This photo shows a panoramic view of traffic jams on the main road into central Jakarta on May 8, 2024, with a thin haze of pollution hanging over the city skyline.
Ismoyo Bay | AFP | Getty Images
Indonesia’s emergence as an emerging economy is Asia’s latest success story.
However, the country’s Finance Minister Sri Mulyani Indrawati warns Its annual GDP growth rate of 5% is higher than the global average of 2% and “is insufficient for (Indonesia) to make the meaningful progress needed to become a high-income country.”
Indonesia’s ambitions are part of its so-called “Golden Vision 2045”, a grand plan to transform the country into a high-wage skilled workforce and reduce poverty as it celebrates its 100th anniversary.
“In order to continue our journey (as a middle-income country that aspires to be a high-income country)… high growth based on high productivity, we have to invest more in human capital,” the finance minister told CNBC’s “Squawk Box.”
A country report released in August by the International Monetary Fund highlighted Indonesia’s desire to “increase added value through the value chain of raw material commodities, develop technical personnel ready for the digital age, and accelerate basic Facilities development and institutional reforms” to support balanced, green and equitable growth. “
Indonesia’s ambitions remain despite a change in political power earlier this year. More than 200 million voters went to the polls in February in the world’s most populous Muslim countryPresident Joko Widodo’s decade in power ended with the election of former army general and defense minister Prabowo Subianto.
The new government will take office in October for a five-year term. Incoming President Subianto pledged to continue efforts to make Indonesia a high-income economy.
Economic reforms passed by the outgoing president will make Indonesia’s grand vision easier to achieve.
“Widodo has implemented a series of economic reforms, most notably making it easier to hire and fire new workers,” Capital Economics senior economist Gareth Leather told CNBC. easy.
“Indonesia is still doing some things wrong. The infrastructure is not very 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 in which a growing economy stagnates at the middle-income level and fails to join the ranks of high-income countries. She believes that major policy reforms will help Indonesia avoid this situation. “Many of the government’s efforts, including our fiscal budget, are heavily allocated to education, health and the social safety net,” she said.
The IMF’s findings are consistent with the finance minister’s views. The Washington-based agency said achieving high-income status would require “broad and sustained structural” reforms while also ensuring the economic stability that has been established.
one Lowy Institute report released in JulyThe Australia-based business think tank noted the results that have been achieved, noting that the digitization of the country’s social welfare programs and subsidized food and energy initiatives “have coincided with a significant reduction in poverty among the country’s 279 million residents by 2023.” 10% live below the international poverty line.
“Never will be the next China”
Tax and labor reforms that make it easier for businesses to hire and fire workers are strategic components of Indonesia’s economic project.
“They are useful steps in the right direction,” Lesser said.
“Under the old system, if you wanted to fire a worker in Indonesia, you had to pay them up to 60 weeks of severance. That’s more than anywhere else. If you’re a manufacturing investor and you’re thinking about where to set up a factory When shopping in Asia, you’ll notice how inflexible the workforce is, which can be a turnoff.
Lesser told CNBC that he was “relatively optimistic about Indonesia,” even though “it will never be the next China.” “If it continues to grow at 5-6% over the next ten years, that’s a good performance,” he added.
Indrawati, meanwhile, remains cautious.
“There is still a lot of work to be done,” the minister said, adding that much had been achieved “despite COVID-19 and geopolitical divisions.”
Despite growing pressure from war in Ukraine and Gaza, a key goal for Indonesia is to remain politically non-aligned through its economic policies. The finance minister said “Indonesia can nurture its domestic (growth) despite geopolitical tensions and divisions” and must “seize opportunities” to increase demand in the wafer industry and electric vehicle battery production.
