Completing his homework in the second period

Didik J. Rachbini

IO – Politically, the meeting of Jokowi and Prabowo was informal, but nev­ertheless carries great significance as a political reconciliation, impacting on the economy, economic policy, and fu­ture Indonesian stability.

In a political economy, the elector­al process that split this nation began to coalesce when Prabowo met with his rival, Jokowi. A leader must con­sider national interests. If the leader breaks, then the national interest is threatened.

In fact, many are disappointed since they feel a lot of deficiency and observed irregularities in the current election. But that is another thing that can be questioned separately and treated as the basis for improvement in upcoming elections.

Economic discussion for the next 5 years and its evaluation 5 years ago by taking in the meeting’s momentum of these two leaders is important, since Jokowi has a good political foundation for work. Homework that was not com­pleted should be fulfilled in this second period.

Therefore, Jokowi Prabowo’s meet­ing is seen as positive from economic and political aspects. With all its weak­nesses, our democracy becomes more mature and healthy; its impact on the economy will also be positive, especial­ly in terms of certainty in the business world.

Democracy is a constitutional game; if the game is finished, then the culprit returns to normal. A good leader brings this nation together: the Unitary State of the Republic of Indo­nesia (NKRI) is strong and not vice ver­sa; because of elections it can become broken, hostile, mutually destructive. Momentum of reconciliation is an im­portant foundation.

But it does not mean the problem is finished. A lot of homework has not been completed in the first period. Of the many targets in the National Medi­um-Term Development Plan (RPJMN), only one has been achieved, which is inflation control policy.

There are in fact many other de­velopment plans that have failed to be achieved because of economic teams that are not qualified or did not suc­ceed in launching and implementing adequate policies. The economic team performance in the future depends heavily on the quality of teamwork and economic leadership invested. If a work team is selected according to “horse- trading” alone, ignoring ability, future economic performance can be ascertained as the same as over the last 4 years.

How was the performance 4 years ago and what is the economic agenda in the future? First, evaluate that by macro: the economic growth targets for 4.5 years of Jokowi’s leadership failed to be achieved.

The target of 7-8 percent economic growth did not materialize; in fact, the Indonesian economy crawled along at only a level of 5 percent, although this figure is relatively higher compared to developed countries which are mature and cannot grow as quickly. But for Indonesia high economic growth is needed to attract young people into the labor market and deal with unem­ployed and underemployed groups.

The campaign promise of 7 percent growth was not achieved, because of many economic and political factors. In addition, the GDP per capita, Rupi­ah exchange rate, import and export growth, foreign exchange reserves, the primary balance of State Budget (APBN), APBN surplus / deficit to GDP, tax revenue per GDP, government debt stock per GDP, unemployment rate, and poverty level also failed.

Last year’s campaign promises were officially included in RPJMN. Nearly all failed to materialize. In his second term, Jokowi will no longer be allowed to carry out diffuse populist policies. Objectives and inflation tar­get were successfully achieved. This needs to be praised and needs to be continued so that the macro economy remains stable as it is now.

The main agenda in the economic area is to ensure that Indonesia does not grow feebly at a moderate level of only 5 percent, since that level of growth is not enough to drive up the number of fully-employed citizens, with productive, quality employment.

Boosting the growth rate from 5 percent to 6.5 percent or 7 percent, such as his campaign promised, is very important and should be the main target for Indonesia to escape the “mid­dle income trap”. It will be difficult for Indonesia to enter the ranks of 10 or even 5 major economic powers in the world in the next few decades if growth is sluggish, trapped at a 5 percent lev­el.

Therefore, government policies must strengthen the main sectors that have a major influence on economy and social sectors, such as industrial, agriculture and tourism sectors. The industrial sector can no longer be left behind, as for the past 4 years it has grown only a lowly 4 percent.

This industrial sector must grow higher than national economic growth, even if it has to be like the last 2-3 de­cades, where economic growth was almost twice as high. Why was the past growth rate high? The reason is none other than a policy of sustainable structural reforms, developing compet­itiveness, orientation of industrial forc­es for exports and international mar­kets, bureaucratic reform, upgrading all lines of economic support.

Comprehensive policies that have been implemented as “best practices” can be repeated with changes, but with stronger economic leadership. Unlike now, the economic leadership is weak and even investors see irrele­vance and uncertainty. Today an eco­nomic policy announcement, and later it gets canceled.

If the industrial sector is left as is and only touches a partial policy that is not significant, then do not expect the level of economic and industrial growth to get any better.

