Letter: The Indonesian economy

This is a comment on article titled “Will Indonesia be the world’s fifth largest economy? (Oct. 25, by Aris Ananta, Singapore)

Bung Aris, I thought the whole idea of your article was to refute Chairul Tanjung’s bombastic and baseless prediction that Indonesia’s GDP will jump from the current US$700 billion to $5,100 billion in 2030. Alas, you muddy the waters by bringing in other unrelated numbers from Coordinating Economic Minister Hatta Rajasa.

Your best argument to counter Chairul’s prediction is your next sentence:

“It is possible, if the predicted growth rate does not reflect a change in purchasing power, that the predicted income is measured at the price level in 2030. It can be achieved for example with real economic growth at 6.0 percent and an inflation rate of 4.0 percent.”

Yet this explanation suffers from a big inconsistency. How can you state that the predicted growth does not reflect a change in purchasing power when in the next line you write that the prediction can be achieved if the real output grows at 6.0 percent per year? A change in real output is essentially a change in purchasing power.

It would have been useful for readers if you explained whether the prediction is baseless or makes sense if it is viewed from the historical perspective of Indonesian economic development in the last two decades and the challenges that it faces in the next two decades. As for me, his prediction is absolute nonsense: From $700 billion to $5,000 billion in 20 years?

That is a factor of 7.14. In the last two decades, our nominal GDP grew only by a factor of 5.3. Given that the challenges ahead are not easy and given that other major countries will also be growing, I don’t see how Indonesia could be the fifth largest economy in the next 20 years, except if we inflate the value of nominal GDP.

Elwin Tobing
California