Perspectives

A Conversation with Amalia Adininggar Widyasanti
Deputy Minister for Economic Affairs of Bappenas

 

Indonesia Economic Transformation to Achieve the 2045 Vision

Tuesday, 29 June 2021

Indonesia was well on its way paving the way to achieve the 2045 Vision to become a more equitable, and prosperous nation when the Covid-19 pandemic struck in early 2020. The country's dream to become one of the top five world economies with a poverty rate nearing zero per cent by its centenary in 2045 suffered a setback as economic growth contracted by -2,07%. 

On Wednesday 23 June 2021, Madam Amalia Adininggar Widyasanti, ST, MSi, M.Eng. PhD kindly accepted to share her perspectives on the Government’s National Economic Recovery programme to address the impact of the Covid-19 pandemic and get back on track towards the 2045 Indonesia Vision.  

 

Q: How will the Government of Indonesia navigate the economic policy to recover from the pandemic and achieve the 2045 Indonesia vision as one of the advanced economies?

A: We have rolled out the economic recovery program since 2020, and we will continue on next year. The economic recovery strategy for next year has been set out in the 2022 Government Work Plan and approved by the House of Representatives. The strategy comprises two pillars: restoring purchasing power and business, and economic diversification. 

Containing Covid-19, Restoring Purchasing Power & Businesses

The first thing we have to do in recovering the economy is to contain the Covid-19 pandemic and complete the vaccination as soon as possible. It is impossible to push economic recovery forward without ensuring the public health.

We also provide assistance to businesses, rebuild household purchasing power through social protection programs and pre-employment training, and accelerate the realisation of labour-intensive infrastructure development. The government infrastructure projects will help people who have lost their jobs due to the Covid-19 pandemic to return to work and earn a living again. 

Economic Diversification

The second pillar for economic recovery is economic diversification to build a more resilient and sustainable economy that will further strengthen Indonesia’s capacity to confront future global economic shocks. 

Economic diversification implies increasing added value in our industry. We need to accelerate the expansion of our processing industry. We also need to encourage the development of downstream agricultural products and increase their productivity to produce better products and increase farmers' income. This will also improve our food security.

Obviously, we want to recover, but even better, we want to build back better. To achieve a sustainable and future-proof economy, we have no option but to adopt low-carbon development. That is why our recovery development tagline is Green Recovery, which is also in line with the agendas and policies in the European Union countries. 

Along with the Covid-19 pandemic, we are aware that digitalisation plays an important role in maintaining our resilience, meaning that we must continue to improve the infrastructure and quality of digital services. This will be a stepping stone for our digital transformation. 

 

Structural Reformation

Our economic recovery is supported and strengthened by structural reforms in three areas: the investment climate, institutions and governance, and human resources quality and social protection.

We need to transform our economy to achieve the 2045 Indonesia Vision. Bappenas has redesigned and launched six major strategies for Indonesia's economic transformation for the medium and long term to respond to a request by the President. The President has asked Bappenas to coordinate the economic transformation process. The six major strategies are: building competitive human resources, increasing sectoral productivity, transition to Green Economy, accelerating digital transformation, supporting domestic economy integration, and, last but not least is improving SMEs.

So, this is how the Government will navigate the economic policy amid the Covid-19 pandemic situation. Indonesia must recover but not only recover but must build back better and rise towards a better Indonesian economic transformation so we can escape the middle-income trap before 2045.  

 

Q: With the Covid-19 pandemic that caused a significant setback, what would be the new timeline to achieve Indonesia's Vision 2045?

A: In the initial 2045 Indonesia Vision, we aspire to become a developed country by 2036 if our economy grows an average of 5.7% per year from 2020-2045. Of course, with the Covid-19 pandemic, the timeline has been revised, but we have to uphold our goal. In this case, if we can achieve high economic growth on average of 5,7% - 6% per year, we can escape the middle-income trap by 2041-2043. Starting in 2022, we will encourage investment and exports as the key driver to achieve high economic growth. 

 

Q: What would be the strategies and policies to improve Indonesia exports?

A: We have two main strategies to improve our exports. First, we need to shift our export structure from commodity-based to product export with high added value. Second, we need to strengthen the supply and demand of our exports.

Currently, Indonesia’s exports depend on two commodities, crude palm oil (CPO) and coal. Indonesia should no longer rely on non-processed commodity export whose prices are highly dependent on fluctuations of commodity prices in international markets. In that case, we only act as price takers, not price makers. This is certainly not good for the Indonesian economy because it is very vulnerable to market price volatility.

Therefore, our efforts are shifting to more downstream products. We have done this mainly for mining goods, such as nickel, bauxite and copper. We process the commodity in Indonesia then we export it. Evidence indicates that the provinces with downstream production, such as nickel in Morowali and Teluk Weda industrial estate, managed to have positive economic growth during the pandemic while other provinces experienced negative economic growth. If we can produce downstream products, we become price makers.  

Through manufacture, we can create jobs for our society and create a multiplier effect in our economy. The manufacturing value chain is extraordinary because it drives the primary sector as well as the supporting sectors. This is what we call forward and backward linkages.

 

Strengthening the Export Supply and Demand 

We have several strategies to strengthen the supply side. First, we need to improve productivity in human resources and industry to increase price competitiveness. Second, increasing access to raw material supply to make it more competitive as well. Third, we need to encourage our exporters to create innovations, leveraging information technology and research and development to expand the range our export products. Fourth, we need to improve the harmonisation of regulations and business climate to make it more exporter friendly. And the last is to improve access to finance for exporters and encourage export investment.

There are several strategies to improve the demand side. First, we need to optimise our existing FTAs/CEPAs to enhance market access for our exporters. Then we need to improve the quality standard of our export to meet with international market requirements. We also need to disseminate information to our SMEs on export markets, especially those with limited access and information. Also, we need to broaden our market to the growing non-traditional market, such as Africa and the Middle East. 

In terms of the EU market, we need to optimise the I-EU CEPA and improve our market access to all EU countries, including Eastern and South European countries.   

This is where ARISE+ Indonesia plays an important role to support the capacity building of the Government of Indonesia in trade competitiveness to boost export becoming prime movers of Indonesia's economic growth in the future.

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