Is Being Stuck with a Five Percent Growth Rate a New Normal for Indonesia?

Budy Resosudarmo, A Abdurohman

    Research output: Contribution to journalArticle

    Abstract

    Indonesia's economic growth over the past three years has been stuck at approximately 5% annually, despite a changing global environment and the Indonesian government's efforts to boost growth. This paper asks whether this level of growth is a new normal for Indonesia—i.e. do government efforts and the global environment matter, or will the country's economic growth remain at around 5% annually. If private consumption, the major component of GDP, continues to grow at its current level and inflation is controlled, this paper concludes that Indonesia might maintain its current annual growth rate of 5% for several more years. The probability of higher growth, however, is not promising. Lower growth seems more likely. To ensure the current level of economic growth will be sustained in the foreseeable future, this paper recommends stricter economic reforms to allow larger and more productive capital investments; more aggressive management of exchange rates to improve the country's competitiveness; a more effective fiscal space to support improvements to needed infrastructure by developing innovation to increase revenue; a reduced energy subsidy; and a more flexible upper bound of deficit. Effective programs to improve the country's human capital and innovation are crucial.
    Original languageEnglish
    Pages (from-to)141-164
    JournalBulletin of Indonesian Economic Studies
    Volume54
    Issue number2
    DOIs
    Publication statusPublished - 2018

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