Jakarta – Next year, the Jokowi administration will have to face the threat of a global recession. It is by no means certain that New Order style policies, which emphasized political stability and deregulation of economic sectors, will be able to save Indonesia if the economy weakens, yet alone if there is a crisis.
The threat of a global recession triggered by the trade war between the United States and China is now staring us in the face. The US economic growth continued its decline, falling to 2 percent in the third quarter of this year. In the same period, Chinese economic growth fell to 6 percent, lower than at any time in the last three decades. The slowdown in the two countries that control two-thirds of the world economy is bound to spread, especially since European economies are also weak.
Clearly the Indonesian economy will feel the impact. According to the Central Statistics Agency, economic growth in the first quarter of this year was 5.07 percent, falling to 5.05 percent in the second quarter, and dropping further to 5.02 percent in the third quarter. In August, 7.05 million people were out of work, an increase of 50,000 compared with last year.
This economic slowdown can be seen in the sectors contributing most to economic growth, such as industry, agriculture and trade. The sectors that are still seeing growth, such as transportation, warehousing, communication and financial services, need to be stimulated if we want to stave off the effects of the global recession.
As outlined in a special report in this edition, there are still opportunities in the property, communication, tourism and garment industry sectors. The construction of infrastructure could also be used to stimulate the tourism and property sectors. The communication sector could grow faster now the construction of the fiber-optic network has reached every province.
In order to achieve the 2020 economic growth target of 5.3 percent, direct investment needs to be made easier, but regulations cannot be changed overnight. On paper, deregulation could happen at a stroke using the omnibus law method, meaning passing one law that would change the regulations laid down in a number of other laws. But this still needs time for deliberation because it encompasses many issues. Even if deregulation does go ahead next year, the effects will only be felt the following year.
The most realistic policy is to maintain peoples' purchasing power, which has underpinned economic growth. For example, in the third quarter of 2019, domestic consumption made up 56.5 percent of gross domestic product. Efforts to preserve this purchasing power could be carried out through a combination of the right government fiscal and monetary policies.
Unfortunately, it is apparent that President Jokowi is not consistent in implementing strategies to anticipate next year's economic crisis. At a critical time like now, it is crucial to ensure that every economic sector deregulation policy goes ahead according to plan. This means there is a need for ministers and heads of institutions who are capable of implementing the president's plans.
Therefore, the kind of accommodation politics that shares out strategic posts in the government to incapable political parties' appointees should be avoided. Not only squandering state funds, appointing the wrong people could sabotage the President's own plans. The Ministry of Trade and the Investment Coordinating Board, which should be at the forefront of negotiating trade deals and the efforts to attract foreign investment, could be led by people who have more convincing track records.
This is the latent problem of a political system that is based on political cartels and oligarchies. The interests of the political elite play a larger role in determining government policy than the interests of saving the state from an economic crisis. This distortion occurs more readily now because Jokowi's administration has weakened the Corruption Eradication Commission, which previously had been a way of controlling the behavior of the political elite.
As a result, all forms of deregulation will be for nothing if illegal levies and corruption continue to flourish. The wheels of the economy may well continue to turn, but costs will be higher because of the large number of rent-seekers.
It is time President Jokowi reconsidered the New Order style economic policies that he has now adopted. In the past, putting the brakes on the eradication of corruption, allowing environmental destruction and shackling democracy in order to stimulate economic growth may have been effective. But now this is no longer certain. If the economy continues to weaken and unemployment keeps on rising, public disappointment could grow.
Read the Complete Story in this Week's Edition of Tempo English Magazine: https://magz.tempo.co/read/36182/jokowis-outdated-recipe