Upbeat on Indonesia's economy

I remain optimistic about Indonesia's economic outlook. As Finance Minister, I push my team round the clock to ensure they are on top of their game. We owe it to the people of Indonesia to deliver prudent economic management and present a credible budget.

President Joko Widodo constantly reminds the Cabinet to have our eyes on the ball. Despite the impending political year, the reform momentum must and will continue. Coordination among ministries, as well as between national and local governments, must be strengthened. Synergies between the public sector, state-owned enterprises and the private sector must be bolstered.

Despite the global economic and geopolitical volatility, Indonesia's economy continues to expand, chalking up around 5 per cent growth in the second quarter. The positive growth outlook is driven by consumption, investments and recovery in exports.

All the necessary factors to support robust consumption are there: solid new job growth, increase in real wages, low and stable inflation at around 4 per cent - including stable food prices, strong consumer confidence and a low interest rate - and a stable exchange rate. We hope this conducive environment will support purchasing power, and consumption growth can be maintained at around 5 per cent going forward. One thing to note, consumption patterns, especially with our millennials now in the workforce, have changed.

Investments have really been picking up, driven by foreign and domestic direct investments as well as infrastructure investments. The government is introducing key reforms to create a more conducive investment climate and invite more private capital to bolster our inclusive growth. Total direct investments - domestic and foreign - in the first half of the year have been strong, and reached 336.7 trillion rupiah (S$30 billion). This is an increase of almost 13 per cent from last year's performance.

The economic environment in the United States, Europe and Asia has been more positive. The commodity market has also shown improvement. This explains our improved exports compared with last year, and that is an encouraging sign as it provides a third engine of growth beyond consumption and investments. This also means that our growth is less reliant on government spending.

Under the leadership of President Jokowi, the economic team and the monetary authority coordinate closely to nudge the economy into a virtuous cycle. With much improved coordination through the Financial System Stability Committee - consisting of the Finance Minister, governor of Bank Indonesia, chairman of the Financial Services Authority and chairman of the Indonesia Deposit Insurance Corporation - the Indonesian financial system is in a stable and healthy shape after experiencing commodity shock.

I should emphasise that the government is really pushing hard to invest in the future by closing our infrastructure and human capital gap. As is visible around the country, Indonesia is undergoing an infrastructure revolution. As far as the eyes can see, people in construction hats are working tirelessly to meet their deadlines. In fact, we are spending more on infrastructure than on personnel and recurrent spending. We will further boost private sector participation in infrastructure development and create positive synergies with state-owned enterprises. These investments will make our economy even more competitive going forward.

Addressing Indonesia's human capital gap is also a priority. The budget allocates a large portion to education, health, basic services and social spending. These human capital investments will translate into a potent workforce that will be ready for the jobs of tomorrow and will drive inclusive growth.

It is encouraging that Indonesia has been getting a steady stream of international accolades. Earlier this year, Standard & Poor's lifted Indonesia's credit rating to investment grade. The United Nations Conference on Trade and Development recognised Indonesia as the fourth-most attractive destination for investment. Our country's standing in the World Bank's Ease of Doing Business index has improved significantly.

Recently, Indonesia also stood out in the World Economic Forum's Global Competitiveness Report - our ranking improved by five places. Furthermore, the OECD's recent Gallup poll indicates that 80 per cent of Indonesians have confidence in their national government - the highest confidence level among all the countries surveyed.

The government will work hard to maintain the momentum. As Finance Minister, I have the fiscal instruments in my arsenal to help improve the economic environment. We are advancing our tax reform programme and strengthening global taxation cooperation to expand our tax base and increase government revenue. We are also focusing on strategic spending to reduce the infrastructure gap and improve the quality of our human capital. Furthermore, we are increasing efficiency and strengthening accountability of our budget and continuing our fight against corruption. But I should insert a caveat that there are two things the Finance Minister does not control: tomorrow's weather and the global economic environment.

We are closely following the external dynamics - in economics and geopolitics. There are multiple downside risks that we need to constantly watch out for. If protectionist rhetoric in major economies translates into policies, that might not bode well for the global outlook. We are also following the policy direction of major monetary systems, such as the US Federal Reserve and the euro zone. In the Group of 20 forum, we extensively discuss the global condition - risks and challenges - and try to find the best way to address them collaboratively and effectively.

East Asia's geopolitical developments demand serious attention. This region has been an oasis of stability for many decades and an engine of global growth. Regional stability and the economy are mutually supporting. Any escalation of the North Korean crisis and threat to regional security could potentially reverberate economically. All of us, Indonesia included, will pay the price. May cooler heads prevail so this region maintains its vibrancy.

For the variables within our control, I can confidently say that the reform efforts initiated by President Joko will continue. A thriving Indonesia is good for the region.

A version of this article appeared in the print edition of The Straits Times on October 14, 2017, with the headline 'Upbeat on Indonesia's economy'. Print Edition | Subscribe