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The Jakarta Post
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Is RI’s economy immune to global turmoil?

  • D. Supratikto

Yogyakarta | Wed, December 12 2012 | 10:56 am

It is interesting to note that Indonesia could be immune to global turmoil as stated by Rintaro Tamaki, deputy secretary-general of the Organization for Economic Cooperation and Development (OECD) at the ASEAN Business Summit in Phnom Penh last month.

Indonesia’s economy will grow by an average 6.4 percent from 2013 to 2017 — the fastest among the 10 ASEAN member countries.

This reminds me of similar comments made by international financial organizations before the crisis in 1998, which praised the Indonesian economy as being healthy with stable economic growth that was
managed in prudent ways.

Everybody was optimistic about the Indonesian economy at that time and nobody expected a severe economic crisis with multidimensional impacts to strike.

Although the Indonesian economy is currently encouraging, it is good to remain alert to the dangers. Before the crisis in 1998, the property sector had been booming, as shown by the development of mega projects that absorbed a big portion of commercial funds.

The property sector became one of the main causes of a bubble economy that led to the crisis. Today, we witness mushrooming super bloc mega projects along Jl. Casablanca in Jakarta — just to mention an example.

There is an alarming sign that property development is aiming at high income groups only (Kompas Dec. 7).

Meanwhile, the government has acknowledged the shortage of funding to develop infrastructure projects, which have been neglected since the 1998 Asian crisis.

Therefore, the government has introduced the public-private partnership scheme in order to bring in private companies to undertake infrastructure projects.

This scheme has been initiated since 2005, but unfortunately progress is still slow in improving infrastructure.

As we know, the improvement of infrastructure is needed and vital to spur economic development.

It is laudable that Finance Minister Agus Martowardojo has introduced fiscal approaches in addressing the impact of global turmoil.

Those are to prepare the fiscal stimulus by increasing budget balances, to increase readiness in anticipating the crisis, to conceive a framework of bond market stabilization, to prepare a standby loan and to utilize the emergency fund of Chiang Mai Initiatives under the ASEAN+3 (China, Japan and Korea) cooperation.

However, the above fiscal approaches are not sufficient enough. These should be integrated in more comprehensive undertakings in order to build a strong economic foundation.

In fact, global economy is currently less conducive to supporting a country facing crisis. The European crisis is far from at an end and although the European Union succeeded in making decisions to fix Greece’s economy, still are still gaps.

Meanwhile, the US is busy with its own domestic economic problems, particularly addressing the threat of a fiscal cliff deepening the state of recession. Perhaps China is the only economic powerhouse expected to play a role, but it’s likely that China will adopt a strict inward-looking policy for protecting its domestic market.

At this critical juncture, Indonesia needs to improve its industrial capacity. The Indonesian economy cannot be sustained by only producing low quality products.

Understandably, Indonesia had received Japanese and Korean foreign direct investment (FDI) for export substitution for some years. But it’s hard to understand that Indonesia should again receive the relocation of FDI from China for the same reason, even with low quality products.

Therefore, it is important to note National Development Planning Minister Armida Alisjahbana’s statement when receiving the Chinese investment mission several weeks ago. She reminded that Chinese investment should be oriented toward exports, not for the Indonesian market.

Moreover, Indonesia should impose strict requirements on foreign companies to transfer their technology, if they want to gain market access.

These measures will hopefully drive constructive industrial development. This can promote high quality products leading to the improvement of labor welfare.

In addition, the agricultural sector also needs to be improved. It is always a vicious circle in managing the domestic agriculture market, especially in relation to several sensitive products like soya bean, rice, corn and beef.

Recently, people have had to deal with the hike in beef prices. Again, the reason is due to the shortage of supply, especially from domestic production. As a result, importers have enjoyed a price hike from these importations.

We never hear of farmers enjoying the increased prices of their own products. On the contrary, when they harvest their products the prices tend to decline.

A very recent case is in the Central Java town of Purworejo, where farmers ignored their chili trees because the price dropped sharply and the trees were too costly to maintain (Kedaulatan Rakyat, Dec. 6).

Perhaps by introducing a new price mechanism, Indonesian farmers can experience dignified lives, like what the farmers of developed countries have long enjoyed. Their governments stop importing similar products when harvest time arrives, so people only buy their own farmers’ products at reasonable market prices.

To sum up, Indonesia should be able to improve its industrial and agricultural sectors. These two strategic sectors have absorbed the most part of the labor force in Indonesia.

 This is certainly not an easy task, but it is a must for Indonesia in order to have a strong economic foundation. In doing so, then we can say that our economic immunity is not an illusion, but a reality.

The writer works at the Yogyakarta Cooperation and Investment Board. The opinions expressed are his own


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