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How structural reforms impact growth
President Joko “Jokowi” Widodo’s Cabinet has been focusing on structural reforms to promote higher growth.
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Power up: A worker checks one of the overhead lines running along the railway at Jatinegara Train Station in East Jakarta on Wednesday. A new cable was installed to boost the tracks’ power capacity. (JP/P.J. Leo)
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lthough economic growth notched up above 5 percent in 2017, many people are still unsatisfied. The exact growth rate of 5.07 percent is below the target of 5.2 percent specified in the revised 2017 state budget (APBN-P).
The International Monetary Fund (IMF) in its 2017 report on the Article IV consultation with Indonesia estimates the output gap at 0.5 percent of GDP. That means the actual output is less than what the economy could produce at full capacity, although President Joko “Jokowi” Widodo’s Cabinet has been focusing on structural reforms to promote higher growth.
According to the European Central Bank (ECB), structural reforms are an institutional and regulatory framework implemented to change the way an economy works. The framework is designed not only to ensure the economy runs at its potential level, but also — and this is more important — to ensure economic growth brings prosperity to the people. Thus factors like social fairness and inclusion are also taken into account.
Structural reforms theoretically work on the supply side of the economy, meaning that governments undertake structural reforms to enable the production side to produce more products and services. All measures that focus on reducing obstacles to production activities will improve productivity, investment and employment.
