Download Peter McCawley_KeyNote

Konferensi Internasional Pelajar Indonesia 2014
Beyond MDGs: Realising Indonesia’s
Development Potential
Peter McCawley
Visiting Fellow, Indonesia Project, Crawford School, ANU
Friday 7 March 2014
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Theme: Looking ahead: RPJMN 2015-2019
• RPJMN 2015-2019 will help set the
framework for policy
(although many other policy events will be
important as well)
• There are many key issues …
employment, food and energy security,
decentralisation, environment …
• But two key issues are (a) economic
growth, and (b) role of the state.
… let us discuss these two issues 
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Outline -Growth
• Some facts
• Four issues
(a) Importance of long-term growth
(b) Is slower growth a problem?
(c) Good growth
(d) Investment
Role of the state
• Some facts
• Two issues
(a) Operations of state
(b) Implications for policy
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Outline -Growth
• Some facts
• Four issues
(a) Importance of long-term growth
(b) Is slower growth a problem?
(c) Good growth
(d) Investment
Role of the state
• Some facts
• Two issues
(a) Operations of state
(b) Implications for policy
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5
Recent GDP growth (% QoQ) – 2009-2013
(  Growth sedang melemah)
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Outline -Growth
• Some facts
• Four issues
(a) Importance of long-term growth
(b) Is slower growth a problem?
(c) Good growth
(d) Investment
Role of the state
• Some facts
• Two issues
(a) Operations of state
(b) Implications for policy
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Four issues to consider:
(a) Importance of long-term growth
(b) Is slower growth a problem?
(c) Need for ‘good growth’
(d) Need for investment
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Outline -Growth
• Some facts
• Four issues
(a) Importance of long-term growth
(b) Is slower growth a problem?
(c) Good growth
(d) Investment
Role of the state
• Some facts
• Two issues
(a) Operations of state
(b) Implications for policy
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(a) Indonesia: long-term growth – quote
(The Economist, 25 May 1996)
“Understanding growth is surely the most
urgent task in economics. Across the world,
poverty remains the single greatest cause of
misery; and the surest remedy for poverty is
economic growth. It is true that growth can
create problems of its own (congestion and
pollution, for instance) ... But such ills pale in
comparison with the harm caused by the
economic backwardness of poor countries ...”
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(a) Indonesia: long-term growth -- quote
“To its shame, economics neglected the study of
growth for many years…. But over the past ten
years or so, this has changed. Stars such as
Robert Lucas of the University of Chicago, who
last year won the Nobel prize in economics,
have started to concentrate on growth. As he
says of the subject, “the consequences for
human welfare ... are simply staggering. Once
one starts to think about them, it is hard to think
of anything else”.
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(a) Indonesia: long-term growth 1960-2010
(Source: Pierre van der Eng (2010) using adjusted prices)
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Outline -Growth
• Some facts
• Four issues
(a) Importance of long-term growth
(b) Is slower growth a problem?
(c) Good growth
(d) Investment
Role of the state
• Some facts
• Two issues
(a) Operations of state
(b) Implications for policy
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(b) Is slower growth a problem?
We must consider:
(1) Is slower growth a problem? Why?
(2) What is the maximum growth rate?
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Why is slower growth a problem?
… See “Economist” quote above! Slow growth will
affect:
* Job creation
* National economic capacity to supply all
goods – food, housing, schools, hospitals, etc
* Capacity of government itself to function and
to respond to national problems (law and
order, many public goods, environment, social,
etc)
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What is the maximum growth rate?
• Seems to be around 7% (see earlier
graph)
• Other countries (China, India, Japan
1950s/1960s, Korea, Taiwan) have grown
faster than 7%
• Key question for policy now: Why is
current growth in Indonesia below 7%?
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Outline -Growth
• Some facts
• Four issues
(a) Importance of long-term growth
(b) Is slower growth a problem?
(c) Good growth
(d) Investment
Role of the state
• Some facts
• Two issues
(a) Operations of state
(b) Implications for policy
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Need for ‘good growth’
• But ‘growth’ alone is not enough – ‘good
growth’ is needed.
