Since the economic development program of working Cabinet was implementaed, the fiscal policy is directed at accelerating equitable growth.
By
FX LAKSANA AGUNG SAPUTRA
·5 minutes read
The State Budget is one of the government’s instruments to achieve its development goals. In the fourth year since the economic development program of President Joko “Jokowi” Widodo’s working Cabinet was implementaed, the fiscal policy is directed at accelerating equitable growth. For a close look at the 2018 fiscal policy, Kompas interviewed Finance Minister Sri Mulyani Indrawati on Monday (15/1) at her office in Jakarta. The following are excerpts from the interview:
What is the economic projection for 2018?
I define 2018 as the year to maintain the momentum of economic growth. Over the last three years, the impact of falling commodity and export prices affected the economy. Many banks were restructuring their non-performing loans (NPLs). Companies that had enjoyed a commodity price boom were also affected. The 2014-2016 period was difficult. By 2017, a reversal began to occur and we expect this momentum to be maintained in 2018.
The sources of economic growth this year are expected to be evenly distributed. The growth of investment and exports in the third quarter of 2017 could stimulate growth, in addition to the two other factors – household consumption and government spending – that did not contribute much during the difficult times of 2014-2016.
What is the direction of the fiscal policy?
The fiscal policy should support investment. The idea is how the policies on state revenue and expenditure can stimulate investment in addition to supporting the government’s priorities, such as reducing poverty and inequality.
Do you think the high third-quarter growth in investment last year will continue into the fourth quarter of 2017 and into 2018?
The positive trend is expected to continue. The reason is because the banks’ balance sheet is healthy. The problems related to NPLs have been settled, and banks have enough liquidity. Profitability is also quite good. So the banks are ready. Our capital market is good. Corporate bonds still need to be built, but their potential is huge. Opportunities for investment growth in 2018 are quite high.
Why does it seem that the private sector is holding back investments?
Some businessmen say that this year will be better. But they still hold back on investing because of a lack of confidence. It is therefore important to maintain the consistency and clarity of the government’s policies so that the business world can make bold, right decisions. Many infrastructure projects were completed or were near completion in 2017.
What is the projected investment growth this year?
I expect more than 5 percent. If bank loans could grow this year by over 10 percent, investment growth could reach over 6 percent. However, external factors should be watched for, such as the monetary policies of developed countries that could affect capital outflow, exchange rates and interest rates.
What about the projected growth in household consumption?
The key to maintaining the growth momentum in household consumption is purchasing power. Purchasing power depends on income and inflation. That is why the government will keep the price of basic necessities under control.
What about exports?
The growth momentum for Indonesian exports to its main destination countries has traditionally been positive. Indonesia will enjoy further growth in exports. The government will also increase exports to new markets such as South Asia, Central Asia and Africa. We can export consumer goods, commodities and processed products to these countries.
What about potential headwinds?
From abroad, headwinds could come from uncertainties in the policies of developed countries. It will greatly affect the economy, especially on the monetary side, such as a sudden increase in interest rates or reduction of government bond purchases. This is a real headwind. The other is the fluctuating price of oil.
In such a situation, how high could economic growth be in 2018?
The government\'s target remains 5.4 percent. In terms of momentum, this should be achievable. Some agencies predict 5.3 percent. I consider the 5.4 percent target is optimistic, as well as realistic.
The fiscal theme is to accelerate equitable growth. What does that mean?
The government will use state revenues and expenditures to create growth momentum, while creating fairness. Achieving fairness is the government’s responsibility. But if using the market, fairness is difficult to achieve because the market logic is to gain profit. Those who have been left behind, vulnerable or have been unable to gain access to the market and unable to compete should be favored or receive affirmation of fairness. For economic growth, the government is the main contributor. This gives the private sector space to grow.
What fiscal incentives will be evaluated this year?
Tax allowance schemes, tax holidays, should be adjusted in accordance with the needs of the private sector. We will consider their request. There are studies showing that incentives are not very important. However, there are also studies showing that incentives are important.
What is the Finance Ministry’s position in the digital economy?
We encourage the emergence of online platforms such as online shops and others that can grow passion for productive economic activities. They can help suppliers that could not access the market before to connect with their buyers. This is especially true for micro, small and medium-scale companies (MSMEs).