This photo shows a panoramic view of a traffic jam on a major road leading to downtown Jakarta on May 8, 2024, with a thin haze of pollution hanging over the city’s skyline.
Ismoyo Bay | AFP | Getty Images
Indonesia’s emergence as an emerging economy is the latest Asian success story.
But the country’s Finance Minister Sri Mulyani Indrawati warned that 5 percent annual GDP growth, above the global average of 2 percent, was “not enough.” [Indonesia] Achieving the “meaningful progress” needed to become a high-income country.
Indonesia’s ambitions are part of what it calls its “Golden Vision 2045”, a grand plan aimed at transforming the country into a highly paid, skilled workforce and reducing poverty rates by the time the country celebrates its 100th anniversary.
“To continue the journey [as a middle-income country aspiring to be a high-income country] “To have high productivity-based growth, we need to invest more in human capital,” the finance minister said in an interview on CNBC’s “Squawk Box Asia” that aired last week.
The International Monetary Fund’s country report released in August highlighted that Indonesia’s goals are to “increase added value throughout the value chain from raw materials, develop a skilled workforce for the digital age, and accelerate infrastructure development and institutional reforms to support balanced, green and equitable growth.”
Indonesia’s ambitions remain despite a change in government earlier this year. More than 200 million voters in the world’s most populous Muslim country went to the polls in February to elect former army general and defense minister Prabowo Subianto, ending President Joko Widodo’s decade in power.
The new government will take office in October for a five-year term, and President Subianto has pledged to continue efforts to turn Indonesia into a high-income economy.
Economic reforms passed by the outgoing president will make it easier to achieve Indonesia’s grand vision.
“President Joko Widodo has implemented a series of economic reforms, most notably making it easier to hire and fire new workers, and he has also reformed land use rights,” Gareth Leather, senior economist at Capital Economics, told CNBC.
“Indonesia is still getting some things wrong. The infrastructure is not good. Corruption is still a problem. But they are moving in the right direction,” he said.
Indrawati wants to avoid the “middle-income trap” – an economic development situation in which a growing economy stagnates at the middle-income level and fails to join the ranks of high-income countries. She believes major policy reforms can help Indonesia avoid this. “A lot of government efforts, including the fiscal budget, are heavily allocated to education, health and poverty reduction. [the] It’s a social safety net,” she said.
The IMF’s findings echo the finance minister’s view: The Washington-based organization said achieving high-income status requires “far-reaching and sustained” structural reforms while safeguarding the economic stability already in place.
a The report was published in July by the Lowy Institute.The Australia Research Centre, an Australia-based business think tank, pointed to the progress that has already been made, saying efforts to digitise the country’s social welfare programmes and food and energy subsidy programmes “will coincide with a significant reduction in poverty, so that by 2023, fewer than 10 per cent of Australia’s 279 million people will live below the international poverty line.”
“We will never become another China”
Tax and labor reforms that make it easier for companies to hire and fire workers are also a strategic part of Indonesia’s economic engineering.
“These are helpful steps in the right direction,” Leather said.
“Under the old system, if you wanted to lay off an employee in Indonesia you had to pay up to 60 weeks’ severance pay, which is much higher than in any other country. For manufacturing investors considering where to set up operations in Asia, it may be a scare tactic if they see how inflexible the workforce is.”
While he is “relatively optimistic about Indonesia,” Reza told CNBC, “Indonesia is never going to be the next China.” “If it continues to grow at 5 to 6 percent over the next decade, that’s a decent performance,” he added.
Meanwhile, Indrawati remains cautious.
“There is still a lot to do,” he said, adding that much has been achieved “despite COVID-19 and geopolitical divisions.”
An important goal for Indonesia is to remain politically neutral through its economic policies, despite the growing pressures of the wars in Ukraine and Gaza. “Despite geopolitical tensions and divisions, Indonesia has been able to maintain its domestic [growth]”We need to be agile in our response to increased demand in the semiconductor industry and in the production of batteries for electric vehicles,” the finance minister said.
