Indonesia struggles to fire up its economy

(July 20): Indonesia is at an impasse with the central bank and the government running out of policy space to fire up the economy.

After six interest rate cuts last year, gross domestic product is growing at about 5% -- a respectable pace, but not enough to generate the additional revenue that President Joko Widodo needs for his ambitious spending plans and to meet his 7% target. With the budget deficit nearing the mandated ceiling of 3% of GDP and the US gradually tightening monetary policy, Indonesian authorities are finding reduced room to add extra stimulus.

At the current pace of expansion, “they’re just stuck somewhere and they don’t know how to drive it,” said Charu Chanana, an economist with Forecast Pte Ltd. in Singapore.

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