• Good growth = growth which creates jobs,
helps protect ‘social’ and environmental
goods
• And which is fair – which benefits the poor
as well as the rich = ‘pro-poor growth’
… consider these points …
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Good growth (i)…
• Jobs … not ‘jobless growth’
• Environment and social factors –
“externalities” are a problem in Indonesia
… national capacity to control negative
externalities is weak
• Also – “public goods” are needed
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Good growth (ii) …
• And ‘fair’ pro-poor growth is not easy.
• The ‘Gini coefficient’ in Indonesia has
been rising sharply recently
…. See graph …
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Indonesia: Gini coefficient 2002-2012
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What to do about equality?
(1) Ensure supply of basic goods – but these
must be basic because the capacity of the
state (kemampuan negara) is limited
 basic food, water, jobs, schools,
housing
 probably not ‘social programs’
(2) Jobs are very important
(3) Improve public finances – taxes and
expenditures (check subsidies!!)
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Outline -Growth
• Some facts
• Four issues
(a) Importance of long-term growth
(b) Is slower growth a problem?
(c) Good growth
(d) Investment
Role of the state
• Some facts
• Two issues
(a) Operations of state
(b) Implications for policy
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(d) Need for investment
Must aim for >30% of GDP. But factors to consider are:
• “good” investment is needed.
• total investment is much more than BKPM data on
domestic and foreign investment.
• the informal economy is important (50% of workforce)
• investment in infrastructure needs much more attention –
recently, much too low, and policy is a problem … 
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Investment … and infrastructure
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… but infrastructure is a problem (too low)
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Outline -Growth
• Some facts
• Four issues
(a) Importance of long-term growth
(b) Is slower growth a problem?
(c) Good growth
(d) Investment
Role of the state
• Some facts
• Two issues
(a) Operations of state
(b) Implications for policy
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Another topic – Negara dan pasar
• Looking ahead to RPJMN 2015-2019,
there seems to be a problem –
kemampuan negara terbatas! Issues -• How limited is the capacity of the state?
• What are the implications?
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Outline -Growth
• Some facts
• Four issues
(a) Importance of long-term growth
(b) Is slower growth a problem?
(c) Good growth
(d) Investment
Role of the state
• Some facts
• Two issues
(a) Operations of state
(b) Implications for policy
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State capacity: revenues, expenditures, 2012
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Outline -Growth
• Some facts
• Four issues
(a) Importance of long-term growth
(b) Is slower growth a problem?
(c) Good growth
(d) Investment
Role of the state
• Some facts
• Two issues
(a) Operations of state
(b) Implications for policy
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What are the implications? …
Consider two implications:
• Implications for the operations of the state
(government)?
• Implications for policy? (What should we
do?)
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Outline -Growth
• Some facts
• Four issues
(a) Importance of long-term growth
(b) Is slower growth a problem?
(c) Good growth
(d) Investment
Role of the state
• Some facts
• Two issues
(a) Operations of state
(b) Implications for policy
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Implications – operation of the state
• The state becomes “stretched”
 over-promises, and under-delivers
• Budgets are too small; salaries are too low
(eg, attendance by teachers at schools is poor)
• … causing cynicism and resentment towards
government
•  “vicious circle” … resentment of government
and reluctance to pay taxes … which in turn
weakens the government!
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Outline -Growth
• Some facts
• Four issues
(a) Importance of long-term growth
(b) Is slower growth a problem?
(c) Good growth
(d) Investment
Role of the state
• Some facts
• Two issues
(a) Operations of state
(b) Implications for policy
35
Implications for policy – what to do (a)?
• Improvements are needed in both quantity and
quality (ie., size of the state, and service)
• Increase taxes and charges -- and spend more!
• But also focus; cut unnecessary functions (hard,
but necessary)
•  All of this = wide reform of government
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Implications for policy – what to do (b)?
• Set priorities -- Cut spending in some areas, and
increase it in others
• Increase revenues
• Simplify government; streamline government
• Grindle: “good enough governance”
• Government should “steer, not row”
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Conclusion – what we have discussed:
Kata kunci (ringkasan):
RPJMN; economic growth; good growth; jobs;
national capacity; supply of goods; public goods;
food security; energy security; pro-poor growth;
externalities; inequality; Gini coefficient;
investment; infrastructure; informal economy;
capacity of state; public finance; revenue;
expenditure; “vicious circle”; role of state; reform
of government; streamline the state; “good
enough governance.”
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