Vice President Jusuf Kalla said Indonesia had been relying too much on extractive sectors, such as mining and agriculture, which makes it very vulnerable to global shocks. (JG Photo/Nur Yasmin)

Economists Urge Gov't to Shift Focus to Industrial, Talent Development


OCTOBER 17, 2019

Jakarta. President Joko "Jokowi" Widodo must shift his government's focus to increasing productivity in the domestic manufacturing industry and improving the investment climate during his second term to stem a slowdown in the country's economic growth, economists said. 

Jokowi, who will be inaugurated for a second term on Sunday, promised 7 percent economic growth in his first term, but only saw lackluster growth of about 5 percent. The slowdown was even starker in the manufacturing sector, which only grew at 4 percent over the past two years, continuing a declining trend that started more than a decade ago. 

"Growth in our manufacturing industry is below 5 percent, while it could reach 20 percent in other countries. This is very unfortunate. That is why the government needs a grand strategy. However, we cannot put all the blame on Jokowi, because the growth rate in the industry had been decreasing over the past 10 years," Piter Abdullah Redjalam, research director at the Center of Reform on Economics (Core), said on Thursday.

He was speaking at a forum of 100 economists who discussed current economic affairs with Vice President Jusuf Kalla, whose term ends this week. 

"We are so busy creating comprehensive economic partnership agreements, free-trade agreements and others, but we don't have any goods to export, yet we widely open our import doors. No wonder we have a deficit," Piter said.

The competitiveness of Indonesia's manufacturing sector holds the key to countering a fallout, or to even benefit from the ongoing trade war between the United States and China, which has been raging for more than 15 months already.

"We have to change our economic structure and create upstream and downstream industries and utilize our potential, so we have goods with competitive value," Piter said. 

"We must see the right time to open our imports or close it, by considering the impact on our industries. So we must open our imports for industries and close it for industries. That is the No. 1 thing we should consider," he said. 

Kalla said Indonesia had been relying too much on extractive sectors, such as mining and agriculture, which makes it very vulnerable to global shocks. But he said the government was working on changing this.

"Our industries are very much influenced by our mining and palm oil exports, so when they go down, our economy and income follow. That is why we are now banning nickel and iron exports and try to produce finished goods ourselves, so we increase the value," he said.

Kalla added that the government understood that the trade war, which saw the United States impose tariffs on Chinese products, would force China to seek buyers from other countries, including Indonesia. And the government has vowed to stem that flow. 

The Ministry of Finance sanctioned hundreds of textile importers earlier this week for breaching tax, customs and import regulations after local producers complained to Jokowi last month that a surge in imports from China had negatively affected their businesses. 

However, Piter of Core said he expected the government to come up with more than a show of force. 

"What we are expecting is a clear strategy and program to see where the government is taking our economy. So far, the president was only promoting infrastructure programs, but it was unclear. We hope this will not happen again in his next term," he said.

Didik J. Rachbini, a senior economist at the Institute for Development of Economics and Finance (Indef), said the government should implement bureaucratic reforms, show economic leadership and develop the country's human resources.

"Bureaucratic reform will make it easier to obtain investment permits. Economic leadership, because the current programs are left untouched as there is no leadership. They must formulate policies together. Lastly, they must develop the human resources we have through vocational training," Didik said.

Indonesia dropped five places on the World Economic Forum's Global Competitiveness Index in 2019 to 50th out of 141 countries. The country stagnated in the adoption of information and communication technologies and in innovation capability – a reflection of poor talent development.

Kalla said it was now very urgent for Indonesia to improve its education system to produce better-skilled labor, which would increase productivity in the country's industries.