Reforms necessary to achieve 2045 target

JAKARTA: The National Development Planning Agency (Bappenas) has revealed the economic growth it deems necessary to make Indonesia a developed economy by 2045, but the government and experts agree that the envisioned rate will not be attainable without deep structural reforms.

In its draft for the national medium-term development plan for 2025 to 2029, Bappenas indicated that national gross domestic product (GDP) growth must fall within the range of 5.6% to 6.1% throughout the five years.

“To meet the 2045 target, however, the country must achieve GDP growth averaging 7%. If we do not undergo reforms, we will not be able to reach the target of US$9.8 trillion by 2045,” Bappenas head Suharso Monoarfa said during the draft’s presentation recently.

He explained that, if Indonesia continued on its current trajectory, the projected GDP would be around US$7 trillion in 2045.

To lift the average to 7%, Bappenas targets an annual GDP growth of up to 7.8% in the 15 years from 2030 through 2044.

Jakarta has been adamant about not letting Indonesia fall into what is known as the “middle-income trap”, where a country fails to advance to join the ranks of high-income economies.

Finance Minister Sri Mulyani said in May that Indonesia’s economic growth would have to average 5.9% from 2025 to 2029, 6.9% from 2030 to 2039 and 5.1% from 2040 to 2045.

Despite the modest target for 2025 to 2029, BCA chief economist David Sumual said even reaching the lower bound of 5.6% was difficult, considering the weakening global economy.

“My view is that, for the short-term, growth will remain at around 5%,” David told The Jakarta Post on Wednesday.

He pointed out that Indonesia could not rely on commodity exports to reach such an ambitious target and would have to instead push for more investment, much like its peers China, Japan and South Korea had done when they achieved significant economic growth.

David said Indonesia’s share of investment to GDP needed to be ramped up to above 40% to score high economic growth.

Statistics Indonesia data showed that investment accounted for only 29.83% of 2022 GDP.

To attract more investment, structural reforms are needed, and part of the ongoing efforts was implementing policies on the development and enhancement of the financial sector, according to David.

“The implementation of regulations needs to be accelerated,” said David, pointing out that the government estimated to have them fully implemented in two years.

Concurring, Bank Permata chief economist Josua Pardede told the Post that structural reforms were key to attaining the 2045 goal and needed to pick up speed.

“If Indonesia undertakes structural reforms, then the possibility for Indonesia growing by 6% per year can be realised,” said Josua on Wednesday.

The challenge in pushing Indonesia’s economic growth was to ensure regulatory consistency, given the rampant tendency to favour popular short-term policies for political gains, he added.

For external challenges, Indonesia must amplify its involvement in the global value chain.

Reliance on commodity exports needed to be lessened, the downstream development agenda had to be continued by extending domestic supply chains, and Indonesia should find new export products and destinations, said Josua.

The opportunity to reach the medium-term goals would always be there but the challenges that lay ahead had to be taken into consideration.

“From the domestic perspective, various efforts for improvement have been carried out, and Indonesia is already on the right path,” granted Josua.

However, he pointed out that the world’s economy was increasingly integrated, giving rise to the volatility, uncertainty, complexity and ambiguity phenomenon.

“Therefore, on top of pursuing growth, the government needs to focus on stability,” Josua said.

The previous development plan covering the current period dictated that the economy had to grow by 5.4% to 6% throughout 2020 to 2024.

The archipelago is on track to miss that by a large margin due to the effects of the pandemic and global economic uncertainties. The International Monetary Fund, in its latest forecast published this week, expects Indonesia’s economy grow at 5% in 2023 and 2024. — The Jakarta Post/ANN