Indonesia’s economic growth could reach 7% in 2019, driven by investment and productivity

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JAKARTA (TheInsiderStories) – Indonesian Economists Association (ISEI) sees Indonesia’s economic growth could reach up to 7 percent in 2019 if government manages to boost investment and increases productivity in short-term period. In addition, government is able to improve the quality of human resources in the long term.

Chairman of ISEI Muliaman D. Hadad, who is also Chairman of the Financial Services Authority (OJK), said although investment (gross fixed capital formation or GFCF) in the last 30 years grew from 7.5 percent to 9.5 percent with a contribution to GDP rose from 23 percent to 33 percent, the investment has yet to align with the direction of economic growth.

This is shown by the capital accumulation index and the use of capital to GDP or the incremental capital output ratio (ICOR), which rose from 4 percent to 6 percent. This means that if the original for economic growth of 1% is only needed an injection of investment of 4 percent, now increased by 6 percent, or inefficiency or ineffectiveness of capital growth.

“To achieve economic growth of 6.4 percent to 7 percent in the long run would require average investment growth of 8.8 percent per year, plus the utilization of qualified human resources and the development of resource productivity, without it, the growth would only reach the base of 4-5 percent,” he said in Jakarta, Wednesday (April 30).

In the short term, the government needs increase the fixed capital formation (investment) through public infrastructure investments and attract private investment, including foreign direct investment (FDI). In addition, the government also needs to boost productivity through improvement of technical efficiency, adaptation to global progress and connectivity or logistics.

While in the long term, the government needs to boost investment on human resources on four components: working-age population growth of about 1.6 percent, the ratio of labor force participation of 67 percent, as well as new skills in the era of industrial revolution 4.0 (Based TI).

“The growth is driven by the increase of human resources with average length of study of the labor force of 9.35 years in 2015 to 10.10 years in 2019,” Hadad said.

President Joko Widodo underlined the human resource development today is very important in the era of competition in particular in the era of ASEAN Economic Community (AEC), Trans Pacific Partnership (TPP), RCEP and the EU. The government will also add vocational shools.

“I agree, this human resource development is including in the field of digital economy, because 66 percent of our workers today graduated from primary and junior high school, which are concentrating in labor-intensive industries such as garments, textiles and footwear and small industries such as rattan,” he said.

In the field of infrastructure investment, the government this year allocated Rp 311 trillion or an increase of 76.2 percent from previous year to develop various infrastructure projects in the medium term, including power plants under the 35,000 MW, 1,100 kilometers long of toll roads as well as ports in Makasar, Kuala Tanjung, Bitung, railways and others.

“The government also implements deregulations, including abolishment of about 3,000 regulations of total 42,000 rules, so that infrastructure projects can be accelerated,” he said.

Economist of the Asian Development Bank (ADB) Priasto Aji sees structural driver of the economic growth of Indonesia is from investment. He assess that the government’s investment this year will grow by 7.4 percent. The early procurement and bidding process will help stimulate the growth.

Noteworthy is the consistency of structural reforms in the field of infrastructure development, he added.

He cited last year’s fiscal reform (the reallocation of energy subsidies to infrastructure spending) has had a positive impact on the economy.

In the midst of slowing down of world economic growth, Indonesia is able to post economic growth of of 4.79 percent. “Last year, with relatively high inflation, Elnino which pressured farmers’ income as well as tight credit growth, the consumption fell from 2.9 percent to 2.7 percent. The decline of consumption could be compensated the increase in investment,” said Aji. (*)

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Source: The Insiderstories
Indonesia’s economic growth could reach 7% in 2019, driven by investment and productivity

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