Significance of Economic Independence

Didin S. Damanhuri Professor of the Department of Economics, Faculty of Economics and Management, Bogor Agricultural University

IO – The definition of “independence” as expressed herein signifies the ability of a country to meet the needs of its people for goods and services. This is enabled by an economic development strategy through which the state prioritizes national economic interests over foreign ones. In successfully implementing such a strategy, government and economic actors are both vital elements. 

T h u s , s e l f – sufficiencywa s achieved, in the fields of food, clothing, energy, medicine, medical devices, vaccines, and so on, supported by the financial capacity and technological mastery of the nation’s citizens. 

Overall, independence must lead to greater and stronger foreign exchange accumulation, to produce financial independence by reducing dependence on foreign debt, especially in the form of government-to-government obligations, or debt to multilateral institutions such as the IMF. 

Before the COVID-19 pandemic, Indonesia enjoyed economic growth with exports of processed industrial products, as well as agro-industry, mining, and plantation commodities (mainly coal, palm oil and rubber). 

Imports were mostly for assembled and processed industrial materials and semi-finished goods for domestic industrial processes. In general, Indonesia is still trapped in dependence on offshore technology, expertise, and foreign finance. This then results in a high current account deficit. Meanwhile, the government’s foreign debt reaches more than IDR 6,000 trillion, not counting the debts of state-owned enterprises and private corporations and domestic public liabilities. 

To reduce dependence on foreign debt and expertise, by increasing the capacity of government along with economic actors, the government created regulations and provided adequate infrastructure. 

However, from the beginning of March 2020, Indonesia was forced into a Large-Scale Social Restriction (PSBB) to prevent the spread of COVID-19. With this policy, almost 90 percent of global trade suddenly stalled. 

Production, transportation, and global supply chains, both exports and imports of goods and services, including tourism, have stopped dead. The implementation of a lockdown involves almost all 215 countries in the world. 

With a lockdown, macroeconomic performance of a country whose Gross Domestic Product (GDP) export level is high is hit hard. For example, the contraction of growth in the first half of 2020: China -6.8 percent, Britain -2 percent, Germany -2.2 percent, Japan -2.2 percent, Singapore -0.7 percent, while Malaysia 0.7 percent and Indonesia still grew 2.97% (Statistics Indonesia / BPS, 2020). 

Developed countries’ response capacity in the form of hospitals, doctors, paramedics, medical devices, cash-transfers, and budget allocations to overcome the economic recession look very resilient. Conversely, developing countries like Indonesia show their vulnerability. Likewise, in overcoming the impact of layoffs on vulnerable poor people living in extreme poverty, due to very limited social assistance. 

 Then, how to deal with the new normal? The strategy must be based on facts and data about COVID-19, the capacity and implementation of government budgets facing COVID-19, and economic recovery. Other strategies are based on the level of independence in meeting basic needs, health, and technology, and finance as support. 

The government will allocate IDR 900.1 trillion, namely, IDR 75 trillion for health, IDR 110 trillion for social protection, IDR 70.1 trillion in tax incentives and stimulus for People’s Business Credit (KUR), and IDR 640 trillion for the national economic recovery program. 

This amount is more or less sufficient, although not ideal for overcoming the COVID-19 pandemic or economic recovery. The problem is, how to make the budget effective and well-targeted and not leaky? 

According to the 2020 State Finance Law, the executor of the budget cannot be criminalized; therefore, supervision by the Supreme Audit Board (BPK) and the public will be very helpful in making the budget fit its purpose. 

Furthermore, we see that Indonesia is very vulnerable in its independence in the fields of food, clothing, energy, medicines, medical devices, vaccines and so on, all supported by financial capacity and technological mastery. Therefore, the state (government, parliament, and business actors) should in this new normal period be able to direct a minimum level of independence for the strong sustainability of a country. 

Furthermore, the government, together with business actors, can improve the governance and performance of industrialization. Before the pandemic, Indonesia underwent a process of de-industrialization. In the period before the reform, 1990- 1998, industrial shares in the Gross Domestic Product (GDP) were around 30%, then finally in 2019-2020, shrank to only 19%. 

Indonesia’s GDP is still dominated by consumption, at around 58%. GDP should be encouraged to be increasingly dominated by investment and, hopefully, as far as possible there should be efforts to increase the mastery of technology by the nation’s children.