JAKARTA -- Indonesia's economic growth has been tepid over the past couple of years despite sound economic fundamentals, and there is no reason why it should not be booming, HSBC Indonesia President Director Sumit Dutta said in an interview. He is confident things could pick up going forward, however.
"In the short term, confidence in the domestic economy, in my view, is yet to ramp up," Dutta said. "The macroeconomic side is as good as they can get. Inflation is 3-3.5%, the rupiah has been stable, there are lots of reserves, interest rates have come down to single digits. What is not to like? But for whatever reason, domestic consumption is still slow."
Weak household spending, which accounts for about 60% of the economy, resulted in first-quarter gross domestic product figures coming in below expectations. The economy grew an inflation-adjusted 5.06% in the January-March quarter from the same period a year earlier.
Tepid economic growth has weighed on the country's banking sector. Credit growth remains modest at 8.54% on year in March. In 2014, the growth rate was over 15%.
"President [Joko Widodo] has made it clear he expects banks to help credit growth, I think all banks are keen to support credit growth," Dutta said. "There is no logical reason as to why Indonesia isn't booming. It absolutely should be booming. Demand for lending should be through the roof, but it is not."
He said political factors may be affecting sentiment.
"There is something in the environment, some kind of nervousness. Maybe some people are thinking about the elections coming up ... they are not yet committing in full to growth."
Local elections are scheduled to be held across the country in June, including those for Indonesia's four most populous provinces. General elections are scheduled for April 2019.
But Dutta said such cautious sentiments could "change very fast," especially since economic conditions are good. All it could take for greater clarity in the path ahead is a catalyst such as the closure of a major infrastructure project, he said.
The government of President Joko Widodo's is also taking steps to make the country attractive to business, vowing to reform the bureaucracy amid fierce competition from neighboring countries such as Thailand and Vietnam.
Since the president took office in 2014, Indonesia has jumped in the World Bank's Ease of Doing Business ranking to 72nd in 2018, from 120th in 2014. The government aims to improve that to 40th.
"I do think what this country has is a very responsive government, which is genuinely looking at long-term gain, not just short term," Dutta said. "By spending so much on infrastructure, the benefits of which will only be felt 10-15 years from now, I think it is demonstrative of the government looking at a better Indonesia for the future. This is exactly the right vision we want to see in countries we want to invest in."