5 Percent Not Good Enough

KOMPAS/DWI BAYU RADIUS

Several workers of Indo Porcelain tableware factory arrange plates to be packed in Tangerang, Banten, on Monday (13/5/2019). The company produces about 1.7 million pieces of tableware per month. About 65 percent of the products are exported to North America, Europe and other Asian countries.

Economic growth in the first quarter of 2019 is still 5.07 percent year on year. Even though it is lower than the 5.18 percent in the fourth quarter of 2018, the figure is slightly better than the first quarter of 2018 at 5.01 percent. The problem is, the public hopes the growth will continue above 5.1 percent.

During the first quarter of 2019 there was a large event in the form of simultaneous elections. There was government spending on election activities. Not to mention the spending of the campaign funds from political parties or legislative candidates. As a result, those political activities contributed to increasing economic activity from 0.1 to 0.2 percent.

The government claims the slowdown in growth is due to global factors and the impact from the China-United States trade war that persists. It cannot be denied, global factors have an impact on commodity prices.

In fact, there is a positive side from the trade war, namely the potential transfer of investment flows from China to emerging market countries, especially Asia. Coupled with the relatively improving US economic conditions, at least there were no more external threats to the volatility of the rupiah exchange rate. The portfolio came in profusely.

In addition, structurally, almost 70 percent of the drivers of Indonesia\'s economic growth are from domestic potential and strength. The external sector, both through international trade and foreign investment, accounts for less than 30 percent. Indonesia\'s economic growth is dominated by household spending (56 percent) and investment (32 percent). That is, the main basis of Indonesia\'s economic strength is not dependent on market forces but rather from optimizing resource potential.

In other words, the effort to avoid traps and minimize global influences should not be too complicated. Indonesia\'s export expansion would be able to penetrate non-traditional markets if it was no longer dominated by commodity exports. The export destination does not depend solely on the demands of industrial countries, such as China, the United States, Japan and India.

KOMPAS/BAHANA PATRIA GUPTA

A worker arranges handicrafts made from plastic waste at a stand at the UMKM Exhibition in conjunction with the 160th anniversary of the city square of Sidoarjo regency, East Java, on a Tuesday in February (02/19/2019). The exhibition was held to provide space for handicraft makers to show their products and meet directly with buyers.

As a result, the export performance is determined by external factors, both in terms of price and quantity. Of course, the limitations of export destination countries also have an impact on trade restrictions or barriers to Indonesia\'s main exports.

Priority

This simple case can be a benchmark in determining economic policy focus and priorities. The key, in a concrete way, is structural transformation and focus on mobilizing productive sectors, especially sectors that are able to provide added value to potential resources, both natural resources and human resources. Government expenditure must be prioritized to stimulate productive activities. The biggest composition of business actors is the micro, small and medium enterprises (MSMEs). Moving and nourishing MSMEs is very important because it becomes a mirror and reference for large-scale investment to enter Indonesia.

However, the election activities only drove the consumer sector, including the additional social assistance for the Family Hope Program of Rp 38 trillion. Household spending grew 5.01 percent, but the increase was only seen in spending on food and beverages other than restaurants at 5.29 percent and health and education spending at 5.66 percent. While other spending slowed , such as on clothing (4.87 percent), housing and household equipment (4.64 percent), and transportation and communication (4.91 percent).

Investment activities in the first quarter of 2019 only grew 5.03 percent, down dramatically from the first quarter of 2018, which saw growth of 7.94 percent. The decline in investment performance is not solely due to the attitude of investors who took a wait and see stance because of the elections. If we look into the quarterly-2019 Business Tendency Index (ITB), the factor is clear, namely business income and business capacity dropped significantly.

KOMPAS/WISNU WIDIANTORO

Women make batik on the porch of a house in the RW 4 community unit, Larangan Selatan subdistrict, Larangan district, Tangerang, Banten, on Monday(13/5/2019). Their batik business fulfills special orders from customers.

The agricultural sector dropped dramatically, having grown 1.81 percent. The processing industry, which is predicted to be the main driver, grew 3.86 percent, helped by the food and beverage industry (6.77 percent) and the textile and apparel industry (18.96 percent). As long as the real sector is still marginalized, Indonesia will be vulnerable to being trapped by stagnant growth of 5 percent. Only the real sector is able to create added value with an equalizing effect. Without increasing national productivity, Indonesia becomes an object or import destination from free trade. Despite the high growth in the trade and service sector, it will not be able to meet the needs of employment for a country with a population of more than 265 million people.

To be able to escape the curse of 5 percent growth, the industrial sector must be able to become an accelerator. With the availability of adequate employment, the purchasing power of the community will recover. Gradually and continuously, the quality and quantity of growth will improve.

ENNY SRI HARTATI, Executive Director, Institute for Development of Economics and Finance (Indef)