Tue, 07 Jul 2015

Jakarta (ANTARA News) - The Asian Development Bank (ADB) believes that the economic slowdown in Indonesia will be temporary, as expansion of government spending will restore growth to five percent by the year-end.

ADB Deputy Country Director Edimon Ginting noted here on Tuesday that there was still a potential for an economic stimulus hike, as the government still has 88 percent of its total infrastructure budget, or Rp255 trillion, which it has not used.

Quoting the governments statement that the realization of capital spending could reach 85 percent in 2015, Ginting believes that there would be a 94 percent hike in government investment that would be channeled to the people as compared to the second semester of 2014.

"That is a vital thing in the second semester, and it will restore the economy," he affirmed.

In view of this, Ginting stated that the government had to be serious in settling administrative issues that have so far hindered disbursement.

He pointed out that the stimulus from the government spending will also boost domestic consumption, including in the private and public sectors.

Private consumption will be boosted by improving the export performance, which has actually dropped in the second quarter of 2015, he remarked.

"Exports that have slowed down since the middle of 2014 have started to improve in the second quarter. On the other hand, trade balance will be pushed by the decline in imports, as a positive impact of the rupiahs depreciation," he emphasized.

Ginting said household consumption, which only grew five percent in the first quarter, would increase, thanks to the governments decision to increase the personal allowance level and pay of military and police personnel.

"The upcoming simultaneous local elections will also increase public consumption," he pointed out.

He remarked that on the basis of ADBs calculation, if economic growth is set at above five percent, then household consumption must reach seven percent.

On the other hand, he stated that the efforts made by the government to maintain structural reforms and coordination with Bank Indonesia (central bank) would also boost growth although attention must also be paid to economic stability.

"Inflation will be stable as the cause of inflation so far has been the prices of fuel oils and food. Now, due to the structural reforms, the impact of oil subsidy has ended, and thus, the inflation will be maintained," he said.

Ginting noted that ADB however has still forecast that the rate of inflation in 2015 would reach 6.4 percent year-on-year due to the volatility in the prices of food commodities as the impact of fuel subsidy revocation.

With regard to the economic growth, the ADB has revised its projection down from initially 5.5 percent to 5.0 percent or between 4.8 and 5.2 percent.

(Reporting by Indra Arief Pribadi/Uu.H-YH/INE/KR-BSR/A014)