Quality Growth

With a growth performance of about 5 percent, of course, we are worried that our nation will enter the bigger trap of the middle-income trap. The nation\'s greatest task is to develop its people.

KOMPAS/LUCKY PRANSISKA

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An article titled Don’t Cry for Indonesia. It’s No Argentina written by a Bloomberg journalist and published on May 9, 2018 reassures readers about the Indonesian economy. The weakening of the rupiah, which recently dropped below Rp 14,000 per US dollar, was due more to the strengthening of the US dollar rather than declining confidence in the domestic market.

In other words, even if there was a domestic factor, the external situation had a greater impact on the dynamics of the financial market. The outflow of foreign funds led to a decline in the Jakarta Composite Index (JCI) to below 6,000. However, the situation has slowly returned to normal.

Compared to other currencies, the rupiah depreciation has been relatively small. By the end of last week, the rupiah had weakened by 3.9 percent from early in the year, while the Indian rupee had already fallen by about 19 percent, the Chinese yuan by 27 percent and the Argentine peso by 36 percent.

Argentina’s economy is in trouble. The country has requested a US$30 billion credit line from the International Monetary Fund (IMF). Perhaps, the current situation Argentina is facing resembles the situation in Indonesia in 1998, when the country was hit by the worst ever financial crisis. Today, the Indonesian economy is stronger than it was 20 years ago, and even compared to the current situation in Argentina.

Although our economy is generally solid, there are still concerns in the domestic market. First, the recent terror attacks indicate that latent terrorist threats still exist in this country.

Second, the weakening of the rupiah exchange rate could also be due to the first-quarter economic performance, which was below the government\'s target of 5.2 percent and the market consensus of 5.18 percent for the period. In fact, growth in the first quarter of 2018 was only 5.06 percent, or lower than the 5.19 percent growth recorded in the fourth quarter of 2017. With this achievement, it seems that it would be difficult to achieve the government’s 2018 growth target of 5.4 percent.

Admittedly, the first-quarter performance was disappointing. However, there is still good news. First, although first-quarter growth was below expectations, it was the highest in the last three years. Growth in the first quarter was only 5.01 percent in 2017, 4.94 percent in 2016 and 4.83 in 2015. Second, investment continues to increase at an annual growth rate of 7.95 percent. If investments can be increased further, economic growth will be more solid, and if the investments can be directed toward boosting export-oriented industries, the problems related to the trade balance deficit can be resolved.

KOMPAS/TOTOK WIJAYANTO

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The Economist magazine (May 12, 2018 edition) published a number of articles on Indonesia that generally hailed the efforts President Joko “Jokowi” Widodo has made in transforming the economy. Twenty years after the crisis, the Indonesian economy can no longer be underestimated on the global stage. First, the government has committed to massive infrastructure development by diverting state funds allocated for fuel subsidies. Second, it has made debureaucratization efforts to speed up the investment licensing process. Because of his policies, President Jokowi is regarded as one of the world leaders who have succeeded in improving the national condition, both politically and economically. “Do not underestimate Jokowi” is the straightforward message of The Economist.

However, the problems underlying our economy are not simple. Today, we face the two major challenges of turmoil in the financial sector in the short term and the "5 percent growth trap" in the long term.

President Jokowi must lay a good foundation to solve these two major problems, even though he has only a year left in his current term. If he is unable to convince voters next year, then the 2019 elections will be filled with uncertainty and have a great impact on the economy.

With a growth performance of about 5 percent, of course, we are worried that our nation will enter the bigger trap of the middle-income trap. President Jokowi is determined that after the series of massive physical infrastructure development projects, he will invest more in human resources.

The nation\'s greatest task is to develop its people. Unfortunately, the results of human development (if the direction is right) will only be felt several decades later, or even during the next generation. Therefore, in addition to convincing voters that human development is headed in the right direction, the relevant bureaucracy must alo have a long-term vision.

So far, about 92 million people have received Indonesian Health Cards and 19 million people have received the Indonesian Smart Cards, in addition to assistance allocated to 10 million other poor people. With the direct assistance, it is expected that liquidity will flow directly to the lowest level of society and can act as a safety net. The goal is to improve not only the quality of life for the recipients, but also the people’s purchasing power at a macro level.

Even if investments in human resources quality do not have an impact on the seasonal cycle, it is important to ensure that transmission is headed in the right direction in the long run.

Therefore, the great agenda of Jokowi\'s government is to consolidate the ministries and state institutions that are directly tasked with human development under the Coordinating Minister for Human Development and Culture.

Kompas

A Prasetyantoko

The most important preliminary agenda is to synergize the strategic direction, work programs and budgetary allocations at each ministry to sustain the target of inclusive development. Admittedly, this is no easy task and requires high competence and consistency, because the impact will not be instantaneous. Perhaps, the first thing President Jokowi must do is to dismantle the working programs of these ministries. Compared to the state institutions related to economics, these ministries have never been given proper attention, even though their contribution is important in achieving quality growth.

A Prasetyantoko, Economist at Atma Jaya Catholic University, Jakarta