welcome the year 2017. First, Indonesia\'s trade balance recorded a surplus of US$650 million per month in 2015 and 2016, much better than the average in 2012-2014 which had a deficit of $220 million. Cumulatively, throughout 2016, Indonesia\'s trade balance surplus was $8.8 billion, increasing by 14.5 percent from $7.7 billion in 2015.

Data from the Central Statistics Agency (BPS) shows the condition of Indonesia\'s trade balance has had a positive impact on the exchange rate of the rupiah, which was relatively stable in 2016. The spot exchange rate of rupiah against the US dollar strengthened by 1 percent from 2015, during which it weakened by 0.50 percent. It means that over the last two years Indonesia has recorded a trade surplus. This is a positive signal that the economic policies, especially the government\'s 13 economic policy packages to improve the performance of the Indonesian economy, have been effective.

Second, there is an increase in confidence and optimism on the part of the economic actors for the year 2017. Kompas newspaper (16/1/2017) recorded, executives of state-owned enterprises and companies such as Garuda Indonesia, Bank BRI, Adaro, Jababeka, and Waskita Karya had expressed optimism in welcoming 2017. Confidence and optimism like this are badly needed – in addition to the economic growth assumption from world bodies such as the World Bank and IMF – to improve confidence for investors and economic actors. This has to be continuously supported by the government\'s role in creating a business and investment climate that is conducive for Indonesia\'s economic progress.

However, the economic and political challenges faced by the government in 2017 are no less severe. At least, the writer hopes the government is focusing on several things that have to be seriously responded to in 2017.

First, the growth of credit and the real sector. The growth of the banking credit should be a major concern, particularly credit for the commercial sector and corporations. The decline in mortgage interest rates is necessary, but not the main thing.  The creation of a good business climate through supportive regulations and policies accompanied by increases in people\'s purchasing power -- by preserving low inflation and a relatively stable exchange rate -- is the most critical thing to boost demand for credit. It is apparently not too difficult to expect the business community to expand their businesses by using the banking credit amid economic uncertainty, mainly the market demands and government regulations which are less supportive to the business climate and competitive investment.

The growth of third-party funds (DPK), especially low-cost banking funds such as current accounts and saving accounts/CASA) should also be further improved. Increased accumulation of CASA has continued to show an increase to Rp 2.51 quadrillion (CASA ration of 53.59 percent) as of October 2016 from Rp 2.30 quadrillion as of October 2015. This means there was an increase of Rp 208 trillion (9 percent). However, credit as of October 2016 grew by only 7.4 percent (Rp 4.24 quadrillion) even though it was better than September 2016, during which it grew by 6.4 percent year on year.

Optimism on DPK growth is believed to be in line with the repatriation of funds from the tax amnesty program and investment growth.  In 2017, Bank Indonesia (BI) estimates that lending will grow 11-12 percent. DPK growth has to be facilitated in line with the increase in bank credit growth target in 2017. Currently, the total DPK growth as of October 2016 was 6.5 percent. To spur credit growth, the DPK growth should reach at least 12-13 percent by 2017.

In response to bank credit growth, the real sector is expected to be able to grow to help reduce unemployment. The essence of banking credit of course is to spur the expansion and development of businesses in order to create demand for workers. The government together with the banks will create a large number of jobs by channeling credit to the productive sector.

The sectors of tourism, agriculture, trade, construction, communication and information can become leaders in the reduction of unemployment in 2017 because the industrial sector is expected to absorb the most labor. In 2017 the government has targeted an open unemployment rate of 5.3-5.6 percent and poverty rate of 9.5-10.5 percent because by the end of 2016 the open unemployment rate reached 5.7 percent and the poverty rate 10.6 percent, respectively.

Second, the issue of transparency, quality and responsibility on the budget allocation against the economic growth target, especially the budget fund transfer to the regions and infrastructure development. The Kompas newspaper has recorded that, interestingly, thus far there has never been any public responsibility on the achievement of the target from the budget allocation, particularly its impact on Indonesia\'s economy.

The allocation of state spending in the ceiling of 2017 State Budget had been set at Rp 2.08 quadrillion, which will be financed from the income (target) of Rp 1.75 quadrillion and state debts of Rp 330.2 trillion. From this spending allocation, the infrastructure budget, which is Rp 317 trillion and transfers to regions Rp 764.9 trillion, is super fantastic. In the future, the government has to focus on transparency in the budget and assessment to ensure that budget disbursement has positive impacts for the progress of the life and welfare of the nation. It means the magnitude of funds to be allocated is not only reflected in terms of development quantitatively and merely physical, but also must be qualified in term of improving the welfare of the nation.

The writer is very confident that the allocation and transparency of the infrastructure budget and the transfers to the regions will be very vital to support the equitable distribution of economy, eradicate poverty, and settle social inequality as long as the use of the budget is carried out with full  responsibility and a sense of belonging as well as protected from corruption practices.  Aside from increasing economic assessment, the role of the public is needed to monitor the achievement of the targets from the budget allocations. Our joint control and supervision are expected to enable the government in the correct economic direction corridor. The government has also to increasingly improve openness. Suggestions and constructive criticism from economic experts and the public need to be well received for the glorious benefits for the national economic progress.

Political aspects

The third is related to political aspects. Whatever happens, economic growth will be affected by both domestic and foreign political conditions, especially the domestic one. Indonesia\'s political condition in 2017 is increasing heated, particularly in connection with the implementation of the simultaneous regional elections in 2017 and debates whether or not the threshold of the presidential election in the 2019 General Elections. Energy and attention of the government to succeed the big political agenda of the 2017 regional elections become a challenge which is not small. The success to implement the simultaneous regional  elections in 2017 becomes Indonesia\'s test of democracy as well as a reference for entrepreneurs and investors to develop business in Indonesia.

We are grateful that the peaceful and secure condition during the regional elections in general could be realized, in the sense that the regional head candidates were ready to lose and ready to win. The filing of protests over the election results is not banned as long as it does not cause or provoke social conflicts that could hamper economic growth.  The agenda of determining whether the presidential threshold is needed or not should not be underestimated as well. The deliberation on the importance of the presidential threshold should also be decided properly. The hope, of course, is that the focus and energy of the government is not much spent for the political agenda compared to the economic agenda. The mechanism of simultaneous elections in 2019, in the absence of the presidential threshold, will allow each party, even political parties which support the current government, to back up their own presidential and vice presidential candidates.

This could be a bad omen for the government because it can be ensured that each political party will take its own way and disrupt the government agenda because the political parties will be busier with the 2019 General Election agenda rather than cooperate together with the current government. The writer is confident that the year 2017 will be the last betting year on the part of the government for the 2017-2019 period because next year almost certainly that all political parties will be busy preparing for the 2019 General Election.

On top of the existing challenges, the writer still hopes to stay optimistic in welcoming 2017. All pressures and negative factors from abroad will of course be mitigated by strengthening national resilience through hard work, openness and togetherness between the government, business people, investors, and all Indonesian people.  Once again, a situation which is conducive, secure, and peaceful and is not affected by negative news -- let alone hoaxes -- is badly needed for the realization of an Indonesia which is advanced, prosperous, and powerful, both economically and politically.

SANTO RIZAL SAMUELSON

Observer of Indonesia\'s Economy and Politics