Post Pandemic Economic Vulnerability and Resilience

After overcoming tremendous pressure during the first year of the Covid-19 pandemic in 2020, a number of countries, including Indonesia, are moving toward recovery.

Using the latest data of each country, including data on policy trends in the United States and other influential regions, multilateral institutions and independent organizations with a global reputation have issued their projections on the ability of these countries to recover in 2021 and 2022.

For Indonesia, the national economy, which slumped drastically with a 2 percent contraction in 2020, is estimated to grow in the range of 4.4-4.5 percent. The reason why Indonesia is estimated to only be able to grow at this figure, while a number of countries are projected to grow much higher, has been explained with the issuance of the latest data on the condition of the Indonesian economy.

The reason why Indonesia\'s economic growth is projected to be far below the achievement of a number of Asian countries (China, India, and Vietnam), several European countries (France, United Kingdom, Spain), and some North American countries (US and Canada), however, needs a deeper explanation. A through explanation is needed if we want to look at Indonesia\'s medium and long term economic growth prospects in comparison with countries whose economies were previously equal or even below Indonesia’s.

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The use of historical and comparative data between countries is important to clear up the claim that Indonesia’s economic resilience is the second-best among G-20 countries, as emerged in early 2021. Besides that, there is also a claim that Indonesia is lucky because it is not a trading country in the global market but has a large domestic market. This claim actually makes the condition even more dangerous.

Fortunately, both claims had subsided following the issuance of the latest data by trusted institutions in April 2020, which provided different growth figures. The position of Indonesia\'s economic growth rate remained in the category of those experiencing a major contraction.

However, Indonesia\'s position has shifted quite significantly. The country with the highest growth in 2020 was Taiwan, which recorded a 3.2 percent growth. Vietnam was in the second place with a 2.9 percent growth , followed by China with a 2.3 percent growth. Next, in fourth and fifth place were South Korea and New Zealand which were included in the group of countries with negative growth, albeit at low contraction figures. South Korea and New Zealand suffered contraction of 1 percent and 1.3 percent, respectively, in 2020. The position of Indonesia was below the five countries mentioned above.

Who are we?

If we look at the historical and structural data of the Indonesian economy, in the last 30 years, Indonesia was quite different from China, Vietnam, India or South Korea. If the historical data on Indonesia\'s economic structure is used to make future projections, it will be difficult for the country to achieve sustainable high growth for a period of 20 years or more, as recorded by China, India and Vietnam in the last three decades. The difference in Indonesia\'s ability to recover in the short term compared to the four Asian countries indicates that in the long term it is not impossible for Indonesia to stagnate at the growth trap of below 5 percent per year.

The signal can be further seen through two things, namely the growth in the market share and the competitiveness of commodities and services sold to domestic and foreign markets. Without a significant progress in gaining a bigger share in the global market with value-added commodities, Indonesia will continue to rely on natural factors, such as a large domestic a market, natural wealth, and geographical position.

AFP/GOH CHAI HIN

Customers gather at a street stall in Jakarta on November 5, 2020, as Indonesia tumbles into first recession since the Asian financial crisis.

However, with such advantages, Indonesia\'s economy can grow only by a maximum of 5 percent per year, with a high risk of suffering contraction if there is another economic crisis.

With the average growth in the range of 5 percent in normal times and with the economic crisis once in 20 years, in the long term, the Indonesian economy can grow only at an average of below 5 percent per year.

The data on the continued increase in imports of consumer goods and the inability to increase its export market share to at least 1 percent of the total world market should also be used for a reflection.

With the historical data, plus comparisons with several relevant countries, it should make us aware that Indonesia is weak in the strategy and in the implementation of a long-term economic policy that is aimed at increasing the production of high value added goods, both to secure the domestic market and to increase the market share in the global market. The data on the continued increase in imports of consumer goods and the inability to increase its export market share to at least 1 percent of the total world market should also be used for a reflection.

That is the path that European and North American countries, and Asian counties such as Japan, South Korea, Taiwan, Singapore, and Hong Kong have taken. All these East Asian countries are poor in natural resources, but with high technology products, these countries can achieve a high economic growth for more than two decades.

Although Indonesia cannot be compared with China for political factors, China\'s technocratic approaches have become the best example in the last 40 years.

After the triumph of Japan and four East Asian economic powers, namely South Korea, Taiwan, Hong Kong, and Singapore, China entered the arena with a super-spectacular movement, exceeding the movement that Japan and the four East Asian economic powers had previously achieved.

