Current Development of Indonesia GDP under

Jokowis Reign

Muhammad Asraf
1506710664
Course Subject : Indonesian Economy
Lecturer : Nuzul Achjar, Ph.D

University of Indonesia

2017
 A. Introduction
According to Investopedia (2017), an economic indicator is a piece of economic data on
macroeconomic scale, which used by analyst to interpret current or future investment
possibilities or to judge the overall health of an economy. In other words, macroeconomic
indicators are key statistics that indicate the direction of a nations economy. There are three
broad categories of economic indicators which are leading indicators, coincident indicators, and
lagging indicators. Leading indicators means measurable economic factor that changes before the
economy starts to follow a particular pattern or trend. Leading indicators include consumer
durables, net business formations, share prices, and consumer confidence index in which almost
all of it shows the indication about future consumer consumption. Conversely, lagging indicators
is a measurable economic factors that changes only after the economy has begun to follow a
particular pattern of trends so it become apparent after only after the economy condition shift.
Hence lagging indicators seen as the effect of an economy transition in which the example of it
such as gross national product (GNP), CPI, unemployment rates, and interest rates. Last, there is
coincident indicator which shows the current state of economic condition so it is often used in
conjunction with leading and lagging indicators to get a full view of where the economy has been
and how it is expected to change in the future. Coincident indicators include such things like
Gross Domestic Production (GDP), employment level, retail sales, and industrial production.
This short paper will explain about GDP in Indonesia since Joko Widodo as the 7th president of
Indonesia took place on Monday, 20 October 2014.
 B. Gross Domestic Production
Gross Domestic Production or known as GDP is the monetary value of all finished goods
and services produced within a countrys border in a specific time period. Based on the journal
wrote by J. Steven Landefeld and his friends (2008) GDP used to calculate using the tax payment
data as the sources however using tax data will lead to double counting since tax payment data
also include intermediate sales by business to another business. Although there was value added
in that transaction but it did not offset the value that had been counted before. Therefore, in
1950s Leontief and the others provided a conceptual framework for estimating the size of GDP
by three approach; income approach, expenditure approach, and production approach. These
three approaches use different methods production approach estimate each industry gross output
and subtract intermediaries inputs from other industries to derive each industry value added.
Next income approach measures the income earned by different factors of production and last
expenditure approach measure all type of spending such as consumption, investing, government
spending, and net export. The most common approach is expenditure approach which use
Keynesian equation.

To define and measure changes in aggregate output itself initial price have to be corrected
for year-to-year changes in the average price level of the goods and services concerned since
changes in the values of flows of goods and services can be directly factored into two component
reflecting changes in the prices of the goods and services concerned and changes in their volume.
Only by eliminating price effect, and valuing each years GDP accordingly it is possible to
derive a consistent measure of changes in output ( Castles & Henderson, 2014).

In Indonesia itself changes in GDP has been fluctuated over the years. These fluctuations
was an effect from whether external or internal factors. External factor such as global recession
will affect almost every nations GDP due to the fact that we are living in a world where open
economy is applied. On the other hand, internal factors such as physical capital investment and
human inputs will effect growth of GDP in the short-run and long-run respectively ( Henstridge,
Sourovi, and Jakobsen, 2013). Hence the growth of GDP depends on the government policy and
action in maintaining it given the economy condition. Here is the graph that shows Indonesias
GDP growth every quarter over the last 5 years in percentage.
 As we can see from the graph, Indonesias GDP annual growth rate shows a
negative trend compared to 2012. In 2012, Indonesia reached its peak by having 6.2% growth in
Q2. However since then we face decrease in GDP growth until its reached the lowest point of
growth in Q3 2015 by only 4.73% growth. Although in 2016 Indonesia GDP growth per quarters
increase to the point of 5.2% it did not exceed the GDP growth in previous president reign. There
are many things that could be highlight regarding the decrease in growth under current president
reign like Americas as the big economy facing housing crisis in 2014 and the drop of global
crude oil prices.

According to strait-times (2016), Indonesias 2015 GDP in total was the weakest in last 5
years despite the acceleration in Q4 (shown in the graph). Weak consumption, investment, and
export were taken into account regarding this weaken. The rising in Q4 itself were caused by
increase in investment growth due to rising public spending. Given private consumption, which
makes up more than half of Indonesias economy, was more or less stable in the fourth quarter
despite reports of factory closures and lay-offs. Another factor that contributed in acceleration of
investment growth was the issue of tax amnesty. This issue drove many of Indonesias tax
avoidance to help developing Indonesia by reported their assets to increase the tax participation
rate hence increase Indonesias revenue for the following years. Furthermore, Indonesias GDP
growth has recovered to 5.02% in 2016 in which higher than the preceding year but lower than
the expectation. However, unlike the usual rhythm where the fourth quarter of the years GDP
growth accelerated since Indonesian government usually speeds up public spending at the year
end. It was because severe global and domestic uncertainties that emerged like the surprise
victory of Donald Trump in US presidential election and protest regarding blasphemy case done
by current Jakartas governor which cause significant capital outflow from Indonesia. As a
consequence, consumption was decreasing by 0.02% and government spending decrease by
0.19%.

