Industries |

Two Strategies for Economic Growth

Industries | 24 September 2021


The government has been advised to prepare a strategy that can invite quality, competitive, and export-worthy investment in order to generate foreign exchange. This is done so that Indonesia can achieve economic growth above five percent, Senior Economist Didik J Rachbini from the Institute for the Development of Economics and Finance said . Indonesia had achieved an average economic growth of seven percent in the 1980s, and to achieve that again the government must focus on quality investment for export purposes. "Reflecting on the current stagnation level of five percent economic growth, Indonesia must change its strategy towards increasing competitiveness, which has an investment element and is export-oriented," he said during a webinar in September  2021.

He added, the main point is quality investment. Secondly, when exporting, all efficiency efforts must be carried out by factories wishing to export. This will improve Indonesia's Incremental Capital Output Ratio (ICOR) from 6.2 to around 2.4. "If necessary, deregulation and de-bureaucratization will be carried out which will help smooth production and increase competitiveness for exports. So what must be done is to carry out an outward looking strategy and a competitiveness strategy," he said.

According to him, the current government should start focusing on economic restructuring, for example, the banking sector that supports exports must be provided with facilities. In addition, all inefficiencies must be corrected so that they really focus on increasing export competitiveness. "Another strategy is that Foreign Capital Investment must be enlarged. Domestic investment must be pursued towards industrialization and if it is still not enough, it must continue to be encouraged. Industrial and office areas must be assessed whether the industrial portion is still lacking," he concluded.


The Ministry of Trade proposes that the use of Free Trade Agreements (FTA) with other countries is the key to recovering foreign trade performance. Head of the Trade Assessment and Development Agency (BPPP) of the Ministry of Trade, Kasan, assessed the importance of utilizing trade cooperation agreements with other countries to support national economic recovery. A number of trade agreements are expected to be a stimulus for trade recovery and also increase investment flows amid the Covid-19 pandemic. "The President of the Republic of Indonesia gave directions to carry out economic transformation and accelerate economic recovery through investment and trade policy reforms," Kasan reported.

He  said the collaboration of all stakeholders has also supported the implementation and utilization of Indonesia's FTA is one of the important keys to support the recovery of Indonesia's foreign trade performance which was affected by the Covid-19 pandemic. "Export, import and investment activities”, Kasan continued, “are important components of Indonesia's economic growth during the Covid-19 pandemic.” In the midst of a decline in domestic consumption, exports and imports actually recorded quite significant growth in the second quarter of 2021, which were 31.78% yoy and 31.22% yoy, respectively. "Therefore, the implementation and utilization of the trade cooperation agreements that Indonesia already has need to be encouraged, so that current export growth does not only depend on the increase in commodity prices," he explained.