Ending 2016 With Greater Hope

INDONESIA - Report 28 Dec 2016 by Cyrillus Harinowo

This report marks the final 2016 report on the Indonesian economy. At the beginning of the year, hope abounded that the Indonesian economy would be greatly supported by government infrastructure spending. Indonesian corporations and businesses were also relatively optimistic, as measured by the Business Tendency Index.

As the year went by, several problems emerged, especially regarding the feasibility of the fiscal balance. Apparently the government was too ambitious in setting up the program, without weighing carefully its capacity to finance it. The Ministry of Finance implemented a Tax Amnesty Program, and the additional income from that may fill part of the fiscal breach. The cabinet reshuffle in the middle of the year put Sri Mulyani Indrawati as the front-liner in the fiscal balancing exercise. As the new minister of finance, she trimmed the spending plan in order to re-balance the fiscal position. Towards the end of the year, that effort seemed to be successful in putting a band-aid on the fiscal wound.

Now in the run-up to the new year, the Indonesian economy is moving again with greater hope. The government is optimistic about the prospects for 2017. Apparently, the credit rating agency Fitch has as much hope as the government and placed the Indonesian economy on a positive outlook.

In ending the year 2016, the Central Board of Statistics released the trade balance report for November 2016 with a more optimistic tone. Total exports were $13.495.3 million, significantly higher (21.34%) than the same period last year. At the same time imports also increased significantly (9.88%), to $12,657.5 million, leaving the trade balance in surplus of $837.8 million. With that surplus, the cumulative surplus for the year through November 2016 reached $7,794.3 million.

At the same time, the month of November 2016 also resulted in 0.47% inflation, which led to year-over-year inflation of 3.58%, still at the low end of the inflation corridor of Bank Indonesia. Based on that performance, the Central Bank decided to keep the benchmark interest rate unchanged at 5.25%, even though the US Federal Reserve increased the Fed Funds rate by 25 basis points.

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