Growth and Productivity
Indonesia\'s economic outlook is not very optimistic: growth has slowed, while its competitiveness ranking has fallen.
Indonesia’s economic outlook is not very optimistic: growth has slowed, while its competitiveness ranking has fallen. However, expectations remain high in the long term, dependent on policy consolidation and a focus on increasing productivity.
Statistics Indonesia (BPS) recently announced that Indonesia\'s gross domestic product (GDP) reached Rp 4.06 quadrillion (US$290.55 billion) at current prices in the third quarter, a growth 5.02 percent compared to the same quarter last year.
In other words, the Indonesian economy continues to grow well above 5 percent, despite declining in the two previous quarters to 5.07 percent in the first quarter and 5.05 percent in the second quarter.
Indonesia’s economic outlook is not very optimistic: growth has slowed, while its competitiveness ranking has fallen.
Gareth Leather, an economist at Capital Economics in London, doubted the accuracy of the Q3 2019 growth figures (Bloomberg, 5/11/2019). Stable economic growth of the 5 percent range as recorded during President Joko “Jokowi” Widodo\'s first term did not reflect the reality, due to the fact that economic activities had declined sharply in Q3 2019.
BPS responded to this by saying that the method it used to calculate economic growth was under the strict supervision of international institutions like the International Monetary Fund (IMF).
Regardless of the doubt over the methodology, immediate measures must be taken to mitigate the slowdown and to ensure that opportunities for greater growth remained in the medium and long terms. Essentially, don\'t waste the opportunity.
Productivity
GDP measures the total economic output from business activities and expenditures. The manufacturing industry was the largest contributing sector in Q3 2019 at Rp 798.1 trillion, a year-on-year (yoy) increase of 4.15 percent. The second largest contributor was agriculture, which grew 3.8 percent yoy, followed by retail trade, which grew 4.75 percent yoy.
According to calculations based on current prices, household spending contributed the most with Rp 2.29 quadrillion, a yoy increase of 5.1 percent. From the regional perspective, the economy of Java dominated in contributing 59.15 percent to the national economy. Java and Sumatra contributed a combined total of 80.29 percent to the national economy.
In short, the economy still relies heavily on consumption and manufacturing, which are in a downward trend, and is still beset by geographical disparities, with economic activities concentrated in Java-Sumatra. What can we do in a situation like this?
Our economy is in the midst of a cyclical slowdown in line with the global slowdown occurring in almost all countries, with some exceptions due to specific factors, like Vietnam. Action must be taken amid a slowdown to revive the economy or, at the very least, prevent further decline. Further, policies must be oriented towards maximizing the economy so it will grow again and realize various opportunities.
Relaxing taxes through fiscal policy will withstand the slowdown. However, a comprehensive structural policy is needed in order to encourage a dynamic economy to reverse the trend. In essence, increasing productivity, i.e. with the same production inputs, can generate greater output.
Unfortunately, various productivity indicators also show the symptoms of decline. The World Economic Forum released the Global Competitiveness Report 2019, which showed that Indonesia\'s ranking fell from 45 to 50. Although its score edged down only 0.3 points to 64.6, the downgrade was significant. It means that many countries are more progressive in increasing their competitiveness.
Indonesia’s worst rankings are in health (96th), employment (85th) and innovation capability (74th), which must be managed properly, or the efforts to increase productivity will be hampered. The problem is that addressing these pillars will not boost productivity or growth in the short term.
Meanwhile, the external challenges are very real and will impact us in the near future. This will require the ability to navigate the economy using short-term instruments, in particular monetary, medium-term (fiscal) and long-term (structural) policies.
The newly installed Indonesia Onward Cabinet is expected to implement technocratic policies that address various short, medium and long-term challenges. Considering that increasing domestic productivity requires a long process, several intermediate strategies are needed to prop up the economy so it will not fall further.
The problem is that the technology cannot work on its own.
First, invite foreign direct investment in various sectors that use local raw materials and are export-oriented. Second, adopt technology along various lines to accelerate economic transformation. In developing countries like Indonesia, technology can still help increase production capacity.
The problem is that the technology cannot work on its own. There must be regulations on its use, such as a technology and business road map. The technology roadmap must have the support of several ministries, including the Communications and Information Ministry, the Industry Ministry, the Trade Ministry, and the Cooperatives and SMEs Ministry.
If the Indonesia Onward Cabinet continues to think in sector, the economy will experience prolonged stagnation. They will not focus on their jobs, especially if ministers from political parties still busy themselves with coalition issues. There is not much time left. If the President still allows maneuvering among Cabinet members, our hopes will amount to nothing.
A PRASETYANTOKO, Lecturer, Atma Jaya Catholic University of Indonesia, Jakarta