Achieving sustainable economic growth

Jakarta Post

Sri Mulyani Indrawati has resigned from the hot seat, a shocking fact amid the positive trend of Indonesian economy.

The challenging task is waiting for the successor that is to maintain the remarkable achievement of Mulyani.

Under Mulyani, the Indonesian economy has been transformed into a hot commodity that creates a growing jealousy from neighboring countries. Whether the new minister is capable has become a major issue here.

A good figure, whoever they are, will not be able to solve the issue of sustainability without a proper identification. But it is never meant to be a one man or woman show. A deep and concise coordination is needed across the ministry. A hard task indeed but it is doable. This article proposes some factors that need to be addressed in reaching the quest for sustainable growth.

Adopted from Khoirrunurofik’s work in 2002, the author made some econometric simulation to determine the factors that have significantly contributed to economic growth. The first pairing variables are control of corruption and government effectiveness.

It is agreeable that corruption will go against all norms, as it will impede development by the dysfunction of a political system or institution in which government officials, political officials or employees seek illegitimate personal gain through actions such as bribery, extortion, cronyism, nepotism, patronage, graft and embezzlement.

Alas, the control of corruption indicators for Indonesia in Asia Pacific has been lying at the ground level since 1998. The government effectiveness index rings the same bell. The government is still not able to solve the latent problem of coordination. This condition leads to a policy failure across sectors.

Another factor that also matters is democracy. The finding tells us about the negative impact of democracy for the economic growth in Indonesia.

This fact is not very surprising since democracy is still finding its form in Indonesia. We have to define what democracy means in order to make it work.

Recent progress shows that democracy creates negative externalities in the form of corruption and budget ineffectiveness. This is happening because the trend toward fiscal decentralization has dismantled the central government scope of control.

The shallow control has undoubtedly been capitalized by some officials to find their way in enhancing personal welfare. The incentives to cheat are being capitalized even more given the new scheme of
the local election that incorporates a lot of money to entertain the stakeholders.

In terms of the budgeting process, the local governments still have a hard time allocating funds efficiently or even worse, they cannot find the way to channel it. As a result, idle funds are being kept in local banks which is resulting to a persistent pressure to the monetary authority since these banks invest the funds in the form of a central bank’s note.

The next factor is physical infrastructure such as roads, bridges and electricity that can provide steadiness and assuredness in attracting foreign direct investment.

In other words, good infrastructure will only lead to sustainable inter trade and investment. Should Indonesia seek to achieve sustainable growth, she should at least solve the latent problems of unprepared infrastructure especially on the electricity sector. The idea is how to increase the capital spending in the national budget (APBN), which is subject to a gradual cut in routine spending.

Another factor that supports the growth sustainability is the exchange rate. One should know that volatile exchange rates will hamper the initial macroeconomic condition. Take a look at the rupiah’s value, amid the positive campaign from Bank Indonesia, it still looks very sluggish to adjust from its initial level.

An anomaly since the spread of the interest rate between the BI rate and Fed rate has broadened in a way that it could act as an incentive to the fund owners to flood the Indonesian market with massive capital inflow, which in turn leverages the rupiah.

So, what is the problem? The keyword is expectation, in which the market still has negative expectations of the rupiah. An old story is retold, a story about the decoupling effect which happens between the real economic sector and the financial sector, a story that still has not found the end.
This fact contributes to the fragility of the Indonesian economic base that leads to market distrust. One thing that should be noted is that the reason to invest in Indonesia, aside from the strong economic base, is because of the expectation from the investors there will be future economic gain.

Efforts to bring the Indonesian economy onto its path is not like it has never been done before but it has not effectively been done. The principles of a good macroeconomic framework are credibility, flexibility and political legitimation. The rule of law could create credibility if the rule is widely known and well understood by the public. With credibility, it is easier to handle economic turbulence with the policy instrument that is controlled by the economic authority.

Credibility can function more when there is a transparent and accountable framework that strengthens political legitimacy. Effective policy would merge if the policy makers have the ability to react promptly every time in encounters an unprecedented shock. Credible policy makers are those who make the policy with respect for transparency. With a high level of transparency, any economic shock can be easily diminished.

Without transparency, every policy with regards to economic target and fiscal rule will become obsolete since the public cannot compare between the target and realization. Moreover, the political legitimacy becomes very important since the policies being made should reflect the national consensus. This in turn creates balance of power and also general responsibilities, which could reduce the negative effect from the uncoordinated policy.

Under Mulyani, the Indonesian economy has been transformed into a hot commodity.

The writer, teaching staff at the Faculty of Economics, the University of Indonesia, is a PhD student at the Graduate School of Asia Pacific Studies, Waseda University, Japan.

Catatan Kehidupan

Di Hamparan Nepheli ku jejaki bukit Thesaloni. Menjejak diiringi lebah yang tengah berasyik masyuk memadu untuk sang ratu. Wangi Eucalyptus mewarnai panorama Olimpus yang tengah berselimut Cumulonimbus. Dewi menari membuat silau hati yang terisi, berpaling jauh di ujung ufuk. Dewi menari tapi bukan bidadari, meniti kahyangan sembari sesekali mengintip kehidupan. Ku seruput Kopi dihamparan savanna yang tengah bersemi.
Bermuhibah dengan waktu yang selalu diam ketika ditanggap. Pernah sekali ku ajak bicara sang waktu hanya terkekeh dan meninggalkan ku dalam keadaan bertanya-tanya, apakah semua harus berada dalam equilibria? Sejenak kulafalkan Dubito ergo cogito ergo sum tetapi kemudian Descartes datang membenarkan, hilangkan Dubito ergo pakailah ungkapan cogito ergo sum. Ah, Descartes kau memang benar, memang sebaiknya ku tak pernah ragu.
Jangan kau sesali Kematian Socrates karena menjejali elenchus. Pandangi peninggalan etisnya yang terus melegenda. Apakah salah meyakini paradoks Socrates tatkala dia mengutuk kejahatan dan mengajak untuk menghargai kehidupan? Boleh lah ia berbeda dari Plato tapi jangan kau kutuk ia dalam kehinaan.
Termenung di Thessaloni teringat lambaian hidup. Kehidupan bukan logika formal Reductio ad absurdum. Meski logika terkadang terlalu penting untuk dienyahkan.
Di tengah Pareto Optimum kehidupan dilafalkan. Tapi ingat ia tidak selalu seperti yang diungkap. Mendaki terkadang meniti, di kala meniti perlu kecermatan. Tapi, tentu cermat terkadang mewah ditengah galau. Yah, hidup bukan seminaria yang bisa diperdebatkan. Terkadang perlu untuk berselancar dengan derasnya ombak tetapi ingat bahwaa itu hanya lah soal waktu. Kompromi terkadang diperlukan untuk mencapai the lowest common denominator seperti sering disebut oleh mendiang Cak Nur.
Terkadang kucoba memplot nya dalam cartesius tetapi ternyata mustahil untuk dilakukan karena terlalu banyak dimensi yang harus disertakan. Kuingat kembali raut waktu ketika ia terkekeh, ternyata ia tidak benar-benar meninggalkan, kuingat lamat-lamat di kejauhan ia berbisik: Raihlah kehidupan hari ini. Carpe Diem