Indonesia’s 2016 Budget: Optimism Amidst Global Uncertainties

Abstract

`The Indonesian Parliament has approved the 2016 budget, which was prepared entirely by President Joko “Jokowi” Widodo’s administration.2 Concern about declining growth since the end of the commodity boom in 2011 has prompted the government to increase public spending in order to maintain growth in the coming year. The new budget sets its economic growth target at 5.3 percent in 2016, up from 4.7 percent in 2015, which was the lowest level in a decade. Given that exports and investments are expected to remain subdued due to the weak global economy, public sector spending is expected to be the main driver of growth in the short term. Jokowi has commenced the construction of several key infrastructure projects, such as the building of roads, ports, dams, and power plants, across the archipelago. Moreover, to attract investments into the country, the government has introduced a series of economic packages aimed at cutting down the costs of doing business and at improving the business climate. Amidst continued global uncertainties and the weakened domestic economy, 2016 will be a challenging year for Indonesia. Last year, public spending failed to act as a growth catalyst. This year, however, the expectation that the public sector will deliver the needed boost to the economy is higher. This essay critically examines Indonesia’s 2016 budget, and specifically discusses key components and new trends that are notable in it, as well as the key challenges faced by the Jokowi’s administration in achieving its development targets.