Indonesia's economic reform to boost growth this year: ADB

A new report released by the Asian Development Bank (ADB) on Wednesday said that consumers and private investors respond favorably to the government's public investment and structural reform efforts, leading to rebound of Indonesia's economic growth this year.

"Despite global financial market volatility, the wide-ranging economic reforms carried out by President Joko Widodo's administration have bolstered market confidence and are showing positive results," ADB Country Director for Indonesia Steven Tabor said in a statement here.

"It is critical for Indonesia to implement its ambitious public investment program, to deepen and maintain the momentum of these reforms to boost productivity, attract investment, and nurture new sources of growth," he added.

In its flagship annual economic report, the Asian Development Outlook (ADO) 2016, ADB projects Indonesia's Gross Domestic Product (GDP) growth to gradually improve from 4.8 percent in 2015 to 5.2 percent this year, and to expand further to 5.5 percent in 2017. The forecasts follow 5 years of decelerating growth in Indonesia, the report said.

ADO estimated that public investment would increase in 2016 as new infrastructure projects initiated last year get their momentum. Higher public capital spending and ongoing reforms to deregulate the economy will provide additional opportunities for private investment.

Household spending is expected to pick up in 2016, while net external demand is not expected to contribute to growth.

Growth in fixed investment increased by 5.1 percent in 2015 as the government ramped up investment in infrastructure and introduced reforms to revive Indonesia's appeal for private investors. After a slow start, public investment rose sharply in the second half of the year when the bulk of the capital investment program was implemented, the report said.

The government's ongoing policy reforms are expected to further stimulate private investment, particularly over the medium-term.

The government has unveiled 10 reform packages since September 2015. These, together with higher public capital spending, are steadily improving the country's investment climate.

ADO also notes that Indonesia's total exports are less than 1 percent of global trade in goods and services. This highlights the tremendous potential that expanding trade has for boosting demand for Indonesian goods and services, providing that a firm commitment to openness and global competitiveness is maintained.

ADO recommends Indonesia to push ahead with its deregulation packages, while continuing to remove impediments to private investment.

Tabor said reforms should be expanded to address barriers to micro- and small-enterprise development, deepen financial markets, improve land titling and registration, and address labor market rigidities. Enditem