For the following years, Indonesias government should have maintained the growth of
GDP in Indonesia. According to Sharma (2013), Indonesia as an emerging market should not be
focusing in increasing commodity export however they should focus on domestic investment.
The reason behind it is the decreasing pattern of commodities price, hence Indonesia can not
heavily rely on it. In addition, Indonesia should have a strong leader who is able to keep political
stability and focus on maintain economy development not a leader who make political condition
unstable and focus on maintaining popularity. From the economic perspective, the role of
domestic economy such as domestic investment is undeniably important to safeguard and to
support economic growth ( Basri & Rahardja, 2010). It is because global financial crisis had
already indicate that their have to be measure to create some minimum amount of structure in the
domestic economy to avoid much dependency on external shock. However, global market also
plays key roles in supporting Indonesias GDP growth from the net trade balance albeit less
stable compared to domestic market. Therefore, in order to develop great economic growth, there
has to be a balance between business integrated with the Indonesian economy and the global
economy with the efforts to integrate the Indonesian economy internally.

Given Indonesias geographical condition which made the logistic cost high because of the
inter-island and inventory cost lead to inefficiency in logistic shipping while logistic may be the
key to unlocking the door to the prosperity. So trade logistic or the capacity to integrate the
domestic economy and also connect the domestic economy with global market through dispatch
of goods are an extremely important factor in the potential economic growth of a country and
balancing between business integrated with the Indonesian economy and the global economy.
With this background, Indonesia has to place a major priority on developing physical
infrastructures that integrates the economy. In addition, in line with the development of physical
infrastructure, Indonesia also has to ensure that domestic soft infrastructures includes
improvement in bureaucracy, simplification of the investment licensing process, decrease of the
cost of doing business, and simplification of regulation in order to make the economic activities
work more quickly.

Now look at current president policies that directly or indirectly impact the growth of
GDP. The policies can be categorize into three category; Shifting political support, economic and
institutional reform, and exploring Indonesias new trade linkage (SIIA, 2016). In shifting
political support, started with cabinet reshuffle in which figures from the opposition party like
Golkar who recently joined coalition enter the cabinet. This moment shows how the president
wanted big support in implementing his policies aside the controversial that may rise up. Then,
the improving bureaucracy to solve the problem of Indonesias civil service that has been
plagued by inefficiency, ineffectiveness, and corruption since it has been seen as one of the
factors hindering progress on economic reform. Furthermore, the lack of initiative and paralysis
among the bureaucracy has reportedly been holding off approving budgets and making decision
on major project had made Indonesia as difficult destination to foreign investment. The other
policy to encourage investment is deregulating regarding the investment or the program known
as Investasi 3 jam.

In economic and institutional reform, the first attempt is by reducing fuel subsidy and
implementing tax amnesty to increase the government revenue. It is necessary since the need for
sizeable and readily-available capital to fund infrastructure project. The infrastructure projects
planned to be achieved on 2019 is 24 seaports, 15 airports, and toll-road across provinces to
solve Indonesias logistic problem and boost local economy. It also planned the construction of
power plants to fulfill the demand of private sector and households. Then, tightened labor law
that require 1:10 ratio of expatriates to Indonesian so firms will allocate larger budget toward
skills and language training for the local employees to avoid decrease in the productivity. For
Indonesia, increase in labor skilled is very important for GDP growth in the long-run. And the
last is the establishment of seven more Special Economic Zones (SEZs). SEZ refers to
designated areas in a country with special economic regulation that differ from other areas in the
same country. By having more SEZs Indonesia has the potential to attract significant investment
by offering incentive to the investor in order to reach higher growth of output (GDP).

The last category exploring Indonesias new trade linkages Indonesia commit to move ahead
with ASEAN Economic Community (AEC) and speeds up negotiation on Comprehensive
Economic Partnership Agreements (CEPAs) to make Indonesia more competitive in the global
market which may have the positive effect on trade balance thus positive effect on GDP growth.
C. Conclusion and Recommendation
In conclusion, the ways of how Indonesia can maintain its GDP growth is primarily by
increasing the domestic investment. Domestic investment is important as a structure of
Indonesia economy due to the uncertainties in the global market. The current president itself
has shown the policies that direct to that path in order to increase the growth of GDP.
Although at the first 2 years of his presidency the economy shows negative trend but is
mainly because the blunder in reducing crude oil subsidize while in fact the crude oil price
fall and the uncertainties in the global market.

In general, the policies that he implement to help GDP growth is the development of
physical infrastructure such as construction of toll-roads, seaports, power plants, and else.
Then, improvement in soft infrastructures such as bureaucracy and labor skill by increasing
expatriates to local labor ratio. And lastly, act of encourage investment like deregulating to
makes invest easier and addition to Special Economic Zones. Also the policies to makes
Indonesia stay competitive in the global market by joining some trade agreements. Since
most of the policies need big spending, he also implement policies to increase government
revenue such as tax amnesty and reducing subsidize of fuel to match the government
expense.

In my opinion, the policies that he implemented to achieve Indonesias GDP growth are
mainly effective although it cant be seen from the graph. It is because most of the policies
are targeted for long-term growth of GDP not in the short-term so the effect will not be felt
nowadays. For the near future, I hope that the government could issued new policy that
support the growth of GDP and keeping track of the policies that have been issued to reach
its original targets.
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