Industrialization should be accelerated immediately so the Indonesian economy will continue to grow well and sustainably.
Over the last four years, our economy has succeeded in withstanding global pressures. In 2018, the economy grew 5.15 percent – higher than the 5.07 percent recorded in 2017 – even though the trade deficit swelled, which also contributed to widening the current account deficit.
Financial authorities have delivered an optimistic message that economic growth would improve in 2019 at 5.3 percent. Finance Minister Sri Mulyani Indrawati stated that the government preferred economic stability to high growth, and that fiscal prudence remained a priority.
Amidst this optimism, there is work to be done to find an immediate solution so the economy will grow according to potential. Muhammad Chatib Basri, a lecturer at the University of Indonesia economics and business school, warned that economic growth could no longer rely on fiscal and monetary policies to drive it, because it had limited room for expansion.
We agree that the country needs foreign and domestic direct investment in manufacturing. These investments should go into export-oriented sectors to create employment so as to reduce the trade deficit and strengthen the rupiah exchange rate.
The government has issued a number of policies to attract investment to the industrial sector, from a one-stop licensing system to reduced corporate income taxes, also known as a tax holiday. Until the beginning of February 2019, as many as 12 companies had received tax holidays, 11 had received new investment licenses and another for business expansion. Even so, we still need to take into account the type of investments. We need an industry with a comparative advantage so that we can produce the most competitive goods.
We are rich in materials and minerals that can be mined and processed into intermediate products or end products; the sun shines all year round and we have sufficient water for producing food and plant-based energy; the vast tropical seas are a source of food, energy and minerals that have not been optimized; and we have a large young workforce.
With our comparative advantage, the focus should be on increasing competitiveness through selected industries and improving productivity by simplifying licensure, and better coordination between the central and regional governments, as well as between state institutions, and improving labor capacity.
Simultaneously, we need to take into account the need for semi-finished goods for our domestic industry. It would be ironic if foreign investments directly helped produce goods for export, but at the same time we imported more expensive raw materials to support our domestic industries.