HONG KONG (AFP) – Indonesia’s finance minister said Thursday he was “optimistic” the country could achieve 7.0 per cent growth by 2017 but warned that incoming president Joko Widodo faces a major challenge in pushing much-needed infrastructure development.
Southeast Asia’s biggest economy expanded just 5.12 per cent in the second quarter to June, its slowest rate in five years, highlighting the problems facing the reform-minded Widodo when he takes office next month.
Indonesia and other emerging markets have also been hit by huge outflows of foreign cash since May when the US Federal Reserve first signalled it may taper off its $85 billion a month bond-buying programme.
Widodo has pledged to raise GDP growth to seven per cent a year within two years by attracting foreign investment, especially to the manufacturing sector and cutting red tape, but many economists consider the target ambitious.
“I don’t think this will happen in 2015 because of the normalisation of the US policy, but if you’re talking about 2017, I’m quite optimistic,” Finance Minister Chatib Basri said at a media briefing at the CLSA Investors’ Forum in Hong Kong.
“By improving infrastructure the money is flowing back to Indonesia, then within two years, I wouldn’t be surprised if we’re talking about 7.0 per cent economic growth,” said Basri.
He added that the issue of land acquisition was one of the main obstacles holding back major infrastructure development.
“If we can settle the issues of land clearing, then you know, the economy will fly,” the finance minister in the outgoing government of President Susilo Bambang Yudhoyono said.
“The reason why we decided to have 5.2 per cent growth (this year) was because we needed to slow down the economy in order to curb the problem of the economic deficit,” Basri said, adding this policy could remain until the end of the year.
The government introduced aggressive rate hikes last year along with other measures aimed at slowing imports.
Indonesia has enjoyed a decade of relative peace and stability under Yudhoyono, helping to transform it into one of the world’s fastest-growing economies and a major investment destination.
But foreign companies operating in Indonesia have long complained of nationalistic policies, particularly in the resources sector, rampant corruption, and creaking infrastructure.