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JAKARTA: Indonesia’s economy expanded at its slowest pace for five years in 2014, official data showed, hit by political uncertainty and weak exports, putting pressure on the country’s new president to deliver much-needed reforms.
Southeast Asia’s biggest economy expanded 5.0 percent year-on-year, the statistics agency said, down from 5.8 percent in 2013, and the weakest pace since 2009, at the height of the global financial crisis.
The figures “help to underline the challenge facing the country’s new president, Joko Widodo, who despite a promising first few months in office faces a tough challenge,” said Gareth Leather, Asia economist from Capital Economics.
Widodo, who won office partly on a pledge to revive the slowing economy, has promised to woo investors by cutting red tape and ploughing money into overhauling the country’s ageing infrastructure.
He has already slashed crippling fuel subsidies that have in the past gobbled up 20 percent of the state budget, promising to divert the money toward boosting the economy and helping the country’s poorest.
While his early moves have been praised, analysts warn that he faces a tough time to push through more reforms in a country plagued by corruption, where protectionist instincts are still strong and parliament is dominated by the opposition.
“Anything that requires legislation is going to be more difficult,” said independent political analyst Paul Rowland.
Indonesia’s economy, long a bright spot among the Group of 20, has been slowing in recent years as the price of its key commodity exports are hit by weakening demand in regional powerhouse China and other major markets.
With exports subdued, there were also worries about a stubborn current account deficit and the impact of high interest rates put in place to shore up the rupiah, which has tumbled against the dollar in expectation of tighter US monetary policy.
The economy was also dragged down by a long-running election season, which lasted six months and led many firms to hold off investment until a successor was known.
But investors have taken heart from the victory of Widodo, a reformist and former businessman.
His other early reforms have included the launch this month of a national “one-stop service” to simplify obtaining business permits.
Previously, firms often had to seek licenses from numerous different agencies and ministries before they could invest, a complex and time-consuming process.
Wellian Wiranto, an economist from OCBC Bank in Singapore, said the 2014 growth figure looked like “quite a deceleration” compared to previous years and it would be hard for Indonesia to reach rates of above six percent this year.
But he was positive about future prospects.
“From fiscal rationalization, involving bold subsidy cuts to infrastructure build-up, as well as measures to pull in more (foreign direct investment), these take time to bear fruit but will ultimately put the economy on a more even keel,” he said.
Before Thursday’s data, the statistics agency had updated its base year for GDP calculations from 2000 to 2010, which they said could lead to a small difference in the final figure.