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Economy

Optimism grows that 2016 will bring turnaround

JAKARTA -- Indonesia's economic growth slowed for a fifth consecutive year in 2015. But now, as public spending picks up and the central bank changes focus, anticipation is rising that the downtrend will reverse itself this year.

     Real gross domestic product rose 4.79% in 2015, the statistics agency reported Friday. Annual growth decelerated to its lowest level since the country began using a new calculation method in 2010. Per-capita GDP declined more than 4% to $3,377.

     This Southeast Asian country of 250 million is said to need stable economic growth north of 6% to absorb its expanding labor pool. It managed to post 6%-plus growth in real GDP from 2010 to 2013, thanks to high resource prices. But growth has since faltered, with falling external demand for commodities and rising domestic inflation due to a weaker rupiah starting to take a bite. Jakarta missed its 2015 growth target of 5.8% by roughly 1 percentage point.

     Weaker exports, which consist largely of coal, palm oil and other primary products, have been a major culprit. Indonesian exports decreased 1.97% on the year in 2015. A softening rupiah that hit its lowest level in 17 years also hurt the economy by stoking inflation.

Brighter picture

But Finance Minister Bambang Brodjonegoro is confident that the economy will perform better this year -- a sentiment shared by other leading figures in both government and business.

     Behind their optimism lies a turnaround in public spending. President Joko Widodo came to power in October 2014, promising to boost infrastructure development. Government spending on public works finally started picking up in mid-2015. Public spending thus increased 5.38% last year, up sharply from just 1.16% in 2014.

     Real GDP expanded 5.04% on the year in the October-December period, beating market expectations and recording a second straight quarter of improving growth. The economy is well-positioned to meet the government's target of 5.3% growth in 2016, according to Suryamin, head of the statistics agency.

     As if to reflect growing optimism over an economic recovery, the rupiah has strengthened even after the Jan. 14 terrorist attacks in Jakarta. Despite being an oil producer, Indonesia is a net importer of petroleum, meaning that lower oil prices are also good news.

     The central bank cut its policy rate for the first time in 11 months this January. With high-ranking officials hinting at a willingness to lower interest rates further if needed, the bank appears to have shifted from defending the rupiah to stimulating growth. This, too, bodes well for the economy.

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