In this webinar, Professor Gustav Papanek presented several major challenges facing the Indonesian economy, especially to promote its manufacturing sector and exports competitiveness. He proposed several critical reforms, including rupiah devaluation, minimum wage stabilisation, infrastructure development, increased government revenue, and human resource improvement.
INDONESIA STUDIES PROGRAMME WEBINAR
Tuesday, 23 November 2021 – The Indonesia Studies Programme organised a webinar titled “Indonesia’s Narrowing Path to Prosperity,” delivered by Professor Gustav Papanek, President of the Boston Institute for Developing Economies (BIDE) and Professor of Economics Emeritus at Boston University. With the support of the Rajawali Foundation, this webinar presented a glimpse of his co-edited book, Indonesia’s Narrowing Path to Prosperity and Poverty Elimination (Anthem Press, 2021). Dr Siwage Dharma Negara, co-coordinator of the Indonesia Studies Programme at ISEAS, moderated this session.
Prof Papanek began by showing how the average income of Indonesian had increased by more than 50% since 2000, yet the increase had not benefitted a significant group of agricultural workers whose wages declined by about 15%. He predicted slower economic growth in Indonesia to around 3% or 4% due to the multiple challenges such as global warming, COVID-19 pandemic, impacts of China’s slower growth to Indonesia’s exports, and declining earnings from major exports especially coal. Indonesia and its trading partners would have to start from a lower base due to the COVID-19 pandemic, and it would take two years to return to the pre-pandemic level of GDP.
With Indonesia having a high proportion of jobs in the manufacturing industry, Prof Papanek highlighted that this slower economic growth could adversely affect the disadvantaged groups, especially informal workers. Consequently, he argued that Indonesia would have more surplus workers. More people in the family will need to work and earn less income. Prof Papanek and his fellow authors calculated that the surplus-labour in agriculture and fisheries do not contribute to the economy so much. These workers earn little income for survival. Comparing the manufactured goods exports and minimum wages, he explained that Indonesia could not compete with other Asian countries due to its relatively higher labour costs. As a result, it had less growth in manufacturing exports over the years.
Prof Papanek and his team proposed five key reforms to increase the competitiveness of manufacturing exports. The first pillar is to make Rupiah more competitive (with 10-15% devaluation) which would equate to a subsidy for exporters, tourists, and companies producing goods and services that compete with imports. The second pillar is to stabilise minimum wage growth and, at the same time, to provide subsidies for workers to buy basic goods, including lowering the price of commodities through subsidies and aids. The third pillar is to reduce the cost of infrastructure and promote infrastructure reliability by setting aside funds for industrial development areas and tourism facilities.
Next, Prof Papanek mentioned the fourth pillar to increase government revenue to finance infrastructure development, labour subsidies, and guaranteed employment. The last pillar is to improve human resources quality. As Indonesia’s quality of education is way behind other countries in Asia, Prof Papanek suggested comprehensive secondary education reforms and selective development at the university level. This would put in place competition among universities to develop a particular field of expertise and increase their ranking with other universities worldwide. He further mentioned other necessary reforms, such as establishing a development bank to provide long-term financing, improve the ease of doing business, and reduce corruption. Last but not least, Prof Papanek recommended a guaranteed rural employment program to make the reform program more popular and improve rural infrastructure.
The webinar concluded with a Q&A session that discussed issues ranging from the impact of budget deficit to Indonesia’s prosperity, the feasibility of rupiah devaluation, the role of Job Creation Law (Omnibus Law) in attracting investments, the food mafia in rice imports, the country’s competitive advantage in the service sector, as well as the prospect of the green industry in Indonesia. The webinar attracted 67 participants from Singapore and abroad.