Knitting Economic Growth
The Indonesian economy faces challenges that are not easy and are increasingly complex. In the future, the growth trend of the national economy tends to decline and even stagnate. After the 2008 global economic crisis, the Indonesian economy could still grow above 5.5 percent, with an average growth of 6.1 percent in the 2010-2013 period. However, over the past five years (2014-2018), Indonesia\'s economic growth was around 5 percent due to pressure from a weak global economy.
Therefore, the nation\'s biggest task is to get out of the 5 percent economic growth trap. What do we have to do to not get caught in middle-income trap, despite our big demographic bonuses? How can we reduce the Incremental Capital Output Ratio (ICOR) so that it is more efficient and increase labor productivity?
There is no need for us to be pessimistic, mourn and complain about seeing Indonesia\'s economic economy. Also, when the national economy wants to grow fast, it is always hampered by a swelling current account deficit. In the end, economic growth is "forced" to be braced by an increase in Bank Indonesia’s (BI) benchmark interest rate (BI7DRR) in order to maintain the stability of the rupiah.
The Indonesian economy, which is always supported by primary commodities (coal and oil palm) needs to be transformed immediately. Its abundant economic potential and demographic bonuses must be optimized. Indonesia\'s economic growth must not decline before reaching a golden point.
Growth acceleration
Indonesia even has to accelerate growth when the global economy slows down. Indonesia needs a model of growth and economic development that can absorb 1.8 million new workers into the workforce per year to prevent social problems from arising.
In a record, the Indonesian economy once triumphed by growing 10.9 percent in 1968, then 9.9 percent in 1980. Before the economic and monetary crisis in 1997/1998, Indonesia\'s economic growth was relatively high, namely 7.5 percent to 8.2 percent in the 1994-1996 period.
Looking at this history, we should be optimistic and be able to achieve a much higher and more promising economic growth. However, it must be acknowledged that global economic conditions over the last 10 years have not been as positive as in previous decades. The Indonesian economy should be flexible and adaptive in the face of the dynamics and uncertainty of global challenges in this era.
This means encouraging far higher economic growth is not a rare thing that cannot be realized. The potential to fix Indonesia\'s economy is still wide open, so that Indonesia\'s prediction of becoming the world\'s fourth-largest country by 2030, according to Standard Chartered Plc, will not be a fantasy.
The current government is trying to turn things around and its positive effects and signals are starting to be visible. It must be realized, but we will not see this positive impact massively and significantly in the short term because of the myriad of problems facing this nation.
The most important thing is that the direction of improvement is correct and accurate, even though it is not perfect. With the existing conditions, all parties need to be aware that all the problems obstructing Indonesia\'s economic growth cannot be completed in five to 10 years without drawbacks.
At present the direction of Indonesia\'s development has increasingly been correct and directed, and consistently strengthens economic and sustainable fundamentals. Indonesia\'s economic growth has begun to crawl up since 2016 with a better quality of growth, as reflected in the continuous decline of unemployment and disparity rates.
Indonesia\'s economic growth has passed its lowest point of 2015, namely 4.88 percent. It then rose slightly to 5.03 percent in 2016 and continued in 2017 and 2018, respectively increasing by 5.07 and 5.17 percent. This achievement must be seen clearly and needs to be appreciated because at the same time, world economic growth remains stagnant and is even slowing down. The global economy (especially developed countries) is starting to become entangled with issues related to population structure, where the productive age is relatively limited, and countries have to bear the heavy burden of an aging population and decreasing productivity level.
Indonesia\'s opportunity to escape from its current economic growth and accelerate is quite large. It can be done by encouraging more and bigger investments into the domestic economy, while continuously maintaining and encouraging household spending and controlling inflation to maintain the people’s purchasing power, especially among low-income communities.
Looking at the history of the national economy, Indonesia has experienced excellent investment growth, in addition to household spending. In the 2010-2012 period, investment growth was at 8.5 percent to 9.1 percent. Unfortunately, in 2013-2016, it fell to 4-5 percent. Growth started to show an increasing trend in 2017 and 2018 with a growth of 6.2 and 6.7 percent, respectively.
