2017年-世界发展银行全球_Indonesia_Economic_Quarterly_December_2017___Decentralization_that_Delivers_75页_3mb

Summary of Indonesia Economic Quarterly - December 2017

Core Content

The Indonesia Economic Quarterly (IEQ) for December 2017 provides an overview of the country's economic performance in the third quarter of 2017 and discusses the role of decentralization in improving local service delivery. The report highlights both the macroeconomic developments and the policy implications of decentralization, emphasizing the need for better governance and fiscal management.

Main Points

Economic and Fiscal Update

• Global Economic Conditions: Continued to be supportive, with a broad-based cyclical recovery observed. Global trade and industrial production expanded at the fastest rate since 2011, and the global composite PMI showed strong expansionary trends.

• Economic Growth in Q3: Real GDP growth modestly increased from 5.0% yoy in Q2 to 5.1% yoy in Q3, driven by strong investment and export growth, as well as a rebound in government consumption. The drag from inventory destocking was offset by these factors.

• Investment Growth: Reached its highest rate in over 4 years, supported by lower financing costs, a better business environment, and increased public capital investment. FDI also recorded its largest net inflow in over seven years.

• Export Growth: Surged in Q3, with raw and processed commodities, especially coal and palm oil, contributing significantly. Exports of textiles, clothing, footwear, and electrics also saw strong growth. The goods trade surplus widened, contributing to a narrowing current account deficit.

• Inflation: Headline inflation eased to 3.8% yoy in Q3, with food and non-food prices remaining benign. The effect of administered price hikes began to wane, and the central bank cut its policy rate twice in August and September.

• Current Account Deficit: Narrowed to 1.7% of GDP from 1.9% in Q2, largely due to the trade surplus and improved export momentum. However, the country's fiscal deficit remained at 2.7% of GDP in 2017, with a projected 2.2% in 2018.

• Fiscal Management: Improved revenue collection supported central government spending, and the 2018 budget reflects a commitment to fiscal responsibility with a lower deficit target. However, the budget still includes a continuation of energy subsidies and social spending.

• Economic Outlook: Remains favorable for 2017 and 2018, with GDP growth expected to rise to 5.1% in 2017 and 5.3% in 2018. Risks include slower private consumption growth and potential volatility in global financial markets, especially due to U.S. monetary policy normalization.

Focus Topic: Decentralization That Delivers

• Decentralization Impact: Indonesia has undergone significant decentralization over the past 15 years, granting more powers to local governments. This has led to general improvement in service access, but disparities persist, and service quality remains low.

• Local Service Delivery: While access to basic services has improved, the quality of services is still poor. Simply increasing local spending may not improve service delivery if the spending is inefficient or poorly managed.

• Policy Recommendations:

  1. Implement good practices for evaluating local government performance.
  2. Embed results-orientation into intergovernmental fiscal transfers.
  3. Use transparent and comparative performance data to stimulate citizen engagement.

• Role of the Central Government: The central government can influence local performance through fiscal transfers, performance evaluations, and promoting accountability. The report emphasizes the importance of good governance and citizen participation in enhancing local service delivery.

Key Information

• Key Economic Indicators:

  • Real GDP growth: 5.0% in 2016, 5.1% in 2017, and projected at 5.3% in 2018.
  • Consumer price inflation: 3.5% in 2016, 3.8% in 2017, and expected to remain at 3.5% in 2018.
  • Current account balance: -1.8% of GDP in 2016, -1.6% in 2017, and projected at -1.8% in 2018.
  • Fiscal deficit: -2.5% of GDP in 2016, -2.7% in 2017, and projected at -2.2% in 2018.

• Important Acronyms:

  • BI: Bank Indonesia
  • BPS: Badan Pusat Statistik
  • CPI: Consumer Price Index
  • FDI: Foreign Direct Investment
  • GDP: Gross Domestic Product
  • GFCF: Gross Fixed Capital Formation
  • BOP: Balance of Payment
  • DID: Dana Insentif Daerah
  • SAKIP: Sistem Akuntabilitas Kinerja Institusi Pemerintah
  • EKPPD: Evaluasi Kinerja Penyelenggaraan Pemerintah Daerah

• Key Risks:

  • Slower private consumption growth.
  • Sharp declines in commodity prices, especially coal, could weaken the terms-of-trade and government revenues.
  • Volatility in global financial markets due to U.S. monetary policy normalization.

Conclusion

The report underscores the importance of decentralization in improving local service delivery, but also highlights the need for effective governance, transparent fiscal management, and citizen engagement to ensure that decentralization leads to tangible improvements in public services. While the economic outlook remains positive, the country must remain vigilant against potential risks that could undermine growth and fiscal stability.