Indonesia Relies on Spending as Investment Drops

KOMPAS/PRIYOMBODO

An aerial photograph Jakarta from the Senayan area, Tuesday (5/11/2019). Based on data from Statistics Indonesia (BPS), Indonesia\'s economic growth in the third quarter of 2019 grew 5.02 percent compared to the corresponding period in 2018. Meanwhile, the pace of investment growth slowed from 6.96 percent in third quarter in 2018 to 4.21 percent in the third quarter in 2019.

Indonesia needs to introduce a new strategy to attract foreign investment, which began to decline in the third quarter. Without extra effort, the country will be unable to compete with other countries.

JAKARTA, KOMPAS— Household spending remains the main driving force of Indonesia\'s economic growth. In the third quarter, 2019, consumer spending grew 5.1 percent on year-on-year (yoy), up from 5 percent in the same quarter, last year.

On the contrary, investment, expected to become a new source of economic growth, has instead showed a downward trend. In the third quarter, this year, investment grew only by 4.21 percent yoy, far lower than 6.96 percent in the same quarter, last year.

In the third quarter, 2019, Indonesia\'s gross domestic product (GDP) reached Rp 4.06 quadrillion. The Indonesian economy grew 5.02 percent yoy in the third quarter. Household spending accounted for 2.69 percent, investment 1.38 percent and other components 0.95 percent.

The growth rate in the third quarter was the lowest since the third quarter of 2017. In the third quarter of 2017, GDP growth stood at 5.06 percent, while in the same period in 2018, it was 5.17 percent. Economic growth in the third quarter was also the lowest in 2019.

Thus, Indonesia\'s economic growth as of September 2019 amounted to 5.04 percent.

In the first quarter, the economy grew 5.07 percent and in the second quarter grew 5.05 percent on an annual basis. Thus, Indonesia\'s economic growth as of September 2019 amounted to 5.04 percent.

The rector of the University of Indonesia, Jakarta, Ari Kuncoro said the decline in investment growth in the third quarter, which was lower than the previous year, had led to fears of recession in the United States.

However, according to Ari, investment could increase in the fourth quarter, in line with global economic conditions that had begun to show signs of recovery in line with growing optimism that the trade war between the United State and China will finally end.

KOMPAS/WAWAN H PRABOWO

Loading and unloading activities at the Jakarta International Container Terminal, Tanjung Priok, Jakarta, Tuesday (5/11/2019)

The government, Ari said, needs to make a number of breakthroughs to attract large investment by optimizing the role of the Office of the Coordinating Maritime Affairs and Investment Ministry and Foreign Ministry. In addition, without a clear strategy, investors will instead go to Vietnam.

"The strategy in promoting investment prospects is no longer enough. We need to treat investments like traveling or tours, i.e. [potential investors] should be taken to their destination (investment site), and [we should] use door-to-door approaches such as sales marketing," he said, in Jakarta Tuesday.

Separately, the rector of Atma Jaya Catholic University, Jakarta, Agustinus Prasetyantoko, said it would be difficult to achieve the economic growth target of 5.2 percent this year. According to him, the government needs to reduce its economic growth target.

KOMPAS/SHARON PATRICIA

Rector of Atma Jaya Catholic University, Jakarta, Agustinus Prasetyantoko.

Prasetyantoko added that household spending remained the largest contributor to economic growth. To increase household spending, ministries or other government agencies should be encouraged to increase spending.

Potential growth in the fourth quarter should be optimized by increased government spending. "Government spending, which usually peaks in the fourth quarter, is expected to be able to revive economic growth," he said.

On the other hand, investment that is oriented toward the domestic market must be increased. The chairman of the Indonesian Chamber of Commerce and Industry (Kadin), Rosan Perkasa Roeslani, said that slowing world economic growth would have an impact on Indonesia\'s economy.

Another suggestion was to increase domestic spending, which plays a large role in the economy.

He added that Kadin had suggested that the government take advantage of the situation to improve the country’s manufacturing sector as part of the global value chain. Another suggestion was to increase domestic spending, which plays a large role in the economy.

The chairman of the Indonesian Employers\' Association for Industry, Johnny Darmawan, said efforts to increase the contribution of the industrial sector to the economy were being intensified. "Increasing the added value is quite important. Crude Palm Oil (CPO) and nickel, for example, should not be directly exported, but should be first processed in one, two more stages so that it will have higher added value,” Johnny said.

Research, Technology and Higher Education Minister Bambang Brodjonegoro said the contribution of the manufacturing sector, which remained below 20 percent of GDP, must be monitored. "The theory of premature deindustrialization is true when numbers are unstable or rising and continue to fall. Since the 1998 crisis until today, we have never succeeded in reviving the role of the manufacturing sector in development," he said.

KOMPAS/RADITYA HELABUMI

Research, Technology and Higher Education Minister Bambang Brodjonegoro

Data from Statistics Indonesia (BPS) show that based on business fields, the manufacturing industry accounted for 19.62 percent of GDP in the third quarter.

At a press conference in Jakarta on Tuesday, the head of BPS, Suhariyanto, said that some industries showed healthy growth in the third quarter although some others were weakening. Industries that grew strongly include food and beverage, which was supported by an increase in palm oil production in line with domestic spending. Conversely, the coal industry had weakened due to the weak demand from foreign buyers.

Unemployment

In the midst of slowing economic growth, Indonesia is faced with the problem of low quality working population and job creation.

Based on BPS data, the working population in Indonesia reached 133.56 million as of August 2019. Of this number, 126.51 million of them are employed, while 7.05 million are unemployed.

This can be interpreted that the job openings are still limited," the executive director of the Center for Reform on Economics Indonesia, M. Faisal said on Tuesday.

In percentage terms, the open unemployment rate was 5.28 percent as of August 2019, a slight decline from 5.34 percent in the same month, last year. However, in term of the number, the unemployment increased by 50,000 people during the period.

"This can be interpreted that the job openings are still limited," the executive director of the Center for Reform on Economics Indonesia, M. Faisal said on Tuesday.

According to Suhariyanto, the structure of employment in August 2019 was changing. The number of workers in the agricultural sector decreased by 1.12 million people or 1.45 percent. They moved to the industrial and service sectors.

KOMPAS/KARINA ISNA IRAWAN

Head of the Macro Study of the Institute of Economic and Community Research at the University of Indonesia, Febrio Kacaribu

While the head of the Macro Study of the Institute of Economic and Community Research at the University of Indonesia, Febrio Kacaribu, believes that improving the quality of human resources and improving labor regulations is a necessity. Referring to BPS data, as many as 50.18 million people or 39.66 percent of the working population were only elementary school graduates. (LKT / MED / CAS / KRN)