OECD on Indonesia’s Demographic Bonus, Protectionism & GDP Growth
The Organization for Economic Co-operation and Development (OECD), an intergovernmental organization that works with governments to understand what drives economic, social and environmental change, is positive about the economic prospects of Indonesia. However, the institution also emphasized that Indonesia needs to do its homework in order to benefit optimally from the country’s demographic bonus and to join the ranks of the upper-middle-income countries.
Jose Angel Gurria, OECD Secretary General, stated in a press release on Wednesday (25/03) that, although Indonesia has been outperforming its regional peers as well as most other emerging market economies, the country’s economic performance can be enhanced provided that structural reforms are accelerated. Such development would also lead to a more just society in which all citizens benefit equally from the economic fruits (ensuring inclusive and sustainable growth for all Indonesians).
On Wednesday (25/03), the OECD released its annual “Economic Survey on Indonesia” in which it assesses the public policies behind the country’s economic performance and success in poverty reduction over the past decade. In line with other institutions (such as the World Bank, Asian Development Bank and the International Monetary Fund), the OECD applauded the Indonesian government’s decision to drastically reduce fuel subsidies at the start of 2015, hence creating fiscal room for public investments in the country’s infrastructure, education and social security. Partly as a result of the subsidized fuel prices reform, the OECD estimates that the economy of Indonesia will rise 5.3 percent (y/y) in 2015, up from 5.02 percent (y/y) in 2014. In 2016, GDP growth is expected to accelerate to 5.9 percent (y/y). Regarding Indonesia’s current account balance, the OECD predicts that the country will see a 2.8 percent of GDP deficit in 2015, and 2.5 percent of GDP in 2016.
However, one point of criticism made by the OECD is that it detects an increase in protectionist measures adopted by the government, thus obstructing foreign investment, hence limiting economic growth in Southeast Asia’s largest economy.
Also on Wednesday, the OECD officially opened its Southeast Asia office in Jakarta. This office will serve as the institution’s hub in Southeast Asia to conduct its research and cooperation with the Indonesian government as well as other regional governments. Indonesia is regarded as the institution’s key partner. Apart from the new office in Jakarta, the OECD - headquartered in Paris - already has offices in Germany, Japan, Mexico and the USA.
One of the keys to economic success in the years ahead is Indonesia’s demographic bonus. Currently, 43 percent of the total population (250 million Indonesians) is below the age of 25. As such, the country potentially possesses over sufficient human resources, provided that these people can be educated to be equipped with the right skills. Therefore, the quality of education should improve markedly by implementing structural reforms such as improving teacher training and increasing accountability in the education sector. If the government fails to provide enough job opportunities, then this demographic bonus can turn into a demographic burden.
Other advice that was included in its latest report, involved natural resources and agriculture. In order to improve food sovereignty (becoming less dependent on food imports), the country needs to increase agricultural productivity by providing technical assistance and training as well as improving Indonesian farmers’ access to credit. Currently, the country’s food-sovereignty policies are too protectionist and too costly for the economy according the OECD. Based on the OECD FDI Regulatory Restrictiveness Index, Indonesia has the fourth-most restrictive foreign direct investment (FDI) regime among 58 countries. According to the report policies regarding the country’s objective of food-sovereignty often conflate and are confusing, including matters such as “protecting farmers’ incomes, managing food-price volatility and achieving national food self-sufficiency by minimizing reliance on foreign imports.”
Lastly, the OECD also emphasizes that Indonesia should promote investment in geothermal resources in order to reduce the country’s dependence on fossil fuels.
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Sejalan dengan institusi-institusi lain, OECD juga memuji keputusan Pemerintah Indonesia untuk menurunkan subsidi bahan bakar minyak secara drastis pada awal 2015, dan karenanya menciptakan ruang fiskal investasi publik untuk infrastruktur, pendidikan, dan jaminan sosial di Indonesia. upcoming ico oix.li Pada 2016, pertumbuhan Produk Domestik Bruto diharapkan akan semakin cepat menjadi 5,9%. Mengenai neraca transaksi berjalan, OECD memprediksi bahwa Indonesia akan memiliki defisit sebesar 2.8% dari PDB pada 2015, dan sebesar 2,5% dari PDB pada 2016.