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Indonesia risks getting old before becoming rich

Jakarta Globe - October 22, 2019

Herman, Jakarta – A new book by senior economists Faisal Basri and Haris Munandar repeats an old warning that Indonesia risks falling into the so-called middle-income trap, reminding readers of many missed opportunities in the past that have kept the country from unleashing its full potential.

The book titled "Menuju Indonesia Emas" ("Towards a Golden Indonesia") discusses the history of the country's economic journey, from independence to the present day. Faisal and Haris highlight the major obstacles to Indonesia's progress and provide possible solutions to overcoming these challenges.

"This book points out the Jokowi government's successes, as well as factors that are hampering Indonesia's economic growth and how to overcome them," Faisal said at the book launch in Jakarta on Monday, referring to President Joko Widodo by his popular nickname.

Chatib Basri, an economist at the University of Indonesia, said the book had come at the right time, as it reflects on Indonesia's economic growth that has been stagnant.

"One of the big questions we face, is why our economic growth has stagnated at 5 percent for the past five years. So far, the argument has always been that 5 percent growth is good in comparison with other countries. Although this is not wrong, this book reminds us that if Indonesia continues in this direction, we run the risk of getting old before we get rich, causing considerable harm," Chatib said.

Indonesia will celebrate 100 years of independence in about 25 years, but its development has so far been tainted by several setbacks and numerous crises.

It took the country 58 years to move out of the low-income group into the lower middle-income group in 2003. But many of its neighbors rapidly developed immediately after gaining their independence around the same time as Indonesia. South Korea and Singapore have been able to attain high-income status, while Malaysia is now part of the upper middle-income group.

Thailand and the Philippines have preceded Indonesia in the lower middle-income group.

Chatib said the book serves as a reminder that Indonesians should not only be satisfied with what they have already achieved, because there are significant problems that must be addressed to boost economic growth and help the country avoid the middle-income trap.

Using the human body as a metaphor for the economy, a heart problem is a reflection on the country's weak financial institutions, while its industrial sector is likened to a fragile backbone, incapable of supporting growth.

"To be able to achieve economic growth of at least 7 percent, consolidation in the financial sector must be maintained. Industrialization must continue and energy issues must be resolved," Chatib said.

He added that it was the government's responsibility to increase productivity. Chatib cited communities on either side of the United States-Mexico border and the border between the two Koreas as vastly different in their economic achievements, despite having similar cultures, because they have different productivity levels and policies.

"Without high productivity, despite large investments, Indonesia's economy will not be able to prosper. Therefore, productivity must increase and industrialization projects must be implemented," Chatib said.

Source: https://jakartaglobe.id/business/indonesia-risks-getting-old-before-becoming-rich