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Indonesia's Economy Shows Real Signs of Acceleration

Indonesia's Economy Shows Real Signs of Acceleration

The government collected more taxes in the first quarter this year than it did in the same period last year, while the growing number of capital goods and raw materials suggest bustling investment and manufacturing activities. Motorcycle sales expanded at their quickest rate in four years in the last quarter of 2017, as purchasing power recovered across the country, in line with rising prices of the countrypsijis main commodities like coal and palm oil.


Finance Minister Sri Mulyani Indrawati said she estimates gross domestic product (GDP) to expand by 5.2 percent in the first quarter this year from the same period a year ago, which would be the countrypsijis fastest expansion in the last four years.

The World Bank and the Asian Development Bank both expect the largest economy in Southeast Asia to expand by 5.3 percent this year, picking up from a near 5 percent pace in the past four years.

Taxes and excises revenue jumped 10 percent to Rp 262.4 trillion ($19 billion) in the first quarter from Rp 237.9 trillion in the same quarter last year.

"The revenue shows encouraging growth as it also shows that our economic pulse is beginning to increase," Sri Mulyani said at a press conference in Jakarta.

"The government will continue to maintain this momentum, which I would say is on the right track."

The main source of the increase in tax revenue was attributed to Indonesiapsijis commodities sector, which experienced price rebounds in the past year.

The Indonesian Coal Benchmark Price (HBA) was set at $101.86 per ton for the month of March, its highest since May 2012.

Those commodities and robust shipments of manufacturing goods helped increase non-oil and gas exports to $44.3 billion from January to March, up 8.8 percent from the same period last year.

Households, Businesses Ramp Up Spending

Sales of cars in the first quarter this year was recorded at 291,920 units, up 2.8 percent from 283,760 units in the same period last year, data from the Indonesian Automotive Industry Association (Gaikindo) shows. Motorcycles sold from January to March also increased to a total of 1.46 million units, up 3.8 percent from 1.4 million units within the same period last year, reversing a downward trend, according to data from the Indonesiapsijis Motor Association (AISI).

A survey by Indonesia’s central bank, Bank Indonesia, showed that the Consumer Confidence Index (CCI) in March was 121.6, still above the minimum confidence level of 100.

President Joko "Jokowi" Widodo, who is up for re-election next year, went as far as reversing his policy in fuel subsidies to ensure cheap fuel and electricity until the end of 2019 and to support consumer purchasing power.

"Household consumption is expected to grow faster this year, as there will be momentum to boost it, such as regional elections and the Asian Games," said Mohammad Faisal, an economist at Jakarta-based research firm Center of Reform on Economics Indonesia.

Several indicators in investment increases, such as imports of capital goods and raw materials, have also risen.

Within the period from January to March, imports totaled $44 billion, with raw materials accounting for $32 billion, followed by capital goods and consumer goods.

This year, the Investment Coordinating Board (BKPM) targets to attract Rp 795 trillion from both foreign and domestic investments, a 10.4 percent increase compared to last yearpsijis figures.

State Splurging

This year, the government will not hold back in spending on social assistance and on civil servants, who have not seen pay raises since 2016. The government hopes that it can help boost consumption ahead of Lebaran and the beginning of the school year in July.

"There will be a multiplier effect on household consumption. It is expected to move real sectors as well as to accelerate the disbursement of employee expenditures," Faisal said.

Government expenditures in social assistance almost doubled to Rp 17.9 trillion from Rp 9.5 trillion in the same period last year.

"We hope there will be no [further external] shocks to help us maintain the momentum of the growing economy," Sri Mulyani said.