To achieve economic growth above 6 percent, Indonesia needs an investment growth of around 10 percent. This means that it needs an investment growth of about one and a half times the investment in 2018, which was recorded at 6.7 percent.
The visit of Saudi Arabia\'s King Salman bin Abdulaziz al-Saud to Indonesia in 2017 clearly shows how tight the competition is to bring investors to the domestic economy. King Salman\'s investment in Indonesia was only US$6 billion, one tenth of its investment in China, which was $65 billion.
Foreign investors are the key
Inviting investors to go to Indonesia is not an easy matter. Other countries are also competing to seek investment support for their economy. Various steps are made by the government to attract investors to invest in Indonesia.
The key is how far Indonesia\'s infrastructure can attract investors’ interest and increasingly open the Pandora’s Box of high economic potential in Indonesia.
Based on data, Indonesia\'s competitiveness is still not ready for action compared to other countries. Indonesia\'s infrastructure coverage is below the world average, namely 70 percent. According to a Prospera study, Indonesia\'s infrastructure coverage is only 42 percent, while the World Bank’s calculations put it even lower at 38 percent. Furthermore, in terms of infrastructure quality, according to the Global Competitiveness Report, Indonesia is ranked 52nd in the world. Indonesia is still below Thailand (43), Malaysia (22) and Singapore (2).
Based on World Bank research (2017), it is very clear that the inadequate supply of infrastructure is the fourth-biggest obstacle to doing business in Indonesia. Other main obstacles are corruption, government bureaucracy and financing access.
As a result, according to the World Bank, the ease of doing business in Indonesia last year was below that of neighboring countries. Indonesia is ranked 73rd, behind Vietnam (69), Brunei Darussalam (55), Thailand (27) and Malaysia (15).
The government is fully aware of this condition and responds to it with future-oriented strategies and policies. Therefore, the acceleration of infrastructure financing has been intensified. During the 2015-2019 period, total infrastructure financing rose significantly more than two and a half times to Rp 1.820 quadrillion, compared to Rp 679 trillion in the 2010-2014 period.
The government’s main attention is not only given to infrastructure. Three other basic elements, which are no less important and inseparable, are improving the quality of human resources, improving technology and institutional support.
Ideally, the availability of infrastructure would strengthen the national logistics system and the availability of energy. Indonesia’s growth center will be out of date if it continues to focus on Java because it should move the economic potential outside Java.
Then, improving the quality of human resources is done by providing equal distribution of educational services to the public, accompanied by an increase in the quality, relevance and competitiveness of education.
Institutional support is necessary to improve business convenience, governance and bureaucracy. The last is technology improvement. This is aimed at strengthening research and development, increasing human resources with high expertise and utilizing digital technology.
The four basic elements above are not easy to implement and certainly have many challenges. So, the key is that we have to be optimistic and keep up the spirit so we have extra energy as a prosperous and sovereign Indonesian nation. We have begun reforming these four basic elements. We must maintain this momentum, unite and work together at all levels – government, BI, OJK, LPS, banking, state-owned enterprises (BUMN), village-owned enterprises (BUMD), businessmen, and the people – toward a better Indonesia.
Indonesia must make a comprehensive breakthrough in every sector of the economy. The initiation has been carried out by the government of Joko “Jokowi” Widodo and Jusuf Kalla, from infrastructure development in Java and outside Java to the reduction of regulations and permits that prevent the investment climate from being attractive and healthier.
Continuing the good policies and fixing those that are still lacking certainly requires extra energy. It requires a sincere heart, a burning spirit and unity.
The breakthrough of new economic thinking must be enthroned in this country so that it has an impact on the Indonesian people. It will be a big mistake to put fresh wine in an old bag. This wine will leak because the bag is worn and breakable.
Anton Hendranata, Economist of PT Bank Rakyat Indonesia Tbk