Economists: Focus on Tourism And Infrastructure

Indonesia could achieve faster economic growth in the long term if it focuses on key aspects of the economy such as tourism and infrastructure, some economists say.

Indonesia’s primary concern should be ensuring the country could “build confidence in the long-term strategy,” said Benedict Bingham, the International Monetary Fund’s senior resident representative for Indonesia, in a meeting with journalists in Jakarta last week. Indonesia is set to release 2014 gross domestic product data on Thursday.

Growth is expected to be at its lowest since 2003, when the economy expanded at around 4.8 percent. Economists forecast that Indonesia is likely to post growth of between 5.0 percent and 5.1 percent last year and between 5.3 percent and 5.5 percent this year. From 2010 to 2012, the economy was growing at more than 6 percent. Tourism, which includes visitors locally and abroad, has been increasing, and that has helped generate revenue.

The Tourism Ministry forecasts 10 million tourists will spend $12.5 billion in 2015, up from $10.7 billion in 2014 when 9.3 million tourists were recorded, based on data released by the Central Statistics Agency (BSP) on Monday. Still, those figures are below that of Thailand, which had 25.2 million tourist arrivals last year, according to data compiled by Bloomberg.

Ndiame Diop, the World Bank’s lead economist for Indonesia, said spending by more tourists could help to eliminate Indonesia’s current account deficit. Indonesia’s current account has been in deficit since 2012, as costs for oil and natural gas imports continue to rise amid a weakening rupiah. “If Indonesia was to match Thailand in terms of receipts from tourism, its current-account deficit would no longer be a problem,” he said, last week at the Jakarta Foreign Correspondents Club event.

Indonesia has embarked on a plan to further boost economic growth by constructing more roads, sea ports and other key infrastructure. “Infrastructure plans are crucial for long-term growth,” Diop said.

The new administration under President Joko Widodo has helped to ease the investment process which could pave the way for more foreign companies to undertake infrastructure projects. “Structural reform will lead to a better economic outcome,” said Rabin Hattari, public management economist at the Indonesia resident mission at the Asian Development Bank. He forecasts Indonesia’s economy will grow by 5.6 percent this year.

Still, there are concerns about growth remaining sluggish.
Bingham of the IMF said that the impact of lower oil prices on export revenue would be a challenge in the future, as it meant they would not see as much of a reward as they had hoped from the reduction in the fuel subsidy. He says that 7 percent growth that the government hope for by 2017 would be a challenge.

Trade data released by the BSP on Monday showed that Indonesian oil and gas exports had declined by 7.1 percent in 2014, higher than the 4 percent decline in oil and gas imports. Should commodity prices continue to fall, the sale of crude oil and natural gas will generate less revenue. (Jakarta Globe)