Paparan Ekonomi,

1. +
Economic issues facing
Indonesia’s Jokowi-JK
Ari A. Perdana
Pangudi Luhur Alumni Club
29 Nov 2014

2. +
Part 1 - Macroeconomy
Indonesia has been performing well, but challenging task ahead,
especially after the commodity boom ends and the global economy
weakens
1

3. +
Indonesia 20014-2014: not bad!
2
Economic growth 5-6% p.a. | Per capita GDP growth 4-5% p.a. | Stable
inflation, managed budget deficit | Strong, stable fin. sector |
Foundations for social protection reforms
…mainly due to strong domestic demand and commodity boom
Q2 2014 Indonesia Brazil India South Africa Turkey
GDP (% yoy) 5.1 1.9 * 4.6 * 1.6 * 4.3 *
Inflation (% yoy) 6.7 6.5 7.3 6.6 9.2
Unemployment Rate (%) 5.7 5.0 8.8 25.5 9.7
Fiscal Balance (% GDP) -2.4 * -3.1 * -4.9 * -4.3 * -1.2
*
*
CA Balance (% GDP) -2.1 * -3.7 * -1.9 * -4.5 * -7.5 *
Exchange Rate (ytd H1 2014) 2.5% 6.7% 2.5% 0.7% 0.5%
International Reserve (US$
bn) 107.7 370.7 315.8 40.6 112.5
Debt (%GDP) 25.9 ** 59.2** ** 51.8 ** 45.4 ** 36.6
*
*
Source: World Bank

4. +
But…
 Growth has been slowing down,
even declining
 Budget deficit is increasing
 Oil consumption is rising while
production declines
 Commodity boom has ended
 The era of cheap labor has
ended
 US monetary policy may lead to
capital outflow
1,600
1,400
1,200
1,000
800
600
400
Oil consumption and production
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
Global prices of commodities
3

5. +
Part 2 – Socio-economic
Job creation and investment in skills, promoting social investments
and reducing inequalities
4

6. +
Employment
 The good side: unemployment,
informal sector is down
 However, Every year 2 million
more workers competing for less
than 1 million good productive
jobs
 Growth rate of 7% is required to
create new jobs. But how to do it
while:
 The commodity boom has
ended
 The low wage era has ended?
 The manufacturing sector is
less significant
 Possible ways:
 Find new source of
Source: BPS
employment driver (local ec)
 Find new market, take the
benefit of AFTA, take
advantage of China’s exit from
low-wage products
5

7. +
Employment skills and skills
mismatch
 About 2/3 workforce have SMP
or lower education
 Skills mismatch is more than
just educational attainment –
many workers have no or less
skills than what the industry
requires
 Soft skills
 Skills to operate new
technology
 Need a reform in skills and
training
Pendidikan tertinggi
yang ditamatkan 2012 2013 2014
2014
kumulat
if
SD ke bawah 49.8 48.5 46.8 46.8
Sekolah Menengah
Pertama 17.7 17.5 17.8 64.6
Sekolah Menengah Atas 15.1 15.4 16.0 80.6
Sekolah Menengah
Kejuruan 8.3 8.9 9.2 89.9
Diploma I/II/III 2.7 2.8 2.6 92.5
Universitas 6.4 6.9 7.5 100.0
Source: BPS
6

8. +
Labor reform – because nobody
dares doing it in the past 10 years
 Labor market is rigid because
cost of firing and hiring is high
(minimum wage, severance
payment, contract workers)
 Workers’ productivity is low
 Cost of doing business is high
already
 Labor dispute solved internally
 Protecting workers vs
promoting jobs
 Labor market protection as
social protection
 High wage to ensure high
productivity
 Eliminate illegal payments
without harming workers
 Bargaining is collective
 Reform options: combine labor
market flexibility with
government investment in new
industrial areas, provide cheap
housing, invest in skills
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9. +
Poverty
 Poverty declines, but the decline
is slowing down
 Most of the poor have been
eradicated, we are dealing with
the very structural poor
 OR: resources are not well-spent
due to bureaucracy and
‘sharing the pie’
 The good side: poverty and social
programs have been quite
developed
 The role of local governments will
be important in making services
work for the poor
60.0
11.3
24.2
17.8
11.4 11.3
60
50
40
30
20
10
0
1970
1976
1978
1980
1981
1984
1987
1990
1993
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011*
2012*
2013*
2014**
Source: BPS, Susenas
 Reform agenda: increase
spending for social
protection; currently at 0.5%
of GDP (from 1.5% average in
middle income countries)
8

