Jakarta, IO – Recently, Coordinating Maritime Affairs and Investment Minister Luhut Binsar Pandjaitan suggested that Indonesia’s economic growth could hit 6 percent in 2024. He argued that this projection is not without good reason, as a digital transformation will be able to accelerate economic growth on multiple fronts. Bank Indonesia (BI) also exuded optimism, when it estimated that this year’s GDP could zoom past 5.1 percent, the reason being that the presidential election was over in just one round, which means that investors can now abandon their cautious wait-and-see approach.
Of course, there is nothing wrong with being optimistic. In fact, top state officials should exude perpetual optimism, as it will inspire citizens in the face of economic uncertainty. However, seen in a wider context, Luhut’s prediction is actually way higher than the government’s own forecast of 5.2 percent, as set forth in Budget (APBN) 2024. Luhut can be said to be over-optimistic, even bordering on unrealistic, in expecting a 6 percent growth rate. It is, in my reasonable opinion, simply a fight of fancy for the time being.
Historically, Indonesia’s annual GDP has never been over 5.3 percent during Joko “Jokowi” Widodo’s two-term administration. This is much lower compared to that of Susilo Bambang Yudhoyono (SBY) whose first-term presidency managed to post an average of 5.64 percent GDP growth (peaking at 6.35 percent in 2007, the highest since the advent of Reformasi). The growth rally was stalled by the global economic crisis of 2008, when it tanked to 4.63 percent in 2009. However, it quickly rebounded to 6 percent the following year. SBY’s second-term government saw an overage growth of 5.8 percent.
When Jokowi took offce, he already inherited a weak economic growth figure of 5.01 percent. In the first year of his initial term, he oversaw a GDP growth of 4.88 percent. One of the problems at that time was weakened purchasing power, after he announced a fuel price hike to rein in ballooning subsidies. In 2015, household consumption, a key engine of growth, took a hit, growing below 5 percent. As a result, the entire economy slowed down.
After that, the government was confronted with the US-China trade war, which escalated when Donald Trump was elected US president in 2016. At the time, Indonesia’s economic growth was growing at between 5 and 5.2 percent (topping 5.17 percent in 2018).
In the 2020-21 period, the world faced the devastating Covid-19 pandemic, which choked global and domestic economies to the point of recession. Indonesia’s economy contracted by 2.07 percent. One year after the recession, the economy managed to recover, growing 3.7 percent. At that time, household consumption shrank by a massive 5.5 percent, as a result of the imposition of stringent social restrictions nationwide.
It was only in 2022 and 2023 that Indonesia’s growth again hit the 5 percent mark. The highest rate was 5.3 percent in 2022, but many economists attributed this to a “low-base effect,” referring to the tendency of a small absolute change from a low initial amount to be translated into a large percentage change. In other words, if the base for which the comparison is made is low, then the outcome is a result of a low-base effect. In this case, the base was the 2021 GDP figure (-2.07 percent). (FIGURE 1)
During the Jokowi administration, Indonesia’s economic growth achievements have always been below the targets set by the government (see Figure 2). To be fair, we have to admit that the external environment Indonesia is facing has become more complex and tumultuous.
At the start of Jokowi’s presidency, Indonesia’s economic growth target was set at 5.7 percent, according to Budget 2015. However, the actual achievement was mere a 4.9 percent. After this failure, the government lowered the target to 5.2 ~ 5.4 percent for the next financial year, but still the realization fell short (5.02 percent). It was relatively unchanged in 2017 (5.07 percent).
In 2018, the government’s target was 5.4 percent as it banked on massive infrastructure development to be the key driver. In 2017 and 2018, domestic infrastructure development funds topped Rp350 trillion (17 percent of total national spending). However, the global economy at that time was adversely affected by the US-China trade war. As a result, the achievement remained stuck at a low 5.17 percent. In the following year, the realization declined further, to 5.02 percent.