Indonesia’s sustainable growth challenge
Indonesia has enjoyed strong economic growth over the last decade, the economy has benefited from a boom in commodity prices. A growth path not automatically sustained in the future – more jobs and better resource management is needed, according to a new study, Growth in Indonesia: Is it sustainable?Revising the World Bank’s ‘adjusted net savings’ framework to include the cost of deforestation, has shown that Indonesia’s genuine savings are the lowest in the region, which suggests that growth is no longer sustainable. As the authors of the study point out: “The growth process is not just a function of human, physical and natural capital, but also the underlying political economy of policy formation and implementation.” An example of this is the forestry sector where a national shift towards decentralisation has created opportunities for rent extraction and leakages.
Similarly, investments in education to capitalise on Indonesia’s rising working-age population will only yield gains if service delivery is transparent and underpinned by good governance.
The authors of the study add: “Growth in manufacturing exports can provide jobs in the long-run and become a source of sustainable growth for Indonesia. At the same time, value addition in commodity exports can also sustain economic growth. This is conditional not only on increased infrastructure investment but also a sustainable use of natural resources. Underlying this strategy must also be a willingness to resist protectionist measures and engage in the opportunities provided by the international supply chain to scale up Indonesia’s manufacturing and service sectors.