Opportunities for Indonesia to Rise 2025
.
This year, we commemorated the 72nd year of Indonesian independence. However, Indonesia has thus far been classified as a country with primarily lower-middle income levels.The question is, has there been signs for an Indonesian economic revival in 2025? Will Indonesia be able to get out of the lower-middle income trap (LMIT)?
The World Bank announced in its July 2017 Data Blog a new classification of countries into four groups based on gross national income (GNI) per capita. The first group comprises countries of low incomes with a GNI below US$1,005; the second group, lower-middle income countries with a GNI of $1,005-$3,955; the third, upper-middle income countries with $3,956-$12,235GNI; and the fourth, high-income countries of a GNI above $12,235.
Indonesia’s per capita GNI in 2016 reached $3,400. On the exchange rate assumption of Rp 13,600 per US dollar in 2016, the average per capita annual income of Indonesian people was Rp 46.24 million, while average monthly incomes reached only Rp 3.85 million, slightly above Jakarta’s2016 minimum wage of Rp 3.1 million. Under the new World Bank classification, Indonesia still remains in the group of lower-income countries. The country’s classification has not changed since 1985. Will Indonesia be able to get out of the LMIT?
In order to become an advanced country with GNI above $12,235 per capita per year, Indonesia has to take the strategy of shifting into higher gear (SIHG),like when driving a car. From the era of president Susilo Bambang Yudhoyono (2004) to incumbent Joko "Jokowi" Widodo (2017), the Indonesian economy grew only from 4.6 percent to a maximum 6.5 percent. Various analyses and projections show that if this economic growth record is sustained, Indonesia will remain a lower-middle income country. In order to become an advanced country, growth must be boosted to at least 7 percent per year.
Four breakthroughs
Will the growth rate of 7 percent be achievable? Of course, a number of breakthroughs are needed to realize a growth rate that high. Indonesia needs at least four breakthroughs to escape the LMIT: boosting superior sectors/products, accelerating development in rural/disadvantaged regions, improving the quality of human resources, and aggressively attracting investment and people. I call this a quadruple strategy with sectoral, spatial, human resources and financing approaches.
Indeed, the government still uses the sectoral approach in preparing the State Budget and the national plan that is included in the National Medium-Term Development Plan (RPJMN). However, the priority has to now focus on boosting superior sectors and products that have an important role in creating added values, absorbing labor, supporting the national competitive advantage, and producing foreign exchange.
The main performance indicators that have been jointly approved for each ministry and region need to be disclosed and implemented consistently. Cross-ministerial coordination and relations between the central and regional governments need to be improved and intensified. In practice, sectoral and regional egotism is still evident, so that many programs and funds that overlap, are unfocused, or "charitable", do not reach the root of the problems.
The spatial approach needs to be applied seriously and given priority. The Indonesian economic structure as of the first quarter of 2017 is still dominated spatially by a group of provinces and regencies/cities in Java and Sumatera, respectively contributing to Indonesia\'s gross domestic product (GDP) by 58 percent and 22 percent.The Eastern Indonesian Region (KTI), as outlying areas, contributes the rest of about 20 percent. In short, the unbalanced pattern of development still continues, reflecting the strength of the center (Java-Sumatera) as the gravitational focus of development and leaving behind outlying areas (KTI and villages), according to Mudrajad Kuncoro (Membangun dari Pinggiran [Developing from the Outskirts], Kompas, 9/2/2015).
The decline of the poverty rate in Indonesia is not significant because poverty alleviation programs are distributed through several ministries and offices without coordination.Ironically, surveys show that poverty pockets in each regency/city are poorly addressed by these anti-poverty programs. This pattern is called spaceless, or that it does not pay attention to the actual location where the poor are present.
Disadvantaged regions in Indonesia are stamped as outlying regions for several reasons. The locations of disadvantaged regions or villages are usually in provincial/state border areas, difficult to reach because of the lack of road infrastructure, ports, airports, and even economically isolated. As a result, the people experience relatively low welfare. Therefore, the development of disadvantaged regencies and villages needs to be prioritized and accelerated. There are still 122 disadvantaged regencies and 20,168 disadvantage villages.
People-centered development needs to be prioritized more seriously. The people-centered development paradigm is different from production-centered development, which considers human resources as objects or a production factor. A people-centered development focuses its attention on marginalized groups that have not enjoyed "freedom", including poor families, the unemployed, and micro businesses. This development approach requires addressing at the very least the aspects of: capacity, equity, empowerment, sustainability and interdependence.
In other words, development efforts targeting human resources need the creation of an environment – political, economic and cultural –that encourages the emergence of creative and productive people. Improving the quality of human resources along these lines and across strata and regions needs to be boosted.
The smaller gap among community groups in regions will realize inclusive development. The economic development of villages, including transmigration sites, needs to be integrated with the development of cities and be encouraged by interlinking villages and cities as well as KTI and the western regions.
It is time for the Jokowi government to continue the positive aspects of the Master Plan for Acceleration and Expansion of Indonesia\'s Economic Development (MP3EI) of the previous government and, at the same time, draw up a roadmap on how to integrate the superior program of Nawacity (sovereignty in food, in energy and electricity, in maritime and marine affairs and in tourism as well as industry) with regional development in villages, cities and regions.
The financing approach is essentially how to attract investment and people more aggressively to entire regions across Indonesia. Many regional administrations complain that their low fiscal capacity is caused by the fact that the Regional Budget depends on transfers from the central government, in general allocation funds or revenue-sharing funds.Changes in this way of thinking must be made in that regional financing cannot be dependent on State Budget funds. Regions and ministries need to be more creative in attracting investment, domestically or from overseas. Proactive strategies to attract people to tourist destinations and disadvantaged regions need to be carried out through joint promotion and marketing campaigns, tourism packages, and other breakthroughs.
Towards a rising Indonesia
The RPJMN 2015-2019 outlines that development is not for central institutions and groups only, but for the entireIndonesian people. Therefore, development must be able to minimize existing gaps, among both revenue groups and regions, with the priority in rural areas (because most poor people live in villages) and outlying areas, the majority of which is located in KTI.
On the 72nd anniversary of the birth of the Republic of Indonesia, we need to rethink whether we have been truly free. Being free is not limited to freedom from colonialism, but also includes being free of backwardness, poverty, stupidity and LMIT.
MUDRAJAD KUNCORO
Professor of Economic Sciences at FEB-UGM
