Promoting Fair and Sustainable Growth

Kompas/HANDINING

.

In early February 2018, the Central Statistics Agency (BPS) announced that Indonesia\'s economic growth reached 5.07 percent in 2017, higher than 5.03 percent in 2016. It was stated that the economy continued to grow during the first three years of the Joko Widodo-Jusuf Kalla (Jokowi-Kalla) government.

The BPS is optimistic that economic growth in 2018 will be higher than in 2017. The government and a number of other parties have expressed similar optimism.

Although economic growth is on an upward trend, a number of circles actually say that the growth rate is not optimal (Kompas, 7/2/2018), with some even saying that the Jokowi-Kalla government had failed to guide the national economy toward a better direction.

The economy’s performance during the Jokowi-Kalla era is considered to be much lower and worse than in the Susilo Bambang Yudhoyono-Boediono era (2009-2014). During the first three years of the SBY-Boediono government, growth reached 6.1 percent (2010), 6.17 percent (2011) and 6.03 percent (2012).

Is it true that the economy’s performance under Jokowi-Kalla is much worse? The answer is, no! Although growth was higher in the SBY-Boediono era in terms of magnitude, but growth under Jokowi-Kalla is much better in terms of quality. Why?

Fair growth

According to Lako’s study (2018) on the impact of development on public welfare during 2000-2017, economic growth during the SBY-Boediono era was higher than during the Jokowi-Kalla era. However, if we look at during the growth trends in 2010-2017, real economic growth began to decline between 2012 and 2015: from 6.17 percent in 2011 to 6.03 percent in 2012, to 5.56 percent in 2013, to 5.01 percent in 2014, and to 4.88 percent in 2015.

Thus, the lower growth in 2015-2017 is not really due to the poor performance of the Jokowi-Kalla government, but to the continued decline in global economic growth, which lasted until 2016.

My conclusion that the quality of economic growth under Jokowi-Kalla is better than under SBY-Boediono is based on the results of development on poverty reduction, unemployment and social inequality. The analysis shows that in the first three years of the SBY-Boediono government, economic growth of more than 6 percent managed to reduce the number of poor people from 32.53 million (2009) to 28.59 million (2012).

Economic growth also managed to reduce the number of unemployed people from 8.32 million (2010) to 7.44 million (2012). In the Jokowi-Kalla era, the number of poor people dropped from 28.51 million (2015) to 26.58 million (2017), while the number of unemployed people fell from 7.561 million (2015) to 7.005 million (2017). From that comparison, it appears the impact of economic growth on the poverty and unemployment rate under SBY-Boediono is better than under Jokowi-Kalla.

However, with regard to social inequality, there is a significant difference. In the first three years of the SBY-Boediono administration, the economic growth of more than 6 percent was followed by an increase in the Gini ratio from 0.367 (2009) to 0.413 (2012). At the end of the SBY-Boediono administration, the Gini ratio had reached its highest level of 0.414.

An opposite trend appeared under Jokowi-Kalla. From 2015 to 2017, the Gini ratio continued to decline from 0.403 (2015) to 0.391 (2017). From this comparison, it appears that the higher economic growth during the SBY-Boediono era actually spurred social inequality, rising from low inequality to moderate inequality; while in the Jokowi-Kalla era, inequality fell back to low inequality.

Another positive indication of the success of development under Jokowi-Kalla is seen in the narrowing inequality. The BPS report shows that the total wealth controlled by the richest 20 percent of the population rose from 45.57 percent (2010) to 48.27 percent (2014), while in the Jokowi-Kalla era, this figure dropped from 48.1 percent (2015) to 45.55 percent (2017).

In contrast, the dominance of the middle 40 percent under SBY-Boediono declined from 36.48 percent (2010) to 34.6 percent (2014), while it increased under Jokowi-Kalla from 34.5 percent (2015) to 37.21 percent (2017). The same trend occurred in the lower 40 percent (poor). In 2010, this group controlled 18.05 percent of the nation’s wealth, but the figure decreased to 17.12 percent in 2014, while it rose to 17.22 percent in 2017.

Based on the description, it can be concluded that economic growth in the Jokowi-Kalla era has better quality and led to fairer growth compared to the SBY-Boediono era.

Sustainable and fair

Despite the upward growth trend, poverty, social inequality and interregional inequality ns remain a serious problem for the country. In 2017, the number of poor people remained large at 26.58 million, the majority of who are located in Java (52.34 percent). In terms of social inequality, the Gini ratio of 0.391 (2017) was actually still wide and must be reduced to prevent radicalism. Although the national Gini ratio is decreasing, the number is increasing in several provinces such as Yogyakara, South Sulawesi and East Java.

Then, what is the solution? The solution is that the Jokowi-Kalla government needs to continue with its "fair and sustainable development" program and spur equitable economic growth. In order to significantly reduce poverty, social inequality and interregional inequality, economic growth should increase to between 5.3 percent and 5.6 percent in 2018 and 2019.

The potential to achieve this growth target is there, because the country’s economy is large and conducive.

In an effort to drive fair economic growth, the government needs to expand and accelerate its infrastructure development projects in areas with high levels of inequality and poverty.

The government also needs to spur real investment and strengthen the development of micro, small and medium enterprises (MSMEs) to strengthen the people\'s economy.

These three efforts are very important because they are interrelated and have a broad impact on decreasing poverty, unemployment and inequality and on improving public welfare. With regard to infrastructure development, empirical evidence indicates that the increase in spending on infrastructure development in the 2015-2017 state budget has not only brought a positive impact on economic growth in almost all parts of Indonesia, but has also reduced poverty and unemployment while positively impacting social and interregional inequality.

By 2017, the Gini ratio had dropped in 26 provinces. The success of the infrastructure development policy has also had a positive impact in improving regional and interregional economic activities, in increasing corporate investment in the real sector and improving the performances of MSMEs.

These positive impacts in turn improved equitable economic growth in 2015-2017. In addition to the above three efforts, I hope the Jokowi-Kalla government will continue to improve good governance in economic development and environmentally friendly businesses. The goal, in addition to minimizing greed, is to enhance corporate social and environmental responsibility while promoting fair and environmentally friendly economic growth.

Andreas Lako, Professor of Green Accounting; Head of Environmental Sciences Doctoral Program at Soegijapranata University, Semarang