The average economic growth per year in the period 1980-2020 reached 9.5 percent. Its global market share grew from 1.19 percent in 1990 to 11 percent in 2018. Currently, China is the country with the largest foreign exchange reserves in the world.

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Two countries, namely Vietnam and India that have followed China’s steps and have made the same movement , should be also used for a reflection for Indonesia. The progress of the two countries is not as spectacular as China. However, their economic growth rates are quite spectacular.

India in the period 1998-2020 achieved an average economic growth of 6.15 percent per year. In the global market, the market share of India\'s exports rose to 2.2 percent in 2018 from 0.55 percent in 1990. While from 1998 to 2020, Vietnam’s economic growth averaged 6.22 percent per year, or for the world level, Vietnam was ranked second after China. As material for a reflection, Indonesia\'s average economic growth per year 1998-2018 was only 4.18 percent.

Being left behind

If several credible institutions predict Vietnam\'s economy will grow at 7 percent in 2021, returning to the level recorded before the pandemic, and India is predicted to grow 8 percent in 2021 with the adjusted state budget, why is Indonesia\'s economy predicted to only grow around 4.5 percent? This is where we need to look at the source of Indonesia\'s economic growth structurally to compare it with China, Vietnam, and India.

Kompas

A woman wearing a protective face mask and gloves holds a placard complaining about the lack of suport for the self-employed and zero hours contract workers, on the Royal Mile in Edinburgh in Scotland on March 23, 2020, as governments scramble to defend their own economies against the coronavirus COVID-19 pandemic in order to ward off a long-term global recession and future waves of infections.

Why were the three countries, China, India, and Vietnam, whose per capita income was still far below Indonesia\'s until 1990, able to enjoy among the highest long-term economic growth in the world for three decades? The answer is none other than their success in laying the economic foundations, then building and maintaining their long-term oriented economic structure.

The high growth of the market share of India and Vietnam in the global market and the quality of their export commodities should make Indonesia aware that it has been left far behind. In the last two decades, India and Vietnam have been able to increase their global market share significantly. In 1990 India and Vietnam only contributed 0.55 percent and 0.06 percent, respectively, in the global market. Now (2018 export data), the market share of India and Vietnam in the global market has reached 2.2 percent and Vietnam 1 percent, respective.

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The growth in market share of these two countries was also accompanied by changes in the structure of export commodities from being dominated by primary commodities to industrial goods. The export value of Vietnam\'s electronic and machinery tools, for example, jumped from US$7 billion in 2010 to $132 billion in 2019.

This figure did not include exports of IT products and computers which reached $ 17.5 billion in 2019.

How about Indonesia? In addition to Indonesia\'s low export market share, which has never reached 1 percent of total world exports, Indonesia\'s exports still rely on primary commodities, such as agricultural and mining products which reduce the carrying capacity of the environment and state assets or natural resources . The exports of Indonesian machinery and electronic tools in 2019 totaled only $8.5 billion, while exports of IT products and computers were only worth $5.4 billion in 2019.

Let\'s compare it with Vietnam’s exports of machinery and electronic equipment in 2019 which reached a total of $132.2 billion and exports of computer-related machine goods which were worth $17.7 billion. While India’s exports of machinery and electronics goods, although they were still far below Vietnam’s, were far higher that Indonesia’s. India\'s export value of the two commodities, reached $21.2 billion and $14.7 billion, respectively, in 2019.

However, in addition to India\'s share of exports doubling from Vietnam\'s, India\'s export commodities have been dominated by value-added industrial goods, such as vehicles, steel products, chemical and pharmaceutical products, plus other products made by home industries such as clothing and jewelry.

Based on these the empirical data, the views that Indonesia needs to focus on the domestic market will make Indonesia fall into the long-term growth trap of below 5 percent per year. Meanwhile, to reduce the growth gap with China and to ensure that Indonesia’s per capita income is not overtaken by Vietnam, , Indonesia needs to achieve an average growth of 6 percent per year for at least two decades.

KOMPAS/TOTOK WIJAYANTO

Andrinof A Chaniago

To achieve this, a right step should be established in order to increase the contribution of the manufacturing sector to above 20 percent of gross domestic product (GDP), and to boost the production of value-added products to fill the domestic market and win the global market as have been proven by Japan, South Korea, Taiwan, China, India, and Vietnam.

Andrinof A Chaniago, Lecturer at the Department of Political Science, the School of Social and Political Sciences (FISIP), University of Indonesia.

(This article was translated by Hendarsyah Tarmizi).