Become Prosperous Before Old Age

No one expected the entire world would suffer from COVID-19. Only a few are really prepared to face the pandemic. Economically, all countries are now facing a potential slowdown or even recession.

Editor’s Note

Ahead of Indonesia’s centenary in 2045, Kompas daily holds discussions on Golden Indonesia to celebrate its 55th anniversary on 28 June 2020. This is a report on the third discussion in mid-March with the topic of economy. Panelists include University of Indonesia School of Economics and Business professor and chief of Presidential Advisory Board 2010-2014 Emil Salim; finance minister 2013-2014 M. Chatib Basri; communications and information minister 2014-2019 Rudiantara; Energy and Mineral Resources Minister 2016-2019 Ignasius Jonan; CORE Indonesia senior economist Hendri Saparini; and IPB University rector Arif Satria. The discussion report is compiled by Ninuk M. Pambudy, M. Fajar Marta, Mukhamad Kurniawan, Albertus Hendriyo Widi Ismanto and Aris Prasetyo, and published on page 13 and on kompas.id.

KOMPAS/LASTI KURNIA

Limited panel discussion Kompas 3 Series Towards Indonesia 2045 at Menara Kompas Building, Jakarta, Thursday (03/12/2020). The discussion on Creating Sustainable Growth Towards Indonesia 2045 Gold was guided by Kompas Daily Editor in Chief Ninuk Mardiana Pambudy, with speakers Muhammad Chatib Basri, Rudiantara, Emil Salim, Arif Satria, and Hendri Saparini

Finance Minister and Financial System Stabilization Committee (KSKK) chief Sri Mulyani Indrawati said that the country’s economy would only grow by 2.3 percent this year. In a worst-case scenario, a contraction into minus 0.4 percent may occur if global trade stagnates, investment drops, state revenue from taxes plummeted and household consumption that drives the economy takes a nosedive.

To prevent this from happening, the government is preparing a stimulus package worth Rp 405.1 trillion (US$24.04 billion) to help vulnerable communities and businesses, as well as to mitigate the pandemic.

Government Regulation in Lieu of Law (Perppu) No. 1/2020 eliminates the limit of budget deficit at three percent of gross domestic product until 2022.

Even without the pandemic, Indonesia’s economic growth of only around five percent has been deemed not enough to bring the nation to become a high-income one by 2045.

The COVID-19 pandemic has the potential to rob Indonesia of its limited opportunity to realize President Joko “Jokowi” Widodo’s Golden Indonesia 2045 vision of becoming an advanced and high-income nation.

Also read : Writing Indonesia in 2045

Even without the pandemic, Indonesia’s economic growth of only around five percent has been deemed not enough to bring the nation to become a high-income one by 2045. The pandemic demands faster and more focused work in attracting direct investment to fund the persistent current account deficit.

New funding sources other than banking must be sought to fund development. This may include pushing for long-term stable financial sources such as insurance, pension fund and haj savings into the financial market; and diverting people’s savings from property to the financial sector.

Also read : Designing a Strategy toward “Golden Indonesia 2045”

KOMPAS/TOTOK WIJAYANTO

Workers install external panels at a building site on Sunday (2 Feb. 2020) in Setiabudi, South Jakarta. Bank Indonesia has estimated economic growth of 5.1 percent for 2019.

Growing faster

Indonesia’s economy must grow at a higher rate of around 7-8 percent and faster as well. Currently, Indonesia enjoys a demographic bonus, where the youth population outnumbers the elderly. The demographic bonus will reach its peak on 2030-2032 and the population will start to age in 2050. If Indonesia fails to utilize its demographic bonus, the nation will get old before it gets rich.

Productive, skilled and innovative youths are the drivers of growth. Productive youths are hoped to put their savings in domestic financial instruments so that it can be a funding source to increase economic growth.

Also read : The Next 10 Years are Crucial

As a matter of fact, Indonesia has low productivity when measured using the ratio of investment to economic growth, or the Incremental Capital-Output Ratio (ICOR). For every one percent of economic growth, an investment of 6.4 percent of GDP is required. This is because Indonesia is in the middle of massive physical infrastructure development, of which the results can only be enjoyed in 10-15 years.

With an economic growth target of six percent, an investment of around 40 percent of GDP is required. With Indonesia’s savings currently at 34 percent of GDP, six percent of additional investment is required.

Another chronic problem is the welfare gap between western and eastern Indonesia, between Java-Sumatra and other islands, between cities and villages, between professions and between genders. Data shows that the higher a region’s per capita income is, the wider the prosperity gap is.

At the same time, Indonesia also suffers from severe environmental damage, especially in Java.

Also read : Policy Changes Hamper Efforts to Become Advanced Country

Kompas/Heru Sri Kumoro

People wade through floodwaters on Jl. Daan Mogot in West Jakarta, Wednesday (1/1/2020). Heavy rains caused flooding through Jakarta and its surrounding areas, paralyzing traffic on Jl. Daan Mogot as well as other roads and flooding homes.

New economy

For sustainable and inclusive growth, Indonesia requires an institution that guarantees consistent and transparent long-term policies.

Democracy can serve as a foundation for everyone to get equal opportunity to do business, so long as the institution of democracy is free of corruption, collusion and nepotism.

To attract direct investment, Indonesia must be able to resolve issues in center-regional relationship and nurture a political system that prevents people from acting for the short term when the political cost of running in regional and legislative elections is so high.

Economic structure must also change from relying on natural resources to an industrialized one that increases added value in mostly-pristine land and marine natural resources. Things are similar in energy resources, which will still be dominated by fossil energy up to 2045. None of this is new but, unfortunately, Indonesia has lacked consistency, especially after the 1998 Asian financial crisis.

Nevertheless, hope remains to achieve prosperity by mastery of technology. Biotechnology and the internet has create a new economy with high added value. Indonesia’s tropical climate and biodiversity are materials for genetic research. Indonesia has several examples of internet use for a more inclusive economy through digital finance and e-trade.

Rich countries are successful in creating added values that nurture prosperity. Countries still reliant on natural resources, especially through mining, will be left behind.

Facing rapid global shifts, Indonesia must be able to create its own development model that is independent, in line with characters of the country’s people and nature and accommodative towards diversity across regions.