The industrial sector, containing the largest portion of GDP cake only shows a growth rate of a lowly 3-4 percent. This important sector cannot boost economic growth if the growth is so weak. In comparison, two-three decades ago the growth of industrial sector could reach 10 percent, and stay in double digits.

The industrial and trade sectors are rather quite messy sectors, not show­ing an adequate touch of policy. This sector must be a hard agenda and the main concern of an economic team in the second period.

If it is packed with vague economic policies and leadership as it is now, the economy is likely to fall below 5 per­cent since external challenges are far greater in coming years, due to trade wars. The result of such hesitant per­formance is a trade deficit of industrial products and other products in gener­al. In the past, goods trade has almost never been in deficit because Indone­sia has many natural resources, such as palm oil, timber, mineral mines, fishery products and so on. Now the deficit in the trade sector adds pres­sure to the economy, along with the service deficit.

Over the past few decades the trade balance has always shown a surplus performance, since Indonesia is rich in natural resources. They just need to be exploited – like rubber, coal, fishery products, palm oil and others. Now the trade balance is broken. Why? Because leadership and the economic team are incompetent.

The agricultural, plantation and mining sectors are very important, because they are assets owned by the Indonesian people. This sector should not only be managed as a raw material of low value but also needs to be down­streamed and pushed into an indus­trial commodity, so that it becomes an agro or resource-based industry with high added value.

The downstream program is not going well, since the focus is on infra­structure, as if the infrastructure is good, then other sectors are automati­cally prospering as well. There needs to be a policy of building resource-based industries where raw materials are abundant: do not sell them raw as crumb rubber, crude palm oil, raw fish, etc.

The tourism sector is also very im­portant to generate foreign exchange reserves, strengthen the service bal­ance and current account. Indonesia’s foreign exchange reserves are relative­ly weak, because the import burden is very large and the payment burden of service sector and primary income is very large.

This greatly weakened the Rupiah and will continue to be depressed due to the huge pressure on imports of goods and services. Two decades ago, 5 countries that experienced a crisis had a main characteristic, which was a weak foreign sector and a negative current account, so that the exchange rate is easily damaged (Baht, Ringgit, Peso, Won and Rupiah).

After two decades, these countries achieved a positive current account balance, because they learned from the crisis they experienced. Thailand even has a positive current account of up to 8 percent. Only Indonesia was left behind, having experienced a large current account deficit because its economic, industrial and trade policies have failed.

Even the current account deficit in one year (2017-2018) has doubled from US $ 16 billion to US $ 31 billion. This happened since there is no policy of at least maintaining a deficit level – which is already large. What happens is that the performance of the econom­ic team is getting worse. This is the agenda for the next 5 years, namely, improving the performance of the for­eign sector.

With the widening current account deficit, it is impossible for the Rupiah to strengthen. If there is strengthening, it is only only as much as an “up and down speculation”.

In the past two decades there were 5 countries that experienced a se­vere crisis because of a fragile foreign sector, namely, Thailand, Indonesia, South Korea, Malaysia and Philip­pines. These five countries experienced a crisis where the current account per­formance was negative. In contrast, the surrounding countries that have positive current account performance, such as Singapore, Hong Kong, Tai­wan and China, did not experience any crisis.

Now after two decades have passed Thailand, South Korea and Malaysia have managed to overcome their for­eign sector imbalance, so that a large surplus sits in the current account. Indonesia has worsened its current account conditions. The grand, ambi­tious agenda that was not successfully completed in the past is now “home­work for the future”.

20 years ago, Thailand was the source of a terrible crisis. Now the country current account is positive, up 8 percent. Why can Thailand and Malaysia be in surplus, but Indonesia cannot? The answer is the man behind the gun, plus leadership.

(Jokowi launches Indonesia’s vi­sion. No need to be grandiose, improve the 5-year performance that was not achieved. Jokowi stated what will be done to the government in the next five years, among others, continuing infrastructure development, natural resource development, opening the door for investment as wide as possi­ble, bureaucratic reform, and budget regulation in the State Budget (APB­N)-Red).

Another important agenda is that the future economic leadership must be stronger and more solid than what is now evident. The results of economic teamwork with a 5 percent growth rate are a necessity, without any adequate policy efforts.

In this second period, President Jo­kowi does not have any other election interest in the future. This is his final period. Therefore the President does not need to carry out a virtual popu­list policy without directly touching on economic problems and does not need to be too afraid to choose his cabinet team because of party pressure. The President needs a strong team, tech­nically mature and able to overcome the social and political problems that are blocking