NEWS

The government led by Jokowi and Kalla has big ambitions to create an economic growth of 7 percent annually. However, almost three years have passed, these ambitions have yet to be realized. On the contrary, economic growth tends to decrease. In fact, in 2015 it fell to the level of 4.88 percent, although it rebounded again to the level of 5.02 percent in 2016.

Achievement of this growth is fairly low and still far below its potential. However, when compared to other countries, especially in the G-20 group, Indonesia's growth performance is fairly high and very good. Indonesia is in the position of Indonesia, after China and India.

Even so, if economic growth only stays at the 5 percent level, efforts to reduce unemployment and poverty will be even more difficult. In fact, this is one of the economic programs of Jokowi-Kalla.

With a very large population, every year the number of new job seekers (new labor) who enter the labor market reaches 1.5-2 million. In fact, currently, every one percent of economic growth is estimated to only create 250-300 thousand jobs.

In other words, many job seekers will not be absorbed in the labor market. This certainly will further encourage the amount of unemployment. Indeed, some of these job seekers who are not absorbed will enter the informal sector to survive. However, the informal sector does not provide a large benefit to the economy compared to the formal sector.

Observing this condition, then in a limited cabinet meeting on April 4, 2017, President Jokowi again reminded and hoped all his assistants to do everything in their power to encourage the growth engine to be more accelerated than has been achieved at this time.

World economic conditions

However, can Jokowi's hopes be realized? Of course, you can, but the challenge is not easy. This cannot be separated from the condition of the world economy that is heading for a process of consolidation and recovery.

Word Economic Outlook (WEO) recently released by the International Monetary Fund (IMF) states that this year the process of world economic recovery is starting to take place. The IMF estimates that world economic growth in 2017 will be at 3.5 percent or better than 2016 at 3.1 percent.

Momentum of improvement and stretching world economic growth will be supported by the economy of the United States (US) and a number of developing countries (emerging markets).

Even so, a number of uncertainties (risks) also lurked, so that it can again break the momentum of this recovery process. Some of these risks include the direction of US economic policy, especially if the Trump administration realizes protectionism policies and fails to execute expenditure expansion, monetary tightening and a $ 4.5 trillion balance sheet plan carried out by the Fed that could have implications for triggering turmoil on world financial markets.

Furthermore, political uncertainty in the European region with the emergence of popular leaders can trigger increasing disintegration in the European region following in the footsteps of Brexit, and geopolitical turmoil in a number of regions, such as acts of terrorism and tensions on the Korean peninsula.

In short, even though the direction of the world economy is continuing towards the recovery process, the potential to be trapped is also quite large. Moreover, this recovery process is not supported by the performance of world trade which at present still tends to be sluggish and the Chinese economy has not shown solid and sustainable performance.

The still sluggish world trade and the lack of sustainability of China's economic performance will have implications for the prospects of world commodity prices. If commodity prices are not sustainable, this will affect Indonesia's economic performance. It should be noted that the role of commodities in driving the engine of Indonesia's economic growth has been enormous.

During 2010-2012, Indonesia's growth which could reach 6 percent cannot be separated from the role of commodities, where commodity prices and demand are currently very high and strong. That is why, when commodity prices were depressed, at that time, Indonesia's economic growth also fell. And vice versa, when commodity prices start to stretch, as in the fourth quarter of 2016, it will have a positive impact on economic growth.

Some Policies

For this reason, dependence on these commodities must begin to be reduced. Product and market diversification must be consistently carried out. This is where the role of the manufacturing sector becomes very important. A strong manufacturing sector will be able to provide better-added value to Indonesia's commodity products.

Indonesia is no longer just a seller of raw materials (raw materials), but can be a producer of high value-added materials, especially supported by the wealth of raw materials. This is where the role of government policy becomes important. A strong manufacturing sector can be realized if there is a policy and strong will from the government.

The government has indeed begun with the launch of various economic packages. However, there are still many of them that have not and are difficult to realize on the ground. The business world still complained about a number of economic packages, especially related to the regulations, bureaucracy, and incentives.

In addition to policies to encourage the manufacturing sector, policies to encourage and maximize government spending are also important, especially the allocation of infrastructure development.

A number of studies show that the expansion of government spending is quite effective in driving the economic cycle that is heading towards a slowdown (countercyclical policy). For this reason, in order to accelerate the economic engine, the government is expected to be able to minimize spending cuts as happened in 2016.

Looking at the condition of the 2017 State Budget, spending cuts will be minimized. This is inseparable from the improvement in the potential for tax revenue after the tax amnesty policy, where the locus of tax revenue is increasingly open.

In addition, the government also has a commitment to streamline and streamline spending. Allocation of spending and subsidies that do not support priority programs will be gradually reduced.

One of them is goods expenditure allocation. In the 2017 State Budget, at least there is a potential savings in goods spending of Rp 34 trillion which can be diverted into infrastructure spending.

It must be recognized that the management of government spending has not been carried out efficiently and effectively. This is reflected in the audit results of the Supreme Audit Agency (BPK) which states that there are still many leaks that occur in the state budget, especially because of corruption.

If the budget (APBN) can be managed well, it will, in addition, be able to accelerate the government's strategic infrastructure projects whose implications will have a positive impact on creating trust and employment, will also have a positive impact on improving Indonesia's ranking.

Of course, the government cannot walk alone to accelerate the growth engine. For this reason, support from authorities in the financial sector is also important. That is why, BI and OJK must be able to give birth to regulations and instruments that can direct the financial sector to play a greater role, especially in supporting financing to productive sectors.

And not to forget, the government, BI, and all other stakeholders must continue to strive to maintain inflation stability. Because stable inflation will be able to maintain and stimulate purchasing power which is the main engine of growth. The firmness of the law apparatus to provide decisive action for speculators who are toying with prices, especially food, is worthy of appreciation.

Written by: Desmon Silitonga - Head of Investment of PT Capital Asset Management.