World Economy

Worst Over for Indonesia

Worst Over for IndonesiaWorst Over for Indonesia

Indonesia’s economy picked up speed in the fourth quarter thanks to higher public spending, suggesting President Joko Widodo is finally starting to unclog much needed infrastructure investment and spur growth in the year ahead.

Southeast Asia’s largest economy grew 5.04% in October-December from a year earlier, supported by government spending, gross domestic product data from the statistics bureau showed on Friday, Yahoo reported.

That was above the 4.74% in the third quarter, but a collapse in prices for Indonesia’s main commodities and cooling growth in major trading partner China drove full-year growth to 4.79%–the slowest since the global financial crisis.

Analysts say growth in latest quarter–the fastest in a year and ahead of expectations–suggested the worst may be over, especially as spending on critical infrastructure projects looks set to pick up.

“The government appears to have found better footing by now and infrastructure projects would start to help momentum more forcefully,” said Wellian Wiranto, an economist with OCBC in Singapore.”

After disappointing investors with the slow pace of reforms, Widodo rolled out a series of stimulus measures in September last year in an attempt to make investment the main driver of growth. He offered firms tax break of up to 20 years, among other incentives.

Widodo’s cabinet, which was reshuffled in August after ministers took too long to speed up public investment, got to work quickly. Capital spending more than doubled to almost $10 billion in the last quarter of the year, compared with the entire 9-month period to end-September, data from the finance ministry shows.

Indonesia’s stock market rose more than 2% after the GDP data, while the rupiah strengthened 0.3%.


To aid growth, Indonesia’s central bank cut its benchmark interest rate for the first time in 11 months in January, by 25 basis points to 7.25%. Bank Indonesia, which next meets to decide policy on Feb. 17-18, has said it will review the need for further easing.

Banking on better government spending and investment, many economists are expecting growth to improve steadily this year after a slowdown for five straight years.

As part of efforts to attract investment, the government is expected to open more sectors of the economy to foreigners.