Four key trends and milestones to watch in Indonesia’s economy in 2019

Posted on February 18, 2019 By Mohammad Faisal

Despite some external pressures resulting from the US – China trade war, declining commodity prices and weakening demand in the global market, the outlook for the Indonesia’s economy in 2019 remains positive. After growing at approximately 5.1 percent last year, the world’s sixteenth largest economy is estimated to continue to grow at 5.1 percent this year. There are numerous things to watch in this diverse yet enduring economy with over 260 million population. Nonetheless, there are at least four key trends to watch this year:

1. Increased Consumption driven by the General Election

2019 is a special year for Indonesia as the country will hold a direct general election for the fourth time since 2004. No less than 190 Indonesian voters will directly elect their president, vice president, as well as 136 members of the National Regions House and 575 members of the House of Representatives on 17 April 2019. A total of 16 political parties will be participating in the current election year. For the presidential election, two presidential and vice presidential candidates have been registered. The incumbent President Joko Widodo and his running mate, Ma’ruf Amin, will face Prabowo Subianto and his running mate Sandiaga Uno.

This five-yearly event, widely known as “the democratic fiesta”, will boost government and private consumptions in 2019 as it did in the previous election years. The government has allocated Rp 24.8 trillion in the 2019 state budget (APBN) for the election, a sharp increase (55%) from Rp 16 trillion allocated for the 2014 general election. This will not only spur consumption at the government side, but also the private sector. For example, those involved in the contestation will spend a lot of money for campaign and advertisement. Spending for political campaign during the first three months prior to the 2014 election reached over Rp 2 trillion. Most of them were advertisement through newspapers and television. With a rapid increase in the role of social media today, it is believed that a lot more money will be spent for political campaign through social media in 2019.

2. Accomplishment of Indonesia’s First Mass Public Transportation

Infrastructure development has become the Indonesian Government’s main priority under the leadership of President Joko Widodo. There are 245 national strategic infrastructure projects to be developed throughout the period 2014-2019, with estimated total costs of 4,197 trillion Rupiah. In 2019, about 50% of the 245 infrastructure projects is expected to complete, and these include Jakarta mass rapid transit (MRT). The Jakarta MRT development commenced in 2013, and the first phase of the MRT will be ready for trial on 12 March 2019. The conclusion of the project will earmark a new era for Indonesia as it will become the first ever mass public transportation developed in the country. This mode of transportation will significantly curb high road traffic congestion in Jakarta, and thus will increase the competitiveness of Jakarta as the capital and the main business centre in Indonesia.

3. Implementation of Halal Certification

2019 will mark as the important milestone for the development of Halal business in Indonesia. Based on Law No.33/2014 on Halal Product Assurance, all consumer goods and services distributed in Indonesia will have to have a Halal certificate as of October 2018. These include food and beverages, fashion, cosmetics, tourism, etc. A special agency named Badan Penyelenggara Jaminan Produk Halal (BPJPH) or halal product assurance agency has been establish to ensure the implementation of the law with the support from Ministry of Religious Affairs and Majelis Ulama Indonesia (Indonesian Ulema Council). This regulation serves a form of consumer protection especially for muslim consumers, considering 87% of the country’s population are Muslims, and there are more and more Muslim Indonesians who are concerned about the Halal standard of the products they consume. Not less important, however, the Halal certificate will also become an assurance for quality of the products that will be beneficial for all consumers in Indonesia regardless of their religious background. As the world’s largest muslim country, Indonesia is also expected to play a larger role in Halal business in the world, considering the fast-growing demand in the world in this business segment.

4. Signing of Indonesia–Australia Comprehensive Economic Partnership Agreement

The bilateral economic cooperation between Indonesia and Australia will enter a new phase with the signing of Indonesia-Australia Comprehensive Economic Partnership Agreement (IA CEPA) that is expected to occur in 2019. IA-CEPA has been under negotiation since November 2010. The substantive discussion on IA CEPA was conducted following the visit of Australian Prime Minister, Scott Morrison to Indonesia. A memorandum of understanding (MoU) was signed in August 2018, accordingly, by the Indonesian Minister of Trade, Enggartiasto Lukita, and the Australian Minister of Trade, Tourism and Investment, Simon Birmingham.

The agreement of IA CEPA will accelerate trade and investment between the two neighbouring countries. It will not only be focusing on market access, but also open new opportunities and cooperation in services and investment, including human resource development through vocational education trainings, tertiary education, and healthcare services. IA-CEPA will also be focusing on industries such as the digital economy and e-commerce, as well as the green economy. In the area of trade in goods, IA-CEPA will allow 99% of Australia’s goods exports to enter Indonesia duty free or with significantly improved preferential arrangements by 2020, compared with 85% under the current trade agreement, the ASEAN-Australia-New Zealand Free Trade Area (AANZFTA). On the other hand, 7000 Indonesia’s goods exports will enter Australia duty free. These will include textile, herbicide, pesticide, wood products, coffee, cocoa, paper, and machinery.

Mohammad Faisal is the Director of the Center of Reform on Economics (CORE) and an alumnus of the Australia-Indonesia Leaders Program