Jakarta – Investors who are counting on Indonesian President Joko "Jokowi" Widodo unleashing a wave of economic reforms in his second term may be sorely disappointed.
"Vested political interests and fiscal realities will constrain Jokowi's ability" to deliver on reforms, such as boosting infrastructure spending, Sung Eun Jung, an economist at Oxford Economics Ltd in Singapore, wrote in a report released yesterday.
Jokowi's election win has lifted investor sentiment about the economy's outlook, with S&P Global Ratings delivering an unexpected upgrade recently.
The president has pledged to pursue tougher reforms as the burden of elections no longer weigh him down, including spending billions of dollars on building power plants and airports to spur economic growth.
Jokowi's ambitious infrastructure agenda in his first term has already resulted in wider external and fiscal deficits, rattling investors and weighing on the nation's currency, Sung said.
"We expect that the president will continue to push ahead with his investment drive and increase the budget for human development," the Oxford economist said.
"However, strict regulations with regard to investment and the labour market, together with limited fiscal resources, constrain the positive impact of these plans on medium- to long-term growth."
Jokowi has ordered his ministers to focus on steps to tackle the high current-account deficit that has weighed on the nation's currency, and ease rules hindering new investment while working on a US$412bil (RM1.7 trillion) infrastructure plan to better connect the archipelago.
Oxford Economics expects Indonesia's annual growth to ease to 5% within the next decade from about 5.5% in the past 10 years with capital accumulation slowing to 5.9% from 6.2%, Sung wrote in the report. – Bloomberg