The Quality of Growth

KOMPAS/HENDRA A SETYAWAN

A. Prasetyantoko

Amid moderate economic growth, the number of poor people and inequality has declined. No wonder many people doubt the numbers. Some have even accused them as being a trick ahead of the 2019 elections.  We can always lie with statistics. However, what does this actually mean?

The Central Statistics Agency (BPS) said in March 2018 that the number of the poor people had decreased to about 25 million people, 9.82 percent of the total population. In the same period, inequality also narrowed as reflected in the decline in the Gini ratio to 0.389.

Finance Minister Sri Mulyani Indrawati called it as the best achievement in history. In the era of President Soeharto, the lowest poverty rate was 11 percent, while in the era of President Susilo Bambang Yudhoyono it was 14 percent. In fact, in 1999, the poverty rate soared to 24 percent due to the financial crisis. Now, in the era of President Joko “Jokowi” Widodo, the poverty rate has been reduced to a single digit or below 10 percent.

Regardless of the debate that has emerged, there is actually an important message that has come out, namely that the quality of growth is not necessarily associated with the growth rate.  High growth is not always followed by quality improvement, while moderate growth can be maximized in overcoming poverty and inequality if the policy orientation taken by the government is in the right direction.

One of the factors that contributed to the decline in the number of the poor people is the implementation of a fiscal policy through the allocation of direct funds in various forms. The program is often accused of being populist policy to reap the votes in the 2019 elections. Don’t be naïve. Everywhere, fiscal policy always contains a political element. It becomes a problem when the dose is excessive, especially if it is manipulated for political purposes only.

The principle that we must keep is that fiscal policy is an instrument to improve the quality of growth. Therefore, there should be control to ensure that our fiscal condition is sufficient to sustain growth, to distribute economic resources, as well as to cope with external shocks.

Challenge

In addition to the moderate growth rate, our economy is also overshadowed by the global stability, which has become increasingly difficult to predict. Late last week, the rupiah exchange rate fell to Rp 14,520 per US dollar, the lowest level this year.

The potential for turmoil is mounting with the escalation of the trade war between the United States and China. Trade wars also spread to the European region and certainly affect the global economy. The exchange rate war is also inevitable given that each country wants to secure its own domestic interests.

With this challenging global environment and the moderate growth outlook, the focus on improving the quality of growth must be sustained. First, high food prices will hamper the acceleration of the reduction of the poverty. As shown in the BPS’ statement, the contribution of food commodities to the poverty line is much greater than non-food factors, such as housing, clothing, education and health.

In March 2018, the contribution of food commodities to the poverty line was 73.48 percent, higher than the figure recorded in September 2017. Addressing the availability of food and maintaining the price stability are keys to overcoming poverty.

Second, the allocation of direct funds in poverty alleviation, especially in rural areas, should be increased. In 2018, the allocation of village funds in the state budget reached Rp 60 trillion and in 2019, the amount is expected to increase to  Rp 85 trillion. The success of the village funds can be measured with the decline in the number of poor people in the rural areas.

Based on BPS data, during  the past six months, the number of poor people in rural areas  dropped from 16.31 million people to 15.81 million people, while in urban areas fell from 10.27 million people to 10.14 million people. The distribution of the village funds is expected to accelerate the eradication of the poor people in the rural areas.

Directing the development through fiscal policy in improving the quality of growth should be maintained, not just in facing the political momentum. However, it must become "development paradigm" that must be consistently carried out. If this policy can be implemented in the next five years, it is expected it can create a new and promising economic environment.

If globally, the liquidity will become a challenge, it is different with the supply of technology. The abundant innovation of technology will lead to an increase in the supply of technology to developing countries. The question is:  How can we take advantage of this technological abundance as a driver of domestic economic productivity amid the global liquidity tightening and future uncertainty?

With the abundant technology, their adaptation and absorption need to be accelerated especially on economic activities in regions. One of the keys is to increase the capacity massively so that the absorption can be carried out maximally.  The financial inclusion, the development of micro, small and medium industries, as well as the increase of the domestic economic productivity are an ecosystem that needs to be strengthened with the introduction of technological and economic factors.

As already unveiled, the fiscal allocation next year will be still focused on the development of physical infrastructure, education and health. Education will play a key role because it is oriented toward the improvement of the capacity of the people. The problem is that the long educational process is sometimes unable to deliver concrete and short-term results. For that, it requires a stronger encouragement so that innovation in the field of education, especially those related to vocational education, can be continued.

A. Prasetyantoko, Lecturer at Atma Jaya University, Indonesia