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The Road to a $7 Trillion Economy

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The Road to a $7 Trillion Economy   

 

As he entered his second term in October 2019, Indonesian President Joko Widodo has big plans for the largest economy in Southeast Asia comprising more than 300 ethnic groups. The leader of the world’s fourth most populated country outlined an ambitious footprint in hopes of creating a $7 trillion economy by 2045. The Indonesian economy is growing at its slowest pace since 2016, with GDP (Gross Domestic Product) aimed to grow by a mere 4.9% and 4.7% in 2019 and 2020 respectively. Like other economies in the region, the bleak outlook is mainly attributed to decreased commodity prices which have since taken a toll on the economy.  Despite the slower growth, Moody Investor Services saw no need for any changes in Indonesia’s credit rating. More notably, Moody upgraded the country’s rating to that of Baa2 back in 2018 due to the credible framework put in place to support macroeconomic conditions. August 2019 saw the President proposing to shift the present capital of Jakarta to a less dense city of Kalimantan. The rationale behind the reason of such a shift came about as Jakarta is currently battling the issue of rising sea levels, with the city possibly being submerged by 2050. The past ten years saw the capital city constantly battling with floods, taking away the lives and homes of numerous Indonesians. As a result, a US$33 billion plan has been set aside to shift the capital city to the island it shares with Brunei and Malaysia. However, with Kalimantan seeing the arrival of up to 1.5 million new residents, this in turn raises concern if the state of its sprawling forests will be at risks.

November 2019 saw President’s Widodo shifting his attention towards the technological arena. With the aim of reducing the country’s dependence on natural resources, the leader has plans to remove two ranks of civil servants in the coming year. These roles will then be replaced with machine-learning algorithms. More recently, the first week of December saw the announcement of President Widodo ticking off another item on his to-do list. His strong emphasis on the country’s infrastructure saw the government pumping in US$40 billion dedicated to the expansion of rail network. Further details revealed the government’s goal of constructing 230km of over the next 10 years.   The completion of this project will allow Indonesia to rival neighbouring countries such as Singapore and Hong Kong, who currently boast a world-class transport system. The government’s plan to build six additional lines surprised analysts given that it opened its first line partially this year. While Indonesia is currently on the lookout for financiers to assist in supporting the project, analysts have had mixed responses. This is because President Widodo’s transformation efforts to date have brought about adverse effects financially. The hefty sum as a result of the construction of power plants, ports and dams collectively put a strain on the country’s financial situation. Having arrived at a final agreement with his South Korean counterpart, hopes that President Widodo will bring the country to scale new heights remain high as the country experiences its greatest transformation to date.

 

 

By Caroline Wong 

 

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Caroline Wong

Caroline Wong is a Research Analyst at KOSEC – Kodari Securities. She writes on markets and focuses on ASX Top 300 companies. Email Caroline at c.wong@kosec.com.au.

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