Editorial: Indonesia Must Invest to Stay in the Game

Jakarta Globe, Editorial, March 25, 2010

Indonesia cannot rely on commodities alone for prosperity. (Reuters Photo)

It is now a well-known fact that Indonesia is riding above the curve in terms of macroeconomic performance when compared to other Asian economies. In fact, a recent seminar organized by the Economist magazine notes that the nation is hitting its stride but will most likely not be able to stretch itself to fully realize its goals.

There are reasons to be optimistic, the participants of the conference said. Annual household consumption currently stands at $1,500 per person but is expected to grow by an average of 6 percent a year over the next five years — twice the global average.

Indonesia is also one of the fastest urbanizing countries in Asia, with an estimated 60 million people expected to become city dwellers over the next five years. With 60 percent of its population under 29 years of age, the demographic dividend is in its favor.

But to a large extent, the country’s economy has basically been a “rocks and crops” story. Economic growth has been fueled by relatively high commodity prices and a fast-growing middle class. Investments, especially foreign direct ones, have lagged behind most other fast-growing Asian economies.

For this to change, Vice President Boediono noted at the conference, the government will focus on improving connectivity over the next five years. This will involve upgrading the country’s logistics network and improving telecommunications. As the vice president rightly pointed out, the country’s economic potential can only be unleashed if the right kinds of infrastructure, both hard and soft, are in place.

Without connectivity, not only will domestic consumption plateau, the country will find it difficult to plug itself into the global economic grid. Better and more efficient logistics — the ability to move people and goods around the country faster and more efficiently, will have an enormous multiplier effect on the economy and in reducing poverty.

Building better and more efficient infrastructure cannot be overemphasized. But given our nation’s size and geography, connecting the major islands is a huge challenge that will require planning, financing and the most careful execution.

The government has already committed to building 20,000 kilometers of new roads and significantly expanding the power grid, but it needs to take ownership of the infrastructure program by also committing the necessary funding.

According to current projections, Indonesia’s economy in 2030 will be the same size as China’s today — about $4 trillion. But China’s economy over the next 20 years is projected to grow to $52 trillion and India’s economy to $14 trillion. So even though Indonesia’s growth trajectory may seem optimistic, it must ensure that it keeps up with the scorching pace being set by India and China if it intends to be a player on the Asian stage.

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