Indonesia should forget 8% growth and face reality
The country stays resilient in the 5% growth club, defying weak consumption, protests and global trade turmoil
[JAKARTA] Indonesia has a problem with towering economic goals – it can’t seem to shake ambitions that border on the implausible. Consider targeting 8 per cent growth, something last achieved in 1995.
No leader can be without aspirations, but objectives should reflect reality, not remain stuck in a nostalgic fantasy. President Prabowo Subianto, beginning his second year in office, should break with his predecessors and offer a more grounded view of how fast the sprawling and densely populated archipelago can actually grow.
This is about credibility. Indonesia is bedevilled by hyped expectations – encouraged by officials for decades – that its economy can expand at a clip no country can sustain for long.
China has come down to Earth; India struggles to live up to its promise. Even Vietnam, which tears along at an impressive pace today, will slacken at some point.
Indonesia is firmly in the 5 per cent club. With the exception of a deep slump during 2020, a fate Covid delivered to almost every country, and an equally sharp snapback after re-opening, there’s been little deviation.
Nothing seems to get in the way. Even deadly protests, anemic consumer demand and upheaval in the global trading system can’t shake the pattern.
Gross domestic product rose 5 per cent in the third quarter from a year earlier, figures last week showed. If Indonesia was China, where official statistics are viewed skeptically, there would be complaints that the numbers were fake.
There’s nothing inherently wrong with delivering a 5 per cent expansion. Many countries, especially in the developed world, would love to have that outcome. The problem is that Prabowo – a man who rose to prominence in the armed forces rather than business – made a sharp acceleration a key plank of his campaign. He’s shooting for 8 per cent over time.
This is almost a reflexive holdover from the mid-1990s Asia Boom, when the economies of South-east Asia were roaring along at such rates in the post-Cold War wave of globalisation and hot money.
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The dominoes started falling in 1997 when Thailand finally abandoned efforts to prop up an overvalued currency; for Indonesia, the market tumult spelled the ignominious end of autocrat Suharto’s three decades in power.
Other victims of that meltdown, such as Malaysia, Thailand, South Korea and the Philippines, appear to have made peace with the fact that those results are unlikely to return. Within the neighbourhood, only Vietnam can claim such breakneck speed.
Prabowo isn’t Indonesia’s only politician to succumb to the siren call. Joko Widodo, who preceded him, loved the idea of 7 per cent, as did the leader before him, Susilo Bambang Yudhoyono. Neither lifted performance much beyond 5 per cent.
At this point, clinging to such high-minded goals is counterproductive, especially if it threatens other totems, such as adherence to deficit limits and curbs on borrowing.
The independence of the central bank has also been questioned, given the governor’s open embrace of a go-for-growth agenda. Ever since the currency’s collapse in 1997 and 1998, there’s been a high degree of sensitivity towards the foreign exchange market.
It has been a rough year for the rupiah, second only to the Indian rupee as Asia’s worst performer against the US dollar. Only frequent intervention from authorities has prevented a more pronounced decline.
The quality of growth rather than the top-line number ought to get more attention, says Priyanka Kishore, founder and principal economist at Asia Decoded, a research firm in Singapore.
“They are chasing these lofty targets that they think puts Indonesia on the development path,” she told me. “Even if you get there as quickly as Prabowo wants, which is very hard, there is the risk that a boom-bust cycle is the result. There will be high growth, but high debt and the constraints will start to bite.”
Kishore is sceptical that 5 per cent reflects what’s happening in the economy. She noted that the Philippines, which wrestling with protests and consumer discontent, just posted disappointing numbers.
Indonesia’s foreign boosters are also culpable in perpetuating the 8 per cent myth. The country is prone every few years to big fanfare.
The superlatives do have appeal: Fourth-largest population, largest Muslim-majority country, strategically located along vital shipping lanes, massive consumer market, rich in resources and so on. But these have all been true for a long time – and will be for the foreseeable future.
Jakarta was last buoyed by this kind of puffery when Widodo hosted the Group of 20 summit in 2022. It was still a 5 per cent year. The good news is that these paeans can be dug out when the G20 talkfest comes back in the 2040s.
Anyone with an interest in South-east Asia’s stability should wish Indonesia well. A great start would be assessing the place on its record rather than through some idealised lens. Re-engineering the conversation to focus on plausible growth targets would be a significant step forward. BLOOMBERG
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