IO – Minister of Finance Sri Mulyani Indrawati (“SMI”) has frequently expressed her belief that Indonesia’s economy in 2021 will grow 4.5%- 5.5% sprouting various opportunities, even though she usually adds the caveat that it all depends on COVID mitigation.
Very well, let’s consider that COVID is finally mitigated. Can we still achieve this 5% economic growth? Is SMI building us “castles in the sky” instead of substantial homes down on Earth?
Basically, economic growth is affected by public consumption (C), Government consumption (G), investments (I), exports (X) and imports (M).
Public consumption contributes the most to economic growth at 57%. Unfortunately, household consumption is still on the decline at -4.04%. Will this condition become better in the future? Access to credit remains very strict, with extremely low banking credit growth rate at 3%.
Government consumption did grow recently, but can we maintain this trend next year? After all, the State’s income this year drops quite far below that of the previous year at -18.8%.
Can we compensate for this insufficiency in income with debt? Our primary balance deficit is already so huge at IDR -700 trillion, making our space for debt even narrower than it already is. Or perhaps next year’s debt proportion is already being used to cover the State’s cashflow difficulties today?
Investment also offers little hope to increase our growth. The Investment Coordinating Board (Badan Koordinasi Penanaman Modal – “BKPM”) records the trend of foreign investments to be in continuous decline from January to September this year (-5%).
Indonesia’s export growth also awaits global economic recovery. Even though the prices of standby reliable commodities such as palm coconut and coal have started to recover, their export value has gone down. For example, coal export value has gone down -22% through the year. Indonesian imports have also declined at -18.8%.
So how do we get the potential 5% economic growth?
Are we going to push domestic consumption? We must admit that this is the fastest way. If we really can increase domestic consumption growth to 10% next year, we can definitely achieve 5% economic growth for the period.
But what instrument can we use to encourage domestic consumption? We don’t have either money or good interest rates.
In brief, it’s pretty unlikely if not impossible for Indonesia to achieve 5% economic growth next year.
Is our Minister of Finance SMI only building us “castles in the sky”? Only time will tell.