Rocky Path to 2045
The path to 2045 may not be smooth. However, as the saying goes, difficult roads usually lead to beautiful destinations. Keep going.
Will Indonesia be a developed country in 2045? We must get ready, as the path to 2045 might not be smooth.
There are two reasons for raising the question, "Will Indonesia become a developed country in 2045?" First, there is political will to turn Indonesia into a developed country when this country reaches one century old (Golden Indonesia Vision 2045). However, as we know, not many developing countries have succeeded in becoming developed countries, even when they have enjoyed independence for more than 100 years.
For example, look at several countries in Latin America. Brazil and Mexico are still in the middle-income category. Only a few developing countries have become part of the "club" of developed countries. South Korea is an exception. The country has recorded extraordinary achievements.
Second, there is academic consensus on how difficult it is to make the transition to a developed country. Referring to several articles (Pruchnik and Zowczak, 2017; Basri and Putri, 2016), the main challenge is how to escape the so-called the middle-income trap. To qualify as a developed country, Indonesia's gross domestic product (GDP) per capita must be above US$15,000 (in terms of purchasing power parity).
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According to a moderate scenario created by LAB 45 based on growth in the “new normal”, Indonesia's annual economic growth must average 5.19 percent. If this can be achieved, Indonesia's GDP per capita is projected to reach US$15,000 in 2047. Without a sustainable growth rate, it is hard to imagine that Indonesia will ever be able to escape the middle-income trap.
It is also difficult to imagine achieving this growth target if we rely only on domestic sources of funding. Average investment of around Rp 700 trillion is needed every year. This does not take into account the challenges in noneconomic parameters, such as the viability of the political regime, the credibility of economic institutions and the quality of human resources.
Geopolitical and geoeconomic risks
Can political will and academic consensus accompany Indonesia along the way? Of course, it is still a big puzzle.
Apart from this conundrum, it must also be realized that the transition into a developed country does not exist in a geopolitical and geoeconomic vacuum. Several studies show that geopolitical risks (the use of the instrument of war between countries) and geoeconomic risks (the use of the instrument of sanctions in political competition) are expected to increase in the coming years. This will, of course, affect global economic growth, including global capital flows.
The latest outlook reports from several international institutions, such as the World Economic Forum (WEF) and the International Monetary Fund (IMF), point to increasing geopolitical and geoeconomic risks in the coming years. The ongoing war between Russia and Ukraine has left traces of pain. Ironically, the traces of this pain are visible in the increased prices of the main food and energy commodities in developing countries, especially those in Asia and Africa, such as in Egypt, Pakistan and Sri Lanka.
The basic reason for this increased risk suggests one thing: a picture of a world that is increasingly connected (globalization), though the idea of global connectivity is in fact accompanied by increasingly fragmented political interests. Physical infrastructure that is getting better and more integrated does not guarantee stronger, globally shared values at the international level. However, there is no "way home" from globalization.
The norms of various international institutions, both in their principles and rules of the game, show that they are powerless to overcome various crises. It seems that various international institutions are no longer effective in overcoming various interconnected crises, which Adam Tooze and the WEF call a polycrisis.
The link between one crisis and another is very real. The term F3 for finance, food and fuel, for example, clearly shows this. Climate change and food security are also interrelated. Interrelated issues (interlocking issues) occur, but international regimes that emerge in handling these interrelated issues tend to be in isolation (silos) from one another.
Amidst this situation, the hegemonic power of the United States seems to be dissipating and China is emerging as a new power. There is concern at the discourse level that future competition will be between the new powers (revisionists) vis-a-vis the old powers (status quoists). This contest will surely influence Indonesia greatly in the coming years. There are many examples that show this contest has been and is ongoing.
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China and the US, for example, seem to put forward a bilateral mechanism to resolve their economic issues. The World Trade Organization (WTO) seems to have a role when there is a dispute between developing countries and developed countries. However, this institution is "silent" as regards the various unilateral behaviors carried out through the mechanism of economic sanctions.
In the war between Russia and Ukraine, the IMF was also unable to do much when Russia was cut off from making payments and transactions through the SWIFT facility (a global, cross-border financial facility).
Even though it is still dominant, the dehegemonization of the US dollar has also continued, in which the use of the US dollar as the currency for international transactions continues to decline. In fact, a controversial idea has now begun to appear that allows asset freezing to be confiscated and the confiscated funds used to fund damages in Ukraine.
This institution is "silent" as regards the various unilateral behaviors carried out through the mechanism of economic sanctions.
Despite being warned by the Basel Institute about the dangers of the risk of chaos in international law as a result of this action, Canada has begun to test this idea (see Andrew Dornbierer's “From Sanction to Confiscate” in February 2022 and “Redress Sanction, Confiscate, Compensate” in September 2022). The point is that the economy is being used as a weapon.
According to a study by Nicholas Mulder (The Economic Weapon: The Rise of Sanctions as a Tool of Modern War, 2022), however, the effectiveness of using sanctions is still problematic in changing the behavior of the targeted country.
What to do?
How should Indonesia respond to this situation? There may be no concrete or highly effective answer. However, there are several directions (guidelines) that can be used as a reference.
First, stay true to the goal to become a developed country by 2045. Policymakers must be able to turn the challenge of competitive and weakening international norms into an opportunity to achieve the target.
Second, policymakers are not trapped into the current status quoist versus revisionist discourse taking place at the global level. Therefore, Indonesia must be able to offer new concepts to get out of such discourses, for example by creating and promoting human values and solidarity.
Third, policymakers need to direct Indonesia's diplomatic resources towards strengthening regional capacity, for both ASEAN and other Pacific cooperation, to support Indonesia's goal of becoming a developed country. The future of the Pacific region is part of Indonesia's future. Moreover, China and the US are in this region.
Fourth, policymakers must continue to strengthen fiscal and monetary cooperation at the national level to minimize the risk of uncertainty and shocks that may arise in the form of currency wars. In a situation of high global financial uncertainty, fiscal and monetary authorities need to be more flexible.
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Norms and key performance indexes, both fiscal and monetary, such as inflation targets and budget deficits, should not be too tight and should strengthen cooperation between the two. Experience in handling the Covid-19 pandemic has shown that there are potential modalities to continue strengthening this cooperation.
Fifth, the top policy priority needs to be the availability of food and energy. Adequate and affordable food is a basic requirement of political stability.
So is energy. To become a modern nation and state, modern energy must also be available. We cannot become a modern nation with traditional energy. For this reason, the transition to renewable energy is a necessity.
The path to 2045 may not be smooth. However, as the saying goes, difficult roads usually lead to beautiful destinations. Keep going.
Makmur Keliat, Senior advisor at LAB 45 and lecturer on international relations at the University of Indonesia’s Faculty of Social and Political Sciences (FISIP)
This article was translated by Kurnia Siswo.
