Economic Growth in Indonesia

A growing economy is a sign of economic developement of a country. It is

important because it indicates the growth in economic output. A growing or more
productive economy can make more goods and provide more services than before.
However, economic growth has to be measured in the value of goods and
services, not only the quantity, because some goods have different value in each
country.

So, what actually economic growth is? Economic growth is an increase in

the production of goods and services over a specific period. To be most accurate,
the measurement must remove the effects of inflation. It is measured by the
increase in a country’s total output or real Gross Domestic Product (GDP) or
Gross National Product (GNP). The Gross Domestic Product (GDP) of a country
is the total value of all final goods and services produced within a country over a
period of time. Therefore an increase in GDP is the increase in a country’s
production. Indonesia is the 16th largest economy in the world by nominal
GDP and the 7th largest in terms of GDP (PPP). In 2012, Indonesia replaced India
as the second-fastest-growing G-20 economy, behind China. Since then, the
annual growth rate slowed down and stagnates at the rate of 5 percent. The Group
of Twenty (G-20) is an international forum that brings together the world's 20
leading industrialised and emerging economies. The group accounts for 85
percent of world GDP and two-thirds of its population.

There are so many theories about factors that determine economic growth
in a country but in this writing I will just state four main factors based on some
theories about it. First is human capital. It is one of the main factors that
determine economic growth. A country can not develop and grow its economy if
it does not have a good quality of human resources and lack of experts. Imagine if
a country can not produce goods or provide proper services for its people main
necessity. The country have to import more and more to fulfill the society needs.
It would be such a loss if a country has plentiful of natural resources but does not
capable to manage them by itself because they have no experts. That is what
happen in Indonesia right now. The natural resources of this country is so
abundant, yet the government have to ‘import’ experts from other country to
manage the natural resources.

The second factor is natural resources. However, rich natural resources is

not a sign of a fast economic growth. As I stated earlier in the previous paragraph,
natural resources have to be managed and maintained by good human resources. If
it is not, then the natural resources would be executed by foreign side. As a
developing country, Indonesia rely on its natural resources on main commodity
like oil and gas, coal, palm oil, latex, coffee beans and many more to fulfill not
just national consumption needs but also exports. Although these resources had
managed by Indonesia, they are still raw materials. Indonesia exports latex but
then this country import the rubber made by the exported latex. How ironic!

Developement of technology helps a country to be more efficient to

produce goods. The labour will be more productive if hi-tech machinery or hi-
spec computer provided to help their job. We can not deny that a machine can do
a job faster than human. If a country could produce more in less time and energy,
the effect on economic growth and its prosperity would be pleasing. Indonesia
still needs to develop it’s technology because in 2017, the productivity of
Indonesian worker is ranked 11th out of 20 APO member countries. While at the
ASEAN level, productivity per Indonesian worker is in 4th place.

The last factor is bureaucracy and political stability. If a country have

complicated policy then investors would not be interested. This is called ease of
doing business. According to the statistics by tradingeconomics, Ease of Doing
Business allow Indonesia to stand on the 91st position. Besides, tax is one of the
factors that investors think of when they want to invest in a country. In Indonesia,
there were some policy of tax deductions such as non-taxable income, tax holiday,
and some more. This incentives encourage investors to invest in Indonesia.

Economic growth in one country is not just affected by its national

resources, technological advance, and national policy, but also affected by other
countries and global economy situation. Economy of Indonesia is related closely
to Japan, China and USA since Indonesia has fundamental billateral trade
agreement with these countries.

After Federal Reserve (The central bank of USA) established a policy to

increase interest rate, the global trading sentiment begin to increase and affect
some countries’ currency to depreciated including rupiah. Even though the global
economy tense has intensified, the world economic outlook still maintained
healthy. The global economic growth is projected to be close to four percent in
2018 and 2019. Amidst the fluctuation of global economy, economy of Indonesia
shows positive trend although it may not in the amount of everyone’s expectation.
It has grown up to 5,06 percent in the first quarter of 2018, higher than the same
quarter of last year which is 5,01 percent.

Investment rate that reach the highest in the last five years and the increase
of capital goods import shows enthusiasm of trade and investment in Indonesia in
which encouraged positive economic growth. Total import from January to April
2018 has increased to 23,85 percent higher than the last period, while total export
has increased only 8,44 percent. This push the balance of trade has a deficit of
USD 1,63 billion. The growth rate mainly boost by household consumption which
grow 4,95 percent (yoy). Consumption rate expected to be higher in order to jack
up economic growth. Low inflation rate (3,41 percent (yoy) on April 2018) keep
the consumption constant. As the improvement of the investment climate,
Indonesian government encourage infrastructure developement to increase
investment growth.

At the end, we know that economic growth is important and there were so
many factors that determined economic growth in Indonesia. The global economy
also affect Indonesian economy. Each of these factors intertwined with each other.
Amidst the fluctuation of global economy, Indonesia still manage its economic
growth to 5,06 percent in the first quarter of 2018. This shows that economy of
Indonesia is still healthy. However, we still have to improve and fix up some
factors in order to reach a better target and to face global challenges.