GUARDED CONFIDENCE
Forbes Indonesia|October 2021
AMID THE UNCERTAINTY, INDONESIA SEEKS TO CHANGE GEARS AND DRIVE ITS ECONOMIC GROWTH BACK TO THE LEVELS OF BEFORE THE PANDEMIC.

Enrico Tanuwidjaja

Economist at UOB

AS LAST YEAR, our round-table on the economic outlook for 2022 was held against a backdrop of uncertainty. Green shoots of an economic recovery were seen in the strong growth rebound of the second quarter of 2021, but these gave way to concerns for a sustained recovery during 2021 as mutations in the COVID-19 virus spread rapidly and caused the government to have to introduce more severe public activity restrictions (PPKM) in July. Whilst recent weeks have seen positive progress in controlling further spread within the population, PPKM remain in place at the time of writing, some three months after they were first introduced, impacting the third quarter as the manufacturing sector particularly was badly hit, and leading to a downgrading of the growth outlook for the year.

Internationally, eyes remain on the United States and how they will manage the tapering of their financial policies and resolve the debt ceiling issues they currently face. The discussions will undoubtedly be fraught and run down to the wire, but expectations are that a compromise will be reached without causing a global market shock wave. Locally, despite the effects of the pandemic further stretching the government’s budget resources, many underlying solid fundamentals could all pull an economic recovery along in 2022 and into 2023. Exports remain positive, the launch of the Indonesia Investment Authority (Indonesia's sovereign wealth fund) has attracted strong FDI commitments and the country’s digital ecosystem, including in financial services, remains very active with significant funding through the stock markets and fund investors being raised in 2021 to date. How to power up the country’s MSMEs and restructure those companies most deeply affected over the past 20 months will be the key challenges through the end of 2022. Financial liquidity is strong but risk appetite low; at what point will a significant flow of funding from local financial institutions begin again and add fuel to the growth opportunities?

For this year’s outlook edition, we invited Enrico Tanuwidjaja, Economist at UOB, Henry Wibowo, Executive Director at JP Morgan Securities Indonesia, Arya Setiadharma, Chief Executive Officer of PT Prasetia Dwidharma and Pang Xue Kai, cofounder and Chief Executive Officer at Tokocrypto to share their thoughts on the year ahead as Indonesia seeks to change gears and drive its economic growth back to levels at or above those seen prepandemic. As was the case last year, we conducted our round-table online, and below is an edited excerpt of the discussion.

Forbes Indonesia: The government recently announced its GDP forecast of around 5% for next year. How does this align with your own forecasts?

Enrico Tanuwidjaja (Enrico): Basically, everything relies on the vaccination rate, the higher the vaccination rate which can be reached, the better the growth that will be achieved. Indonesia is not doing that bad with 15% of the population now fully vaccinated. Unfortunately, it seems somewhat not to be Indonesia's year, but next year will be better. Looking at the dynamics for 2021, due to the PPKM, we shaved our third-quarter GDP growth to about 2.9%. That leads to our overall 2021 forecast also being cut down, from initially 3.8% to 3.5%. But next year, we are looking toward a return of a pre-pandemic growth of about 5%. This is due to the higher vaccination level allowing the country to open its economic activities more sustainably and durably. And more structural reforms could sustain even higher growth.

Henry Wibowo (Henry): For 2021, we forecast the GDP growth to be hovering around 3.8% to 4.2%. And for the GDP growth to rebound to above 5% by 2022 onwards. We're slightly below the government's forecasts, largely because of the revision post the PPKM emergency in the third quarter (July to mid-August 2021).

NEXT YEAR, WE ARE LOOKING TOWARD A RETURN OF A PRE-PANDEMIC GROWTH OF ABOUT 5%.

FI: What are the catalysts for growth?

Henry: We expect three key catalysts for 2022. Firstly, the execution of the omnibus law reform on job creation. The spotlight on the omnibus law was very big last year. Unfortunately, COVID-19 also started last year and so up until now, there's not much talk about it. But the content of the job creation bill is still very big, and I think this can help boost our FDI. At the end of the day, what is the goal of this omnibus law? It is to bring more FDI to the country and make Indonesia Asia’s next manufacturing hub. When we talk about manufacturing hubs in Asia, it's all about China. But, in the past 5-10 years, we saw some shift from China to ASEAN. So far, Thailand and Vietnam have been getting the majority of this manufacturing shift and so now Indonesia wants to be part of it. I think this omnibus law is a big part of this story on attracting more FDI. Hopefully, we can grow FDI from 2% of GDP closer to 6% – 7% in the medium term with the omnibus law.

Secondly, the booming digital economy. We see more tech listings coming and this is going to help investments come into the economy and eventually the impact will trickle down to overall consumption. Bukalapak raised $1.5 billion at a $6 billion valuation, the biggest ever IPO led by a tech company; this has opened the door for many people.

Thirdly, the sovereign wealth fund. We are still optimistic that the sovereign wealth fund will be an important catalyst for the country's infrastructure development. The state budget is challenging presently because the government is putting in more money for COVID-19 related spending. But I think if you look at the current level of commitments, it’s about, I think, $20 billion that has been secured. If we can start executing on that, for instance, investing in toll roads, investing in airports, I think that can also help boost the economy.

FI: How do you see the investment climate next year?

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