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Growing Demands
Dr. Koeberle believes that Indonesia is at a crossroads and that tough choices must be made to make the most of the country’s promising potential.
Dr. SteFan G. Koeberle Country Director, the World bank, Indonesia
EConoMY
Is Indonesia’s continued growth as- sured? This seems likely but it would be a mistake to become complacent. dr. Koe- berle, sees many reasons for optimism but believes that continued progress will require significant reforms, identifying three key areas that are crucial for sustaining Indone- sia’s success.
Focus on Infrastructure
Much has been made of Indonesia’s impressive economic growth but no less remarkable are the institutional reforms made since the “Reformasi” transition was initiated in the wake of the Asian crisis; the result has been greater checks and bal- ances on the exercise of power through strong decentralisation, a vocal parliament, an anticorruption commission and freedom of the press.
Unfortunately, infrastructure has not kept pace with the demands of a growing economy, creating the paradoxical situation of a country that is rapidly urbanising but is unable to provide ready access to water, electricity and transport. Although this is something the government is attempting to address, the percentage of GdP being invested in infrastructure is still lower than before the Asian crisis. While Indonesia is growing at a satisfactory rate, there is a risk that it may be coasting along on the strength of commodity exports and its domestic mar- ket. Structural changes are needed to ben- efit from a young and dynamic population. A full 20% of the national budget already goes to education but the on going challenge is to raise the quality of teaching to cater for a job market that is demanding increasing numbers of skilled employees.
Smarter Investment
Indonesia’s impressive economic pros- pects have been noted by investors, evi- denced by foreign direct investment (FdI) reaching record levels. The economy has traditionally been very open to investors, from home and abroad, and many op- portunities await those seeking long-term ventures that take advantage of the coun- try’s abundant resource endowment and its steadily growing middle class. never- theless, more must be done to create a comfortable environment for investors; this means developing clear regulatory certain- ty, unambiguous enforcement of contracts, and overcoming the existing fragmenta- tion and constraints in the decision-making
Indonesia’s successful development offers rich lessons for other emerging markets.
process for public policies.
The government also faces difficult long-
term decisions. A good case in point are proposals to limit government-funded fuel subsidies which are unpopular but would free up public funds that could be better spent on improvements in infrastructure and the social safety net.
Demand More
despite the impressive reduction in pov- erty, millions of Indonesians still live below the poverty line. Many more have escaped poverty but remain vulnerable to economic shocks, which is compounded by the fact that Indonesia spends less on social protec- tion than other countries of a comparable
level of income. Indonesia’s growing middle class tends to live in the large urban centres that are struggling to improve the services they provide. It stands to reason that an increasingly urban population will be ques- tioning why they live in highly-developed Jakarta with gleaming shopping malls but don’t have basic facilities such as clean, drinkable water, efficient public transport or sewerage. demand for better services will hold elected officials accountable for deliv- ering on their promises unless, of course, those who can afford to do so “opt out” of public services by attending Singapore hos- pitals, drinking bottled water and sending their children to Australian colleges.
Great Potential
Dr. Koeberle sums up the country’s con- tinued growth in these words: “Indonesia has great prospects but it is still operating somewhat below its potential. If Indonesia wants to reach that potential and sustain growth over the medium term, it needs to implement structural reforms in infrastruc- ture, education, invest in social protection, improve the quality of services in its urban centres and protect the environment.”
The World Bank has been supporting Indonesia for six decades, both financially and through judicious advice on economic management and governmental reforms. dr. Koeberle has expressed his wish that this partnership continue to evolve in line with Indonesia’s changing demands as an emerging and increasingly self-confident middle-income country, and he confirms that the World Bank stands ready to remain a valuable multilateral partner.
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STRATEGY IndonESIA 2013