Wanting the Economy to Skyrocket 7%, the New Indonesia President Must Obtain an Investment of IDR 1,950 Trillion

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Regional.co.id, JAKARTA: Former Minister of Finance who is also a lecturer at the University of Indonesia Chatib Basri said that Indonesia’s new president must target economic growth above 5%, so that Indonesia becomes a developed country by 2045. For this reason, Indonesia must be able to pocket a lot of investment.

Chatib explained that Indonesia’s economic growth is currently still burdened by a high incremental capital output ratio (ICOR), that is, the additional investment required for 1% economic growth is too high. Indonesia’s economic growth is now stagnant at around 5%.

Chatib confirmed that Indonesia’s ICOR level is now at 6.8. This means that 1% economic growth requires an additional investment to GDP ratio of 6.8. Thus, the need for investment in GDP must be higher to encourage 1% economic growth.

“So, if we want to grow 6 to 7 percent, then we need investment in GDP between 41% and 47%. “Or in nominal terms, if our current price GDP is IDR 19,500 trillion, we need additional investment of IDR 780 trillion if we want to grow 6%, or IDR 1,950 trillion if we want to grow 7%,” stressed Chatib.

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With a large investment need of between IDR 780 trillion – IDR 1,950 trillion to increase 1%-2% economic growth before 2045, Chatib stated that Indonesia is also faced with low gross domestic savings to GDP.

“The problem is our current domestic savings, the ratio of gross domestic savings to our GDP is 37%. “Here there is a gap where our savings, our domestic savings are smaller than the level of investment financing needs,” he said.

As a result of the low share of gross domestic savings to GDP, Indonesia is experiencing funding difficulties. This is reflected in the current account deficit which began to occur some time ago, causing economic volatility to occur, because its fulfillment is still dominated by portfolio investment.

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“If the deficit in the current account is more than 3% and is financed by the portfolio, every time there is a shock, the money can return to the country. “As a result, financial markets are disrupted, the exchange rate is disrupted, and the government must restore economic stability,” he stressed.

To deal with this problem, Chatib revealed that there are at least three ways that the next government could take. The first step is to increase gross domestic savings by increasing the tax to GDP ratio.

“The first is that because savings are smaller than investment, we need to increase savings. “The way to do this is by increasing savings, increasing the tax ratio to GDP, meaning increasing tax revenues through administrative reform,” said Chatib.

Second, increasing domestic productivity to reduce the ICOR figure which is still high. This increase in productivity can be done through economic efficiency, such as improving the quality of human resources and government governance.

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“This means that lower costs are required for the same output. In other words we are talking about efficiency here. “This is done by improving the quality of human capital, by continuing infrastructure programs, and improving government governance,” he said.

Third, efforts to increase the flow of foreign capital entering the country in the form of foreign investment (PMA) or foreign direct investment (FDI). Thus, the investment climate in Indonesia must be maintained so that investors invest their capital in the country to create employment opportunities in the country and absorb domestic workers.

“Therefore, to make the economy relatively stable, to fill the gap, to fill this void, it must be financed through PMA. So it is very important to attract foreign direct investment to invest in Indonesia. “Or the final alternative is a combination of the three policies that I mentioned,” stressed Chatib. (cnbcindonesia/mrh)

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