Laying the Foundations for Future Growth Acceleration?

Abstract

President Joko Widodo was inaugurated for his second term with a vision to make Indonesia a $7 trillion economy by 2045, seven times its current value. This Survey examines recent developments in Indonesia, with a focus on the challenges of laying the foundations for Jokowi’s vision. It discusses issues surrounding the new cabinet composition in relation to economic targets and asks whether the cabinet can push through the reforms needed to achieve the required rate of economic growth. While the annual growth rate has steadied at 5%, we argue that this rate will be insufficient for realising the president’s 2045 vision. A higher growth rate is needed in the next five years but will be difficult to achieve given the external and domestic challenges. The government’s plans to push for productivity improvements and promote investment in value-added manufacturing are laudable. To realise these plans, the government should invest in creating a healthy and competitive investment climate. Policies to promote such a climate should be implemented with the support of capable institutions to expedite the process.

Presiden Joko Widodo dilantik untuk masa jabatannya yang kedua dengan visi untuk menjadikan Indonesia sebuah perekonomian bernilai $7 triliun pada tahun 2045, tujuh kali lipat dari nilainya sekarang. Survei ini menelaah pembangunan terkini di Indonesia dengan fokus pada tantangan-tantangan yang ada dalam peletakan fondasi bagi visi Jokowi. Tulisan ini membahas isu-isu di sekitar komposisi kabinet baru terkait target-target ekonomi dan mengajukan pertanyaan mengenai apakah kabinet dapat secara efektif mendukung reformasi untuk mencapai tingkat pertumbuhan ekonomi yang dibutuhkan. Meskipun pertumbuhan ekonomi telah stabil di 5% per tahun, kami menganggap angka tersebut tidak cukup untuk mencapai visi presiden di tahun 2045. Tingkat pertumbuhan yang lebih tinggi dibutuhkan dalam lima tahun ke depan, meskipun sulit dicapai mengingat tantangan-tantangan eksternal dan domestik. Rencana pemerintah untuk mendorong kenaikan produktivitas dan mempromosikan investasi pada industri pengolahan dengan nilai tambah yang tinggi patut dipuji. Tapi untuk merealisasikan rencana-rencana ini, pemerintah sebaiknya berinvestasi dulu pada penciptaan iklim investasi yang sehat dan kompetitif untuk menarik investasi yang produktif. Kebijakan-kebijakan yang mempromosikan iklim yang sehat ini seharusnya diimplementasikan dengan dukungan institusi yang mampu mempercepat prosesnya.

Notes

1 The manufacturing Purchasing Managers’ Index (PMI) dropped from 51.1 in January to 40.3 in February, suggesting a sharp contraction in activity (IHS Markit 2020).

2 See data from the World Bank: https://data.worldbank.org/indicator/NY.GDP.PCAP.CD?locations=ID.

3 See https://www.bappenas.go.id/id/berita-dan-siaran-pers/untuk-menjadi-indonesia-emas-2045-indonesia-harus-tinggalkan-struktur-ekonomi-kolonial/.

4 Septian Hario Seto, special staff of maritime affairs minister, interview by authors, 17 December 2019, Jakarta.

5 Ikmal Lukman, deputy chairman for investment planning at BKPM, interview by authors, 18 December 2019, Jakarta.

6 Mari Pangestu, interview by authors, 17 December 2019, Jakarta.

7 The loss came from an operating revenue of Rp 272.9 trillion ($20 billion), which was smaller than the operating expense of Rp 308.2 trillion ($22.6 billion).

8 See https://asia.nikkei.com/Spotlight/Asia-InsightPalm-oil-Indonesia-and-Malaysia-push-back-as-EU-clamps-down.

9 For example, when Ali Wardhana, the former finance minister and coordinating minister for economic affairs (1966–88), abolished tax and fiscal incentives as part of his major taxation and broader economic reforms in the mid-1980s, domestic and foreign investment grew strongly as a result (Pangestu 1991; Hill 2000).

10 Denni Purbasari, deputy III, presidential chief of staff, interview by authors, 20 December 2019, Jakarta.