Spending, Investment Drive Economic Growth
The Indonesian economy continued its recovery in 2018. This year, Indonesia faces challenges from the global economic slowdown, which could have an impact on commodity prices.
JAKARTA, KOMPAS — Indonesia\'s economy grew 5.17 percent in 2018, showing improvement after falling to its lowest point in five years in 2015.
In 2015, Indonesia\'s gross domestic product (GDP) growth fell to 4.88 percent. In 2016, the economy began to recover and GDP growth slowly improved. By the end of 2018, Indonesia\'s GDP reached a total of Rp 14.83 quadrillion (about US$1.06 trillion), with the GDP per capita of Rp 56 million.
"The annual economic growth is quite good, supported by fairly good growth in consumption and investment. Consumption and investment have also become the driving force of the economy this year," said Coordinating Economic Minister Darmin Nasution in Jakarta on Wednesday.
Based on data from Statistics Indonesia (BPS) released on Wednesday, household spending grew by 5.05 percent from January to December 2018. Its contribution to economic growth is 2.74 percent, while investments, which grew by 6.67 percent, accounted for 2.17 percent of GDP growth last year.
On Wednesday, the Jakarta Composite Index (ICI) rose by 1.02 percent to close at 6,547.87. The rupiah exchange rate based on the Jakarta Interbank Spot Dollar Rate (Jisdor) rose to Rp 13,947 per US dollar, continuing its upward trend since Feb. 1.
The chairman of the Investment Coordinating Board (BKPM), Thomas Lembong, said 2018’s economic growth could not meet the desired target, partly because of the lower than expected realization of investment during the year.
"Investment growth slowed, from above 10 percent in 2017 to just above 4 percent in 2018. That is certainly also one of the factors that caused economic growth to fall below our expectation," he said.
Nevertheless, Lembong is optimistic that 2019’s investment performance will improve. Based on BKPM’s dialogues with a number of large investors, there have been signs of a reversal of investment. This was, among other things, reflected in the commencement of the construction of a number of new factories.
"Investors feel more comfortable, the storm has passed. There is growing optimism about safe and orderly elections," Lembong said.
Meanwhile, Industry Minister Airlangga Hartarto expressed his optimism regarding the prospects of investment this year. According to him, in 2018 there was economic turbulence with currency fluctuations and trade wars in a number of countries.
In 2018, based on the Jisdor reference rate, the rupiah exchange rate touched the Rp 15,000 mark per US dollar. On Oct. 11, the rupiah exchange rate plunged to Rp 15,253 per US dollar, the lowest level in 2018.
Java and Sumatra
Even though it was considered quite positive, Indonesia\'s economic growth was still concentrated in Java and Sumatra. The contribution of Sumatra and Java to the 2018 GDP is 58.48 percent and 21.58 percent, respectively. This happened because regions other than Java and Sumatra are still dependent on raw commodities. As a result, the GDP growth in regions that heavily relied on raw commodities slowed.
Kalimantan\'s economic growth fell to 3.91 percent in 2018 from 4.33 percent in 2017. Sulawesi\'s economy grew by 6.65 percent in 2018, down from 6.99 percent in 2017.
The deputy director of the Institute for Development of Economics and Finance (Indef), Eko Listiyanto, said that the turmoil in global commodity prices affected economic growth in regions that relied on raw commodities. This problem should be resolved by the government by immediately establishing the downstream industry.
"The increase in commodity prices this year is estimated to be very small, and even tends to be flat. On the other hand, global demand is more selective," he said.
The World Bank estimates the global economy will grow by 2.9 percent this year. While the International Monetary Fund estimates it will grow by 3.5 percent. The commodity demand will be in line with global economic growth. Citing data on Bloomberg\'s website, Wednesday night, the price of WTI world crude oil was US$53.32 per barrel, while Brent was $61.81 per barrel.
Eko said that without the establishment of the downstream industry, the decline in commodity prices and global demand would not only have an impact on economic growth but would also increase poverty and unemployment in regions that depended on raw commodities, because the main economic players consisted only of micro, small and medium businesses.
In September 2018, the number of poor people in Indonesia was 25.67 million people or 9.66 percent of the total population. According to Darmin, 2018’s economic growth was held back by high imports, which were 0.99 percent higher than exports.
Meanwhile, BPS head Suhariyanto advised caution regarding commodity prices. "Economic growth must be of high quality so that business sectors can employ a lot of people so that the poverty can be further reduced," he said.
The deputy chairman of the Indonesian Chamber of Commerce and Industry (Kadin) for economic zone development, Sanny Iskandar asked the government to keep optimistic targets. "The business world and all of our stakeholders will support it," said Sanny. (KRN / CAS)