OECD Opens Office in Jakarta, Hands Host To-Dos

MARCH 25, 2015

Jakarta. The Organization for Economic Cooperation and Development says it is bullish about Indonesia’s prospects for economic growth, but adds that much work remains if the nation hopes to leverage its demographic bonus and lift its status from a lower-middle-income country into upper-middle-income range.

The OECD is an intergovernmental organization comprised of 34 mostly European member states with developed economies. Its mission is to promote democracy and open markets.

On Wednesday, the OECD unveiled its annual “Economic Survey on Indonesia,” which prefaced its criticism by observing: “Today Indonesia is outperforming most of its regional neighbors, and most other emerging market economies.”

“But,” OECD secretary general Jose Angel Gurria Trevino said in a press release on Wednesday, “by accelerating reforms it can do even better, grow even faster, and ensure that all Indonesians share the benefits of growth.”

Gurria was in Jakarta to officially open the OECD’s new Southeast Asia office, which will serve as a platform for boosting the OECD’s work in the region and enabling the organization to cooperate more closely with counterparts in Indonesia, as well as Southeast Asian nations.

The OECD report concurred with local analysts’ findings that Indonesia’s policy reforms that slashed fuel subsidies last November had successfully opened fiscal room for more spending in productive sectors such as infrastructure, education and the social security system.

In a separate statement on Wednesday, the OECD said it forecast Indonesia’s economic growth to reach 5.3 percent in 2015 and 5.9 percent in 2016, a faster pace than last year’s slow growth. Indonesia’s economy expanded 5 percent in 2014, a fourth consecutive year of slowing.

The OECD is one of several international organizations projecting economic growth to accelerate this year and next.

The Asian Development Bank released a report on Tuesday that estimated Indonesia’s economy could grow by 5.5 percent and 6 percent in 2015 and 2016, respectively.

Echoing the oft-repeated refrain of the United Nations Population Fund, the OECD emphasized that Indonesia’s demography now offered a limited window to catapult the country’s development forward.

“With 43 percent of its 250 million-strong population under the age of 25, the country is already endowed with the human resources necessary to propel growth, provided its workforce is equipped with the right skills.”

To-do list

To reap the demographic dividend or “bonus” between now and 2030, during which time more of the population will be of working, productive age than dependent, Indonesia must improve the quality of education by reforming teacher training, professional development and increased accountability, Gurria said.

However, should there not be enough jobs for productive-age people, the prospective “bonus” could instead backfire.

The OECD urged Indonesia to do more to make the most of its natural resources, notably by increasing agricultural productivity through technical assistance and training, while improving farmers’ access to credit.

The OECD also urged its new host to diversify energy sources away from fossil fuels, notably by promoting investment in its abundant geothermal resources. Also included in the Jakarta office’s opening salvo was a call to avoid protectionist measures that inhibit openness to trade and foreign investment.