JAKARTA -- Indonesia's government announced Monday a new growth target of 5.8% in 2015, up 0.7 percentage point from last year. President Joko Widodo counts on infrastructure projects, which will be funded through a fuel subsidy reduction and other reforms, to lift the economy and boost consumer spending.
Jakarta on Jan. 1 slashed fuel subsidies to ease its fiscal burden. For diesel, it has introduced a capped subsidy, with retail prices to be adjusted monthly. Meanwhile, regular gasoline will carry an official price of 7,600 rupiah (61 cents) a liter in January even after the end of the subsidy, down from 8,500 rupiah in December, thanks to a decline in oil prices.
Finance Minister Bambang Brodjonegoro said last Wednesday that subsidy costs would be reduced from 276 trillion rupiah to 60 trillion rupiah in fiscal 2015's revised budget. It will be possible to bring the budget deficit ratio down to below 2% against GDP through the subsidy cut, he added.
Fiscal reforms mean the state will secure around 230 trillion rupiah in funds, Brodjonegoro said Monday. Of those funds, 50% will be used for infrastructure projects such as power plants, toll roads, airports and agricultural facilities. Around 13%, or around 30 trillion rupiah, will be invested in state-owned companies. The remaining 37% will finance subsidies for Indonesia's poorest to boost consumer spending.
"There is no doubt or pessimism that our economy will grow faster if we can implement our planned programs earlier this year," Jokowi said Friday, the first day of trading for the Indonesia Stock Exchange. "This will boost and trigger our economic growth."
Fauzi Ichsan, chief economist at Standard Chartered Bank, told Nikkei Asian Review that Widodo's government is expected to face "micro problems" as reform programs are implemented. Bureaucracy and legal uncertainty might hinder and discourage momentum, he said.
Indonesia University economist Anton Gunawan said that economic growth of 7% by 2017 is easy to achieve if the government can push reforms through.