Indonesia's gross domestic product (GDP) is projected to grow by 5.3% this year and 5.9% next year, despite a slowdown in recent years and an arduous international environment, the Organization for Economic Co-operation and Development (OECD) says in its latest survey of the country.
Strong and stable growth over the past 10 years is evident in the major improvement of living standards and poverty reduction, it said.
"Average growth between 2007 and 2012, even at the height of the financial crisis, was 6%, remarkable indeed, but it slipped to 5% last year as reforms momentum stalled." OECD secretary-general Angel Gurria said in Jakarta last week. "There is no room for complacency. To make the transition to a higher-income status, there remains a lot to be done," he added.
For a start, the OECD said, Indonesia must improve the quality of its education and to prepare its young population and future workforce with the right skills. The country has a unique window of opportunity with 43% of its 240 million population under the age of 25, and abundant human resources to boost growth, provided the workforce is equipped with the right skills.
Gurria warned Indonesia not to miss the opportunity to benefit from the young population, noting that many other countries with a similar demographic advantage missed the boat because they had failed to develop their education systems.
Indonesian Education Minister Anies Baswedan said the government was finalising a five-year education strategic plan, which includes 12 years of compulsory education, and improved access to quality teaching and learning.
The Asian Development Bank (ADB) last week expressed a similarly favourable view, forecasting 5.5% growth this year and 6% next year. It said inflation this year would be 5.5%, easing to 4% next year, helping improve the growth rate.
Edimon Ginting, the deputy country director for the ADB in Indonesia, said that higher tax revenues, better budget execution, robust private consumption and policy reforms to encourage private investment are other domestic factors would help the economy to rebound.
Both the OECD and ADB hailed a major cut in fuel subsidies as a major driver of the expected growth, with the ADB saying the reform had greatly improved the fiscal outlook and freed up significant resources for more productive purposes, including physical and social infrastructure.
"I know that it was controversial and generated a number of expressions of discontent," the OECD's Gurria said.
But the ADB said it remained to be seen if President Joko Widodo's administration, which took office in October, could keep up the reform momentum.
"A future challenge is to develop a new source of exports to restore GDP to the projected figure or above 6%, such as tourism or manufacturing sector, now that the commodity boom has faded," Ginting said.
Finance Minister Bambang Brodjonegoro acknowledged the challenge and said the government was trying to avoid relying too much on commodity exports.
"We want to reform the manufacturing sector to boost its contribution from about 22% to 30% of GDP," Brodjonegoro said.
"We need to have a strong manufacturing, steel and metal industry in order for Indonesia to become a developed country."
Groundbreaking for a new Mitsubishi manufacturing plant a 51-hectare site in eastern Jakarta last week was a hopeful sign of things to come.
The Japanese carmaker and its Indonesian partner Krama Yudha Tiga Berlian Motors will create jobs for 3,000 people at the Mitsubishi's second largest production base in the region after its Laem Chabang plant in Thailand.
The six-trillion-rupiah plant is expected to start production of multi-purpose commercial vehicles and Pajero SUVs in 2017 with annual output of 160,000 units, serving the local, Asean and wider regional markets.
"The new plant will have significant economic impact on Indonesia by creating job opportunities and providing tax revenues to support national development," Industry Minister Saleh Husin said at the groundbreaking ceremony.