Companies / March 2018

Thus Spake Sri Mulyani

When and how Indonesia can come out of the middle-income trap is the question most economists like to talk about. The World Bank noted that in the history of more than one hundred world economies, only 13 were able to move ahead and become advanced countries.

Indonesia needs at least until 2027 before it can achieve per capita income of $12,400. It must achieve average per capita income growth of 5.4% a year, according to Finance Minister Sri Mulyani, the world’s best minister.

High and inclusive economic growth, high-productivity human resources, infrastructure, a social security net, clean and efficient bureaucracy and a healthy and competitive private sector are needed. But if growth in per capita income is only around 3.5% a year, Indonesia will only manage to get out of the middle-income trap by 2035.

That’s a bleak picture of the Indonesian economy Sri Mulyani is portraying, and most pundits would agree. But, she said during a lecture at the University of Indonesia, there are four factors which could help Indonesia – the demographic bonus, urbanization, weakening global commodity prices which will spur economic diversification and higher export value, and rising wages in China which would encourage more investment in the labor-intensive export sector.

She reasoned that by 2020, the Indonesian workforce will reach 189 million and if workers are well-educated and technology-oriented, they will become potential assets to spur productivity.

The growth of cities in Indonesia is among the fastest in the world at 4% a year and 68% of the population is expected to live in cities by 2025, which will increase the demand for housing and consumption.

At an economic discussion hosted by a global bank, head of the National Development Board (Bappenas) Bambang Brodjonegoro gave an even bleaker outlook of the economy.

He noted that the world is entering Industrial Revolution 4.0 which leans on the digital economy, artificial intelligence, big data, robotics and disruptive innovation. He pointed out that Indonesia should be aware of consequences such as mass unemployment that come with Industrial Revolution 4.0. Indonesia lags behind neighboring countries such as Malaysia, Singapore and Thailand in terms of facing change due to weak higher education and training, science and technological readiness, innovation and business sophistication.

Bambang said he looks at two countries which could be of relevance to Indonesia as models for emergence from the middle-income gap: South Korea and Chile. South Korea 30 years ago designed digital industry by sending its young people overseas to master technology. This resulted in the emergence of giant multinational companies such as Samsung, LG and many others.

Chile, meanwhile, designed what the nation and the economy would be like post-Pinochet, including a total reform of the judicial system inherited from Spain under two-term leader Prof. Dr. Eduardo Frey.

Indonesia must learn from its past mistakes as Vice President Jusuf Kalla pointed out in a lecture for the National Resilience Institute (Lemhanas). Indonesia lags behind Malaysia and Singapore because of two reasons, he said: the mistake of bailing out corrupt banks with central bank liquidity funds 20 years ago, and subsidizing fuel for many years. Indonesia could have saved a total of Rp6,000 trillion which would have been better off used to build infrastructure.

It is not all bad news. The good news comes from Malaysia where according to columnist Abdul Muein Abadi, the 265 million people of Indonesia should be proud of the nomination of Sri Mulyani as the World’s Best Minister and of the barter purchase agreement with Russia for fourth-generation Sukhoi Su-35 jet fighters.

As a technocrat, Sri Mulyani has steered the Indonesian economy to strong results in poverty alleviation, improving living standards and manageable debt while also bringing Indonesia to the position of third-ranked developing nation after China and India at the G-20.

And the barter purchase of the 11 Sukhoi Su-35, which of course is with Sri Mulyani’s consent, showed Jakarta’s intelligent strategy amidst the geopolitical rivalry between the United States and China in the South China Sea.