Optimism, in many ways, should be maintained. Based on the existing economic indicators, Indonesia has reasons to be optimistic.
By
DEWI INDRIASTUTI
·3 minutes read
Optimism, in many ways, should be maintained. Based on the existing economic indicators, Indonesia has reasons to be optimistic. Such an economic rationale is even needed to support the country’s structural reforms.
The macro indicators include economic growth of 5.03 percent as of September 2017, with a low inflation rate of 3.3 percent and foreign exchange reserves of US$125.96 billion as of November 2017.
However, optimism alone is not enough to enter 2018, which is known will be a year of politics. Moreover, the rapidly growing digital industry will see unprepared companies left behind.
The confidence of business players will also determine the trajectory of the Indonesian economy next year. Without confidence and belief in the state of the economy, business activities will not be optimal, as the factors considered when deciding corporate actions will be more complex.
Calculations must be accurate and there should be no missteps. One factor that can boost business confidence is consistency and realization of government policy. One of the simplest examples is the Economic Policy Package introduced by the government at the end of 2015. To date, not all policies and deregulations in the Policy Package I-XVI have been realized.
Those that have been realized include the visa-free visitation policy, which has had an impact on the rise in tourist arrivals to Indonesia. While those that remain unrealized include cuts to the procedures required for the issuance of business permits.
The central government has actually issued a number of regulations to shorten the licensing process, but such initiatives are not supported by local administrations. Inefficient bureaucracy makes economic activities slow and costly. Indonesia’s ranking in the World Bank’s 2018 Ease of Doing Business index rose to 72nd position of 190 countries from 109th position in the 2017 report. However, the data shows that the biggest problems for ease of doing business in Indonesia are corruption, inefficient government bureaucracy and limited access to finance.
These problems must be resolved if Indonesia wants investors to enter Indonesia. However, it is not impossible to lure foreign investments given the fact the country has been given investment grade by major rating agencies namely Fitch, Moody\'s and Standard & Poor\'s. In terms of competitiveness, Indonesia is now considered more competitive than before. Indonesia’s ranking in the World Economic Forum’s 2017-2018 Competitiveness Index climbed to 36th position of 137 countries. Although Indonesia has not yet entered the top 20, the country is considered to be competitive in terms of macroeconomic ecosystems and market size.
However, Indonesia still needs to improve the efficiency of its labor market and technology readiness. The increase in economic growth, and the improvement of other economic indicators should deliver benefits for the state of the entire society. However, the number of unemployed citizens remains high, reaching 7.04 million as of August 2017 and the gini ratio, which measures inequality, sits at 0.393 as of March 2017, only a slight improvement from 0.397 in March 2016.
Inequality is not only experienced in Indonesia. Inequality throughout the world has drawn the concern of Nobel Economics laureates, such as Joseph E Stiglitz, Eric Stark Maskin and Angus Deaton, and needs to be controlled. Next year, there is no other way but to increase the confidence of the business players and to use the development outcomes for the welfare of the people.