This photo shows a general view of traffic jams on the main road leading to downtown Jakarta on May 8, 2024 as a thin haze of pollution settles over the city skyline.
Bay Ismoyo | Afp | Getty Images
Indonesia’s rise as an emerging economy is the latest success story in Asia.
But the country’s Finance Minister Sri Mulyani Indrawati has warned that GDP growth of 5% per year, higher than the global average of 2%, “is not enough for (Indonesia) to make the significant progress” needed to become a high-income country.
Indonesia’s ambitions are part of the so-called “Golden Vision 2045,” a grand plan that aims to transform the country into a skilled workforce with high wages and a way to reduce poverty by its 100th anniversary.
“To continue our journey (as a middle-income country aspiring to become a high-income country) … with high growth based on high productivity, we need to invest more in human capital,” the finance minister told CNBC’s “Squawk Box Asia” in an interview broadcast last week.
A country report by the International Monetary Fund published in August emphasizes that the aspiration for Indonesia is to “increase added value by moving the value chain away from raw commodities, build a skilled population ready for the digital age, and accelerate infrastructure development and institutional reforms to support balanced growth.” , green, and fair.”
Despite the change in political power earlier this year, Indonesia’s ideals remain. More than 200 million voters in the world’s most populous Muslim nation went to the polls in February, ending President Joko Widodo’s decade at the helm with the election of former army general and Defense Minister Prabowo Subianto.
The new government will take charge in October for a five-year term. The incoming president, Subianto promised to continue the task of making Indonesia a high-income economy.
The economic reforms implemented by the outgoing president will make it easier to achieve Indonesia’s grand vision.
“Widodo put in place a lot of economic reforms, the most visible of which is making it easier to hire and fire new workers. And he also changed land use rights,” Gareth Leather, senior economist at Capital Economics, told CNBC.
“Indonesia is still doing some things wrong. The infrastructure is not good. Corruption is still a problem. But they are moving in the right direction,” he said.
Indrawati hopes to avoid the “middle-income trap” – a situation of economic development in which a growing economy stagnates at the middle-income level and cannot progress to high-income countries. Major policy reforms, he believes, will help Indonesia avoid this. “Many of the government’s efforts, including the fiscal budget, are allocated significantly to education, health and social safety nets,” he said.
The IMF’s findings agree with the finance minister. The Washington-based institution said achieving high-income status would require “broad and sustained structural” reforms, while also securing the economic stability it has built.
A report published in July by the Lowy Institute, an Australian-based business think tank, noted the benefits that have been achieved, stating that the digitization of the country’s social welfare programs, as well as subsidized food and energy initiatives, “coincided with a significant reduction in poverty, with less than 10% of the country’s 279 million citizens will live below the international poverty line by 2023.”
‘It won’t be the next China’
Taxation and labor reforms, making it easier for companies to hire and fire workers, are also a strategic part of Indonesia’s economic engineering.
“It’s a useful step in the right direction,” Kulit said.
“In the old system, if you want to fire a worker in Indonesia, you have to pay up to 60 weeks of severance pay. That’s more than anywhere else. shop in Asia, and you see how inflexible the labor force is, it can cut you down.”
Kulit feels “relatively optimistic about Indonesia,” although “it’s not going to be the next China,” he told CNBC. “If it continues to grow at 5-6% over the next decade, this is a good performance,” he said.
Meanwhile, Indrawati remained cautious.
“A lot of work still needs to be done,” the minister said, adding that much has been achieved “despite the fragmentation of Covid and geopolitics.”
The main goal is to keep Indonesia politically neutral through economic policy, even as the pressure of the war in Ukraine and Gaza increases. “Despite geopolitical tension and fragmentation, Indonesia can nurture (growth) domestically” and should be “opportunistic” in increasing demand in the chip industry and electric vehicle battery production, said the finance minister.
