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Economic contraction shows up Papua as Jokowi's Achilles heel

Jakarta Globe - February 6, 2020

Diana Mariska, Beritasatu, Jakarta – Economic contraction in Indonesia's easternmost regions of Maluku and Papua has shown up an Achilles heel in the government's approach to development, economists have said.

Regional gross domestic product in Papua and Maluku shrank by 7.4 percent last year, recent data from the Central Statistics Agency (BPS) showed. It was the worst-performing region economically in Indonesia, partly responsible for dragging down the country's economic growth to 5.02 percent from 5.17 percent a year earlier.

Abra El Talattov, a researcher at the Institute of Economic and Financial Development (Indef), said the region's over-reliance on the extractive sectors revealed weaknesses in the government's economic strategies.

"One of the reasons behind the economic decline in Papua is the decline of its mining industry, the biggest contributor to GDP in that region," Abra said on Thursday.

Papua is home to Freeport Indonesia, a state-controlled miner that operates Grasberg, Indonesia's biggest gold and copper mine. The mine's output was pared down last year as it transitions operation to its underground mine.

Rapid infrastructure development in Papua – one of President Joko "Jokowi" Widodo's priorities – has not had the desired impact since most Papuans still rely on small-scale farming for their income.

"Approximately 67 percent of Papuans are farmers. The government should industrialize the agriculture sector in Papua – not rely on traditional farming anymore but create a downstream industry. This will allow it to involve the private sector and improve Papua's economy," Abra said.

"Infrastructure development has failed to lift Papua out of its economic doldrums. The government might argue the effect of the development is long-term, but it should not take five to 10 years," Abra said.

Other regions in Indonesia less reliant on mining for their income fared better last year. Java, the country's manufacturing and services behemoth that accounts for 59 percent of Indonesia's $1 trillion-economy, expanded 5.5 percent.

Bali and the Nusa Tenggara islands – the latter an increasingly popular tourist destination – expanded 5.07 percent, just above the national average.

Palm oil-rich Sumatra and Kalimantan grew by 4.6 and 5 percent respectively, slower than the national average, as the price of one of Indonesia's main export commodities sank in the global market for most of last year.

Bucking the trend, another agricultural center, Sulawesi, grew the fastest by 6.7 percent last year. Jusuf Kalla, the former vice president, said the varying economic performances in Indonesia's agricultural powerhouses may stem from differences in land ownership structure.

"In Sulawesi, ownership of cocoa, cashew and coconut plantations is shared around many individual farmers. Some of the most successful ones also have extensive rice fields," Kalla said.

Meanwhile, in Sumatra or Kalimantan, economic growth lies in the hands of giant corporations with holdings over millions of hectares of land, he said. "When palm oil and coal prices rise, growth rate on the two islands skyrockets. But, when they fall, economic growth would slow considerably, even contract," Kalla said.

Source: https://jakartaglobe.id/business/economic-contraction-shows-up-papua-as-jokowis-achilles-heel