Policies Implementation Key for Positive Economic Trend, Says UIII Expert

March, 27 2023

Contributor: ANJ   |  Editor: Supriyono

As the COVID-19 pandemic is leading to an end, a positive sign of recovery appears in the Indonesian economy proven by its annual growth rate of 5.31% year-on-year (yoy) in 2022, exceeding the year’s original target of 5.2% (yoy).

Given the positive growth, Fajar B. Hirawan, Ph.D., a lecturer at the Faculty of Economics and Business at Universitas Islam International Indonesia (UIII), is hopeful that the Indonesian economy can manage to maintain its positive trend in 2023.

Dr. Hirawan expects that Indonesia’s economy can grow over 5%, or at least in the range of 4.5–5%. This is in line with the Central Bureau of Statistics (BPS), which estimates that Indonesia's economy will grow in the range of 4.5–5.3%.

More specifically, Dr. Hirawan analyses that the government's achievement target will depend on how it implements its policy to maintain economic growth, whilst also paying attention to the household consumption sector. 

"I hope that the fiscal policy still focuses on how to improve or expand the social assistance programs in order to manage the growth of household consumption because we know that household consumption contributes 56 to 58% to Indonesia's GDP [Gross domestic product]," Dr. Hirawan said. 

In terms of policy, Indonesian Coordinating Minister for Economic Affairs, Airlangga Sutanto, stated that the government has prepared a number of key policies to improve the country’s economy in 2023. These include the right mix of fiscal and monetary policies, the Law on the Development and Strengthening of the Financial Sector, and the government regulation in lieu of law (Perppu) on job creation.

In addition, Dr. Hirawan also estimates that in 2023 the manufacturing industry will grow significantly given the current massive improvement in investment and industrial sectors. The expected growth from the manufacturing industry will be a major contributor to the Indonesian economy.

"It contributes more or less 16 to 19% to the Indonesian economy, and I can say that the manufacturing industry can also absorb more employment because I believe most of the manufacturing industries in Indonesia are labor-intensive industries," he explained. 

In terms of the digital economy, Dr. Hirawan sees this as a sector that should be focused on, due to its big potential following so-called structural transformations since 2008.

However, he conveys that the Indonesian economy in 2023 faces several challenges. According to him, Indonesia has to make sure that there is continuity between the structural reform and the bureaucracy reform in order to boost economic growth. 

Also, he said that Indonesia still needs to improve productivity and competitiveness compared to other countries in the world. "Perhaps we still can have the inflation rate in the range of 3% plus or minus 1%. And, I think we also have to maintain the growth of household consumption because household consumption is the major contributor to the Indonesian economy," concluded Dr. Hirawan.