Establishing New Economic Growth Centers
JAKARTA, KOMPAS — In theory, the distribution of economic activities in the regions will more evenly distribute development outcomes and economic growth.
However, in reality, much work is required to create new centers of economic growth, particularly outside Java. Improving the quality of human resources is necessary to support economic activities for all citizens. However, developing human resources will take time and will therefore not have an immediate impact.
In his state speech on Friday to present the 2020 Draft State Budget (RAPBN) to the House of Representatives (DPR), President Joko “Jokowi” Widodo said that inequality remained a problem that needed addressing. The goal was to make development more inclusive so all Indonesian people can benefit from it.
UOB Indonesia economist Enrico Tanuwidjaja told Kompas on Sunday (18/8/2019) that government efforts to spread centers of economic growth to the regions faced many problems, including regional regulations.
"In implementing the 16 economic policy packages that the government has issued, for example, some obstacles lie in asynchronous regional regulations, although establishing local regulations is determined according to the conditions in the area, due to several factors and reasons," said Enrico.
In his speech at the House plenary meeting, President Jokowi said the 2020 target for the poverty rate and the Gini ratio reflected the government’s aim of more equitable development between rural and urban areas and between Java and outside Java.
The 2020 target for the Gini ratio – an indicator of inequality – is from 0.375 to 0.380, while the poverty rate target is 8.5 percent to 9 percent. Statistics Indonesia (BPS) data shows that Indonesia\'s economic growth is still concentrated on Java. In the second quarter of 2019, Java contributed 59.11 percent of the GDP, while Maluku and Papua contributed the least at 2.17 percent each.
Enrico thus suggested that the regional investment climate, along with the quality of human resources, be improved to overcome underdevelopment.
Investment Coordinating Board (BKPM) data shows that Jakarta was the major provincial destination for domestic investment (PMDN) in the first semester of 2019, with 1,556 investment projects worth Rp 26.652 trillion. In comparison, domestic investment in Papua totaled only 36 projects worth Rp 87.2 billion. The same data shows that West Java received the largest amount foreign investment during the same period, with 5,034 worth US$3.216 billion.
The Indonesian Employers Association (Apindo) advisory board chairman, Sofjan Wanandi, said the quality of human resources should be improved by recruiting more qualified teaching staff, which would not be easy. "Improving the quality of human resources is a long-term investment and a revolutionary program," he said.
Separately, Indonesian Chamber of Commerce and Industry (Kadin) chairman Rosan Perkasa Roeslani expected that domestic consumption and investment would be maintained. One way to maintain consumption was to increase purchasing power, such as through the provision of village funds.
Indonesia is facing increasingly challenging global economic conditions in achieving its 2020 economic growth target of 5.3 percent. The reduced projection of global growth poses a risk for world trade, and could have a negative impact on Indonesian exports.
BPS data shows that Indonesia\'s balance of trade in January-July 2019 suffered a deficit of $1.89 billion, caused in part by a $4.92 billion deficit in the oil and gas industry that could not be offset by the $3.028 billion surplus in the non-oil and gas industry.
Infrastructure
The 2020 Draft State Budget is formulated into five priority development programs, one of which is accelerated infrastructure development for economic transformation.
Sofjan believes that the government needs to involve the private sector in infrastructure development projects. The government cannot rely only on state-owned companies in infrastructure development, because they have limited financial resources.
Kadin deputy chairman for construction and infrastructure Erwin Aksa hailed the plan to accelerate infrastructure development. However, the private sector was waiting for this commitment to be realized through a government-corporate partnership (KPBU) or by the private sector.
The 2020 RAPBN allocates Rp 419.2 trillion to infrastructure, up 4.9 percent from Rp 399.7 trillion estimated in the 2019 state budget. It also estimates that Rp 19.7 trillion in 11 logistics and telecommunications infrastructure projects could be developed in 2020 under the public-private partnership (PPP) scheme. Indonesian Contractors Association secretary-general Joseph Pangalila confirmed that the private sector had proposed several times for greater involvement in government infrastructure projects. (IDR/CAS/FER/NAD)