10. +
Income inequality
 Growing inequality amidst
strong economic growth
 An unprecedented Gini
coefficient >0.40
 Higher inequality of land
holding
0.38
0.35 0.35
0.34
0.33
0.34
0.355
0.32 0.32
0.308
0.329
0.30
0.32
0.363
0.35
0.32
0.363
0.35
0.41
0.38
0.37
0.413
0.41
0.42
0.40
0.38
0.36
0.34
0.32
0.30
0.28
1964
1969
1976
1978
1980
1984
1987
1990
1993
1996
1999
2000
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
gini index
50
45
40
35
1963
1964
1967
1970
1976
1978
1980
1981
1984
1987
1999
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Income share of the top 20%
4.87
10.0
8.0
6.0
4.0
2.0
0.0
1 15 29 43 57 71 85 99
Annual growth rate %
Percentiles
2008-2012 growth Growth in mean
Source: BPS, Susenas
Consumption growth by income decile
9

11. +
Inequality in income means
inequality in services and
access
Poor (%) Non-poor (%)
Babies delivered without professional medical
workers’ assistance
40,2 22,8
Children aged 7-12 who are not enrolled in
elementary school
6,0 2,5
Children aged 12-15 who are not enrolled in
junior secondary school
22,5 10,9
Household without access to proper sanitation 52,4 32,5
Household without access to safe water 51,8 42,2
Poor Non-poor
Average family size 4.7 3.8
Source: Susenas 2006 (1-5), Dartanto and Nurkholish 2013 (6)
10

12. +
Poor kis like Lima has greater
probability of dropping out
Kuantil Pengeluaran 5 (tertinggi)
Kuantil Pengeluaran 4
Kuantil Pengeluaran 3
Kuantil Pengeluaran 2
Kuantil Pengeluaran 1 (terendah)
Sumber: Susenas (2009)
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13. +
Then there is also regional
inequalities…
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DKI Papua
Fertility rate (2012) 2.30 3.60
Electricification rate (%) 99.9 61.44
Household with private toilet (%) 76.6 58.21
Birth attended by doctors/nurse (%) 98.12 48.46
Under 5-yo who had measles vaccine (%) 87.03 67.23
Consuming modern medicine 94.05 66.04
Infant mortality rate (per 1000 birth) 22 74
Under-5 yo mortality rate (per 1000 children) 31 109
Source: BPS, Susenas

14. +
Summary
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15. +
Challenges ahead
 Growth post-commodity boom
and low-wage era
 Industrial competitiveness and
business climate
 Managing risk from global
economy (incl. AFTA)
 Creating jobs
 Building a strong social
protection
 Manage and reduce inequality
 Navigating in the demographic
window
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Macroeconomy Socio-economic

16. +
Reform agenda for Jokowi-JK
 Fiscal reform
 Reducing fuel subsidy to create fiscal space, but need to combine with a
comprehensive energy reform
 Optimize revenue without hurting economic activities
 Managing the implementation of BPJS and UU Desa to avoid fiscal burden
 Invest in infrastructure
 Spending for infrastructure is about 2% of GDP (in 1995, it was 9.5%; India and
China spends 10%)
 The government is only able to spend about 1/5 of required infrastructure
spending
 Increase competitiveness of the real sector, reduce cost of doing business
 Special attention to SMEs
 Socio-economic reform: labor market (job creation + protection), invest
more in social protection, fix the skills and education system, reduce
income and regional disparity
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