Indonesia’s Economy – Opportunities and Challenges – notes from a lecture by Bapak Gita Wirjawan, Minister for Trade, Indonesia

ImageS Rajaratnam School of International Studies (RSIS) Distinguished Public Lecture by Bapak Gita Wirjawan, (GW) Minister of Trade, The Republic of Indonesia. (2nd September 2013, Pan Pacific Singapore) on “Indonesia’s Economy: Future Challenges and Opportunities.”

I had the pleasure of attending the distinguished public lecture by Pak Gita last week and I wanted to share some salient points from the discussions

 

Key highlights and introduction

  • July results for trade is a continuation of the trends observed in June – and are actually worse. (There was a US$2.3 billion trade deficit in July 2013 alone – cumulative deficit of US$6 billion for the whole of 2013). (Click here to see news on the latest trade deficit)
  • Continued outflow of capital resulting in a downward pressure on the currency.
  • The ongoing slowdown in Europe and uncertainty in the US/Middle-east is also having knock-on effects on Indonesia.
  • We are witnesseing a “recalibration of the global economic outlook.”
  • However, Indonesia has seen significant progress made under the Susilo Bambang Yudhoyono (SBY) presidency – Under Sukarno’s era, the GDP per capita was around US$500 per  capita – this went up to US$1,200 under the Suharto era. However the Asian Financial Crisis in 1997-1998 had a catastrophic impact on Indonesia, where the GDP per capital plummeted to US$600 per capita. Indonesia also very narrowly avoided the Balkanisation of the country during that period.
  • After the political reforms post-Suharto, GDP climbed steadily to US$1,100 under the Megawati presidency and today (2013), the GBP per capita has just about exceeded US$5,000 per capita under the SBY presidency. This has also resulted in the increased purchasing power of Indonesia leading to heightened domestic consumption, particularly from a growing middle class.

 

Can Indonesia emerge from the middle-income trap?

  • Indonesia’s improved its policy and position in the fiscal space.
  • However in the social space, the gini coefficient (one indicator of income inequality) has risen, which implies a widening income gap and disparity. This remains a critical issue which the government needs to resolve.
  • Furthermore, there is still an over-reliance on the commodities sector which is prone to very violent swings and shocks.
  • Infrastructure development remains a challenge for the country.
  • The needs to be further work done in the educational space as well.

 

Education and the economy

  • In 15 years, there will be 150 million Indonesians under the age of 30.
  • There remains an urgent need to sharpen the educational infrastructure.
  • As GW says, “It is important that we need a good runway, not just to land, but to also support us in taking off.”
  • Between 2012-2022 – it is estimated that Indonesia’s accumulated GDP be will be over US$60 trillion – on a cumulative basis.
  • There needs to be a supply side narrative to realise this estimated accumulated GDP and that remains the challenge.
  • The SBY government leaves a sustained economic trajectory for Indonesia.

 

The woe of the number of taxpayers (or lack thereof!)

  • For an economy in the top 20 largest economies grouping – the G20 – there are fewer than 20 million tax payers! (comparatively?)

 

Indonesia and her geopolitical relevance

  • GW highlighted the example of how South Korea has used its soft power effectively (from Gangnam style to Samsung products) to drive international trade and economic growth. What can Indonesia do to achieve a similar impact?
  • GW also highlighted that Indonesia has the ability to develop a high degree of political relevance because:
    • Indonesia has the potential to serve as the ‘middle power’ to narrow the gap between the Middle-East and the West
    • Indonesia can also narrow and bridge the gap between China and the US (a slightly debatable claim?!)
    • However, Indonesia needs sustained political order in order to develop and create this geopolitical relevance.
      • Indonesia must engage in Democracy 2.0 – the next iteration of her democratic freedoms enjoyed post-Suharto.
      • Improve her manufacturing and technological sector (invest in high-quality and high-yield technology and sectors).
      • Without Democracy 2.0 – it is highly unlikely that Indonesia will sustain her political and economic reforms and progress. Areas such as corruption must be tackled with and though there has been some good initial progress, this must remain sustained for there to be tangible returns and a progressive shift.

Indonesia as the ‘middle power’

  • Indonesia believes in regional cohesion and solidatiry.
  • ASEAN is a great example of multilateralism – socio-political, cultural and economic solidarity have helped ASEAN overcome initial challenges and be a more cohesive and effective regional bloc.

 

The future of Indonesia

  • Indonesia must continue her path of bundling pluralism and democracy.
  • Economic growth must be achieved hand in hand with economic equity – otherwise the unbalanced growth will have severe social impacts and fractures.
  • Without this economic equity – all of the work being undertaken now will be an exercise in failure.
  • This will take time to achieve.
  • Indonesians have now come much closer together than ever before (Indonesia has the second highest Facebook usage and the third most users on Twitter).
  • Indonesia and Indonesians must have the ability to say and proclaim that they have the wherewithal to move on with the necessary reforms and changes required for Indonesia’s sustained progress.

 

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