Searching for New Sources of Growth

The world economy is haunted by a prolonged United States-China trade war. Indonesia needs to find new sources of economic growth.

KOMPAS/WAWAN H PRABOWO

Customers wait their turn to receive an explanation about the online single submission (OSS) service at the One-Stop Integrated Service (PTSP) outlet of the Investment Coordinating Board (BKPM) in Jakarta, Monday (14/1/2019).

JAKARTA, KOMPAS -- In the midst of slowing global economic growth, promoting investment and trade through partnerships can become a source of new economic growth.

At present, Indonesia\'s economy is mainly supported by household spending. International agreements, both regional and bilateral, could become another way to create a new source of economic growth.

The 2020 Ease of Doing Business index released by the World Bank is one of the indicators in attracting investment. The United States-China trade war is one of the factors that have led a number of world institutions to revise global and Indonesian economic growth projections.

Indonesia\'s economic growth estimate from 5.2 percent to 5 percent in 2019 and 5.2 percent to 5.1 percent in 2020.

The World Bank, which initially projected Indonesia\'s economy to grow 5.1 percent in 2019 and 5.2 percent in 2020, revised the growth forecast to 5 percent in 2019 and 5.1 percent in 2020. The International Monetary Fund (IMF) revised Indonesia\'s economic growth estimate from 5.2 percent to 5 percent in 2019 and 5.2 percent to 5.1 percent in 2020.

Indonesia was ranked 73rd out of 190 countries in the 2020 Ease of Doing Business Index. Based on data from the United Nations Trade and Development Conference (UNCTAD), Indonesia received a foreign direct investment of US$22 billion in 2018, an increase of 6.8 percent annually.

Kompas/Priyombodo

Jobseekers flock to the Indonesia Career Expo at Balai Kartini, Jakarta, Tuesday (15/10/2019).

"The main source of economic growth is still spending. In fact, investment should also be one of the main sources of economic growth," said the head of the economics department at the Center for Strategic and International Studies (CSIS), Yose Rizal Damuri, after attending the international symposium panel discussion Asia\'s Trade and Economic Priorities 2020 organized by the Indonesian Economic Research Bureau (IBER) and the Asian Economic Research Bureau (ABER) in Jakarta on Tuesday.

Based on data from the Statistics Indonesia (BPS), Indonesia\'s economic growth in the second quarter of 2019 reached 5.05 percent. Household consumption contributed 2.77 percent and investment 1.59 percent to economic growth.

Yose hopes that Indonesia will follow in Vietnam\'s footsteps. Quoting CEIC data, in Vietnam, the ratio of FDI to gross domestic product (GDP) in 2018 reached 6.3 percent, far higher than 1.4 percent in Indonesia.

If the trade war continues, world economic growth in 2020 will range between 2.9 percent and 3 percent.

A lecturer at the University of Indonesia\'s School of Economics and Business, Muhamad Chatib Basri, said the source of new economic growth required structural reform support. Support, among other things, is related to labor regulations, the ability and capacity of the workforce, as well as the licensing process.

Bank Indonesia Governor Perry Warjiyo said the central bank estimated the world economy would grow 3 percent in 2019 and 3.1 percent in 2020. If the trade war continues, world economic growth in 2020 will range between 2.9 percent and 3 percent.

KOMPAS/PRIYOMBODO

A double exposure photo shows Bank Indonesia Governor Perry Warjiyo as he speaks at a press conference on the results of the Bank Indonesia board of governors meeting in Jakarta on Thursday (24/10/2019).

This global economic condition has affected a number of countries, including Indonesia\'s main trading partners. One of the main trading partners, namely China, reported an economic growth of 6.2 percent in the second quarter, 2019, while in the US, the economy grew 2.3 percent.

Negotiations

According to Perry, one of the agreements that can be used to reach new sources of economic growth is the establishment of the Regional Comprehensive Economic Partnership (RCEP), which is currently being negotiated by 10 ASEAN member countries and six other countries, namely India, China, Japan, South Korea, New Zealand and Australia.

The Trade Ministry projects that Indonesia\'s exports could increase by 8-11 percent in the first five years after the adoption of the RCEP.

IBER director Mari Elka Pangestu said the RCEP could become a positive signal amid pressures of a trade war that has affected the global economy. The RCEP shows that integration between countries can sustain growth so that the world can benefit.

KOMPAS/PRIYOMBODO

A photo of a double exposure view of the index in the first trading session on the Indonesia Stock Exchange in Jakarta, Monday (21/10/2019). The composite stock price index (CSPI) closed up 7 points, or 0.11 percent, at 6,198. The strengthening of the index is believed to be affected by positive sentiment after the inauguration of Joko Widodo and Ma\'ruf Amin respectively as the President and Vice President on Sunday

"The RCEP is opening new market access, new investment and new trade relations," she said.

David Vines, professor in economics from the University of Oxford, said the world waited for Asia to take on the role of world leadership through the RCEP.

While the director of the Australia-Japan Research Center, Shiro Armstrong, said the RCEP could become a form of cooperation amid the uncertainty of world trade. On a separate occasion, Foreign Minister Retno LP Marsudi said that in the next five years, one of the priorities in Indonesia\'s foreign policy would be to continue economic diplomacy.

Read more : Indonesia Is Not Progressive Enough

"In implementing diplomacy in the economy, Indonesia needs to capitalize on the domestic market, using 260 million people as bargaining power in establishing mutually beneficial economic cooperation," said Retno.