21 June 2016

Economic Outlook 2016: Indonesia’s Hopes and Challenges in ASEAN

The ASEAN Economic Community (AEC) and the increasingly significant roles of Indonesia in driving the growth in the region became the topic of the day as Indonesia’s economic projection is expected to reach 5 per cent this year.

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HSBC Economic Outlook, which recently began its series of talks, focused on Southeast Asia which remains the most dynamic region with the fastest growth in the region in which Indonesia contributes up to 35 per cent of the total GDP of ASEAN and over 40 per cent of total population of ASEAN. The main driving factor of such economic growth in the region is the stable leverage or the bank lending level. Despite concerns on debt levels in the Asian region, Indonesia remains the safest country for investment due to a series of economic and financial policy reforms initiated by the government.

Tony Turner, CEO PT. Bank Ekonomi Raharja Tbk | Sofjan Wanandi, Head of Vice Presidential Expert Team and Advisory Council of APINDO | Thomas Lembong, Minister of Trade, Republic of Indonesia | Su Sian Lim, HSBC Economist, Southeast Asia | Ali Setiawan, Head of Global Markets HSBC Indonesia

 

The economy size in ASEAN is valued at 2.2 trillion US dollars and so far has attracted 35 per cent of foreign direct investments to the region. Indonesia remains the core economic driving factor with its contribution of 35 per cent, followed by Vietnam and Malaysia. However, how do we see this competition? By reviewing the investment realization which went up by 17.8 per cent at 545 trillion rupiahs in 2015 and the realization of the 1st quarter of 2016 at 146.5 trillion rupiahs or up 17.6 from the same quarter of the previous year, the Indonesian government continues to support productive economic sectors. A series of policy reforms which have been launched since September 2015 are the simplification in business licensing, wage formulation, cost reduction, tax discount, free VAT, and improved ease of doing business. The economic potential of the Indonesian regions remain wide open with economic centers in the process of development in various islands and economic sectors such as manufacturing, tourism, maritime, etc.

Meanwhile, the economic condition in Indonesia is predicted to improve in 2016 despite the moderate rate of such growth. This growth is marked by the decrease in poverty rate at 9-10 per cent, the reduction of open unemployment rate to 5.2-5.5 per cent, stable inflation rate at 4.7 per cent, and the projected growth for next year at 5.3 per cent. These optimistic numbers are ought to be responded by a pro-active attitude in welcoming business investments and inquiries to ensure such investments commence smoothly in Indonesia.

Other concerns which became the highlights during the panel discussion were the corruption eradication and zero tolerance attitudes towards corruption in all government levels to ensure the smooth and clean investment operations. The discrepancy in bureaucratic services between the central and regional governments was also highlighted due to the expensive costs that some businessmen have to bear. Some parties also believe that state-owned-enterprises must be forced to compete fairly with the private sectors without enjoying special privileges from the government. State-owned-enterprises, whose corporate culture adjusts to the fair business practices, will ultimately increase the productivity of such company.

Indonesia is not immune to the slowing down of the global economic growth. However, the confidence level against the investment assurance in Indonesia remains solid thanks to the strong government support in enabling the speedy economic development. Another mutual understanding is the importance of a strong financial market support. This is in line with HSBC’s determination to continue placing Indonesia as a strategic priority in business growth.

A ‘Mental Revolution’ in the economy is absolutely needed. While we used to sit down passively and await foreigners to come to us looking for commodities they need and all we needed to do was to sell them, it is now the time for us to pro-actively seek new opportunities in conducting businesses and attracting investments.

Thomas Lembong, Minister of Trade, Republic of Indonesia

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