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Development and Economic Policy

  • Historically speaking, Indonesia economic development policy has marked a big transformation from blue print-centrally planned approach following the Rostovian stages of economic development in to more embracing the potential of market approach combining with protectionism in few sectors.
  • Having said that, it is noteworthy that several aspect of centrally development project has delivered pretty good results especially in terms of social infrastructure like health and education facilities via Project Inpres (Instruksi Presiden).
  • Now in the modern era the main feature of Indonesia economic development is decentralisation from central to sub-national level, moving from commodity-based export into more manufacture-based export, selective application of subsidy, modernising state-owned corporation, moving away from fossil fuel energy into more sustainable and renewal energy, and seeking for more sustainable financial resources for development rather than traditional source (government heavy financing).
  • However several challenges remain and research is needed to investigate on how to go about the best direction of economic development.
Main issues and challenges
How to optimise the implementation of decentralisation
  • Indonesia has been in the right direction applying decentralisation principle given our size and diversity in terms of: area, population, culture, etc.
  • However after more than 15 years of its implementation, level of effectiveness, efficiency, and quality of decentralisation have been in question.
  • There are numerous evidence that local governments and politicians have been lacking in capacity to implement local development given their multitude of authority and fiscal power transferred by central government. Instead of being innovative they are doing the business as usual.
  • From the demand side or citizen, although small scale initiative of good citizen participation has been in place, it has not yet implemented across the board and to some extent facing a sustainability issues.
  • At this stage, although we believe that decentralisation is the best way to manage development of a country of the size like Indonesia, it is of importance to note that it has some unintended consequence, the most pressing example being: greater inequality between regions.
How to finance development with non-traditional source and more sustainable
  • Government sources of revenue has been increased in scale but only at a small fraction: the latest level of tax revenue proportion to GDP is only at around 12%, which is very small in comparative perspectives.
  • On the other hand, development of big scale economic infrastructures as well as basic social services needs much larger financial resources. This resulted in big financial gap: our capacity to finance versus financial availability.
  • Research on economic and finance field is expected to provide input or policy prescription on how to address this financial gap.
How to modernise state-owned corporation
  • There are strong indications that State Owned Enterprises (SoEs) in Indonesia have been running in loss mode. Permissive explanation to it is due to social (non-economic) objective the SOE has to perform therefore to some great extent social objective undermines economic objective.
  • Unfortunately in Indonesia SOEs play pivotal role in building, managing, and delivering goods and services to the citizens: playing the game in the above-mentioned mode has led to serious drawbacks: Indonesian consumer enjoying the indirect subsidies upon good and services they consume and now it is ‘politically and socially hard' to charge the user fees with reasonable or market prices and at the end, financing gap (issues no 2) keeps around.
Local and regional system of innovation
  • Inequality and imbalance of local development has its incentives or positive side for development too: as it might be a reflection of different local/regional capability to innovate.
  • Based on this assumption, it is recommended that local/regional governments initiate theirs system of innovation in such a way that advanced or more innovative regions will lead the example or the lagging regions will learn from them.
  • The objective of this local/regional system of innovation is to transform the business as usual in to more innovative way therefore it is hopeful that local government and citizens can generate more value added and local prosperity.
  • Conduct research on those issues (no 2) and other issues with reference to area of expertise and research interest of the participant of group 2.
  • Communicate the results to broader stakeholders in Indonesia and the UK.
  • Conduct evidence or research-based policy advocacy if possible.
Recommendation for next steps
  • Circulate the WIF 2016 results to Indonesian student who were not participating in the event.
  • Check other discussion forum and initiate contact to generate more participation.
  • Initiate milis/fb or other communication platform specialise on this issue (group 2).