Building the 5% “castle in the sky”: 2021 economic growth

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Gede Sandra Bung Karno University Economic Analyst seriousness and comprehensive efforts to accelerate the fulfilment of MEF. For example, they have reevaluated defense cooperation contracts that were deemed ineffi- cient, opened up window of cooper- ation with various countries so that we are not dependent on a single country, and lastly, they have also strived to beef up the national de- fense industry. So, the steps taken by the Defense Ministry have been no less comprehensive. We urgent- ly need to make key breakthroughs to have a strong national defense system in less the time it would normally take. Other than the things I have mentioned above, I concur that this grand plan certainly still has to be refined and finalized together with the Parliament.

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.