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Potential missteps in Jokowi's plan
President Joko âJokowiâ Widodo has been warned about potential missteps in his development agenda as his ambition to drastically increase Indonesiaâs economic growth in a short period of time might cause the countryâs economy to overheat
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resident Joko 'Jokowi' Widodo has been warned about potential missteps in his development agenda as his ambition to drastically increase Indonesia's economic growth in a short period of time might cause the country's economy to overheat.
The President's mission to reach an average annual economic growth of 7 percent during his five-year presidency might expose the new government to problems related to governance and transparency, specifically in growth-generating infrastructure projects, analysts said.
Jokowi and Vice President Jusuf Kalla have laid out plans for ambitious infrastructure projects, which include 15 airports, 24 seaports and 49 dams, as well as 3,258 meters of new railway, 2,650 kilometers of new roads, 1,000 kilometers of new highways (toll roads) and new power plants with a capacity of 35,000 megawatts (MW) ' all within five years of their leadership.
Past experience showed that infrastructure projects that were built hastily were overwhelmed by governance issues, mainly because of the lack of transparency or competition in the tender process.
One key example is the 10,000 MW power plant development project pioneered by President Susilo Bambang Yudhoyono in 2004-2009, when Kalla was his vice president.
'Some of the power plants that are part of the 10,000 MW electricity project do not come with the best quality,' said Edimon Ginting, the chief economist of Asian Development Bank in Indonesia.
'For our economic sustainability in the long-run, it is important to promote good governance and keep healthy competition in infrastructure project development,' he noted.
Infrastructure development and governance is a trade-off, argued Telisa Aulia Falianty, an economist from the University of Indonesia.
'During the last tenure of Pak SBY,' she said in a reference to President Yudhoyono, 'the infrastructure projects' governance was relatively good but its progress was sluggish. The question now is how Pak Jokowi can make rapid progress in infrastructure building, but at the same time maintain good governance,' she added.
Jokowi is now aiming to drive up economic growth to a pace that was last seen in 1996, during which Indonesia's gross domestic product (GDP) expanded by 7.6 percent.
At that time, such a level of economic expansion was shown to be unsustainable. Overwhelmed by huge foreign debts and weak governance, Indonesia then bumped into an economic meltdown during the 1997-1998 Asian financial crisis.
In recent years, Indonesia's economic expansion of 6 percent showed signs of overheating, such as the ballooning current-account deficit, as the growth of domestic demand far outpaced the supply capacity from the local manufacturing sector.
In upcoming years, external risks also pose a challenge to the outlook of the Indonesian economy, notably the slowdown in China, which could hurt the archipelago's exports, and the imminent monetary tightening in the US, which might drain global liquidity and cause shocks in financial markets.
'In current circumstances, we must focus on stabilization instead of thinking about how to achieve high economic growth,' former finance minister Chatib Basri said recently. 'Sending a wrong signal in government policy [to the market] could have a negative impact on the Indonesian economy.'
In his medium-term development agenda, Jokowi also said that he would undertake economic reforms to ensure that Indonesia would be self-sufficient in rice, corn, sugar and soybeans, so that the country would soon no longer need to import the commodities ' a move called import-substitution policy.
An import-substitution policy would be ineffective if it was undertaken in the manufacturing industry, as it might sidetrack Indonesia from its focus to produce goods where the country is truly competitive, explained Fachry Ali, a public policy analyst from the Institute for the Study and Advancement of Business Ethics (LPSEU).
'However, if it is applied in basic food [industries], we must support it,' he said on Friday. 'It is a good step to strengthen the fundamentals of our domestic economy in the long-run.'
