Indonesia’s Economy: False Promise

In the realm of politics, constant repetition is a key component of any campaign. But for Indonesian voters, who will head to the polls on February 14th to choose a new president, one particular promise is beginning to sound worn out. For nearly two decades, candidates vying to lead the world’s third-largest democracy have been pledging to elevate the country’s growth rate to 7%.

This familiar chorus first emerged with the election of former president Susilo Bambang Yudhoyono in 2004, and it was echoed again with the election of current president Joko Widodo, also known as Jokowi, in 2014. Now, as the next presidential election looms, two of the three contenders are echoing the same pledge. Ganjar Pranowo, former governor of Central Java, aims for a 7% growth target, while Prabowo Subianto, Indonesia’s minister of defense and the leading candidate, is suggesting that the economy could achieve double-digit growth.

Despite these long-standing promises, the reality is that Indonesia’s economy has grown at an average rate of around 5% over the past two decades, falling short of the 7% mark. The country’s last expansion at this level occurred in 1996, right before the Asian Financial Crisis.

While the outgoing president’s achievements are noteworthy, it is important to note that the promises of higher growth have far outnumbered the policies that would actually help to bring about such a change.

One of the administration’s major achievements is its nickel-focused industrial policy. By banning the export of raw ore, Indonesia has positioned itself as a global hub for electric-vehicle battery production, attracting investments from major carmakers. However, despite the potential success of this strategy, some risks remain, particularly in the face of emerging battery technologies that may not rely on nickel.

Additionally, Indonesia’s restrictive rules and regulations on imports and domestic material requirements have discouraged investment in certain sectors, such as solar power.

These challenges, along with Indonesia’s dependence on industrial policy, threaten to hinder its competitiveness in the global market and may deter foreign investors. As a result, Indonesia’s exports of electronics have not only lagged behind its regional competitors but have also experienced slower growth.

Looking ahead, without more significant efforts to stimulate economic growth, talk of a 7% growth rate will remain unattainable, especially as Indonesia’s dependency ratio begins to shift.

In summary, although Indonesia boasts a growing young population, the country must navigate several economic challenges to achieve the lofty growth rates promised by its leaders. The future of Indonesia’s economy depends on the ability of its leaders to implement concrete economic policies that foster growth and attract foreign investment.

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