Despite weaker economic growth for 2014, Indonesian economy is forecasted to start recovering in the fourth quarter of this year, and to rebound to 5.7% growth in 2015. At the same time, inflation will increase temporarily as a result of government decision to increase fuel price last week.

In terms of external sector, current account deficit is forecasted to narrow but not as fast as previously expected owing to weaker exports and soft global commodity prices. Private investment is seen improving in the near future.

These are the highlights from Indonesian economic outlook presented by Deputy Country Director of ADB, Dr. Edimon Gintin, and ADB’s economist Priasto Aji, at the Brown Bag Seminar and Forum Kajian Pembangunan organized by the Center for Economics and Development Studies (CEDS), and Ph.D Program in Applied Economics, Universitas Padjadjaran in Bandung.

Dr. Ginting is quite optimistic about the future Indonesian economy noting that Indonesia is actually the most attractive country in Southeast Asia for foreign investors. If the planned reforms in various areas are well implemented, the growth target of Jokowi’s government (of 7% per year) is feasible.

Meanwhile, Mr. Priasto Aji highlighted the urgency of inclusive economic growth to tackle the rising inequality in the country. Public finance theory suggests that government expenditure is the effective instrument to tackle inequality through progressive budget. However, fiscal space in Indonesia left to finance social spending is quite low. Out of 18.7% of GDP, the fiscal space to be spent for social spending is only a tiny fraction of 4.8%. The government’s decision to increase fuel price is a good step toward improving the fiscal space to tackle the inequality that has been already creating a growing social concern in the country.

Forum Kajian Pembangunan is a consortium consisting of various institutions in Indonesia, in collaboration with the Indonesia Project, holds a series of research based policy forums discussing research outcomes related to topical policy issues in Indonesia. Institutions in the consortium take turns on a monthly basis to host the forums. CEDS, Universitas Padjadjaran is the host of this month (November) series of this forum organizing four seminars with a wide range of relevant issues.