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Addressing Indonesia's Economy in Transisitional Era

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Addressing Indonesia's Economy in Transisitional Era

  1. 1. Addressing Indonesia’s Economic Growth in Transitional Era:Do Institutions Matter? Introduction For decades mediaas well as citizens frequently listen to the voice of those struggling under what it is called as economics injustice. The story of twenty-two years top and down resources exploitation in Papua, starting from Scott Paper in 1988 until mega development project of MIFEE (The Merauke Integrated Food and Energy Estate) right now, has causedmany severe problems, including human right abuses, environmental devastation and enduring poverty for indigenous people while creating prosperity for immigrant workers. Another story of corruption and gratification from PresidentSoeharto’s era until the end of President Susilo Bambang Yudhoyono’s era, covering almost all elements of political elites, ministers, governors, regents and even the prosecutors has led to the crisis of public trust towards the governments. The other story of human trafficking of Indonesian woman labors in Arab world and the high rate of unemployment, 5.7 % (BPS,2014), which is the highest after Myanmar and Philippine among ASEAN countries makes Indonesia as one of the country with a big problem of job opportunity and human resources quality. Such these stories are in no way boosting, rather obstructing Indonesian economy. Consequently, the breakthrough of new transitional government is obviously needed to tackle all these issues, addressing Indonesian economic growth in the middle ofemerging market, especially under the transformation of ASEAN Economic Community in 2015, in order to provide economic justice and prosperity for all its citizens. Indeed, the new government cannot work alone to cover 240 million citizens within 34 provinces. It needs the coordination and synergy from all parties, particularly the one having the highest authority and responsibility, government Institutions. The Roles of Government Institutions in Boosting Indonesia’s Economic Growth Had observing the phenomena of what happened in Indonesia or even around the world, it seems like everything is just connected and serve as a consequence to one another. For instance, the stories raised above are very much related to the threats doubting Indonesian economic growth in the middle of emerging countries.It is the role of the transitional government to transform all
  2. 2. these kinds of threats into suchvirtuous opportunities through the real performance of its institutions. For the sake of economic growth, there are at least three major roles that the government institutions have to perform: 1. Harmonizing the difference interest of people. The main bone of contention is frequently thedifferent interest perceived among people, for example between the management and shareholders within a company. In a broader level such as in Indonesia, where the economic actors are more varied and come from different backgrounds, the issue demand higher attention. It needs the power of legal body, such as government institutions to harmonize all of these differences. Harmonization is a core concept of the global growing economy, which is to meet the satisfaction of all economic actors, driving higher economic growth. The story of resource exploitation in Papua is also can be solved through this harmonization. Considering the interest of indigenous citizen there and revising the concept of MIFEE (The Merauke Integrated Food and Energy Estate) for example, is one of the way that the transitional government might order to end this problem. Havethe citizens satisfied with the government performance, then the economic and social stability will be created, encouraging money flows inside the country, achieving higher economic growth. 2. Formulating and ensuring the laws and policies to be executed in accountabilityfashion. Efficient laws and policies that can harmonize the difference interest of people for sure have profound positive social, economic, political and welfare effects. In the new transitional era, the evaluation of all the laws and policies is needed to boost the economic growth. It is then the role of the government institutions to formulate the laws and policies that triggers to the win-win situation, for example in term of the banking system, property right, local markets, international trade and business development. An increase in the laws and policies quality in such an economic sectorimply to a reduction of market unfriendly environment and lowering the transaction cost. Hence, this idea will ensure the establishment of good government performance with market-based economic system, encouraging more investor to come, leading to a higher economic growth. In addition to this, the government institutions’ high quality control over the implementation of the laws and policies is also needed, both in internal and external institutions,in order to make sure that the laws and policies are executed in accountability fashion. In that way, the story of corruption and gratification might be decreased or even ended.
  3. 3. 3. Responding the threats of world changing environment through bright shift in strategies. High technology innovation that shapes the new changing environment demands a bright shift in strategy within the country. In order to sustain in the middle of emerging economies, the new transitional government should take in account the impact of this phenomenon. Government might respond this threat through its institutions, for example through educational institution. Strategies reformation to produce high quality human resources to respond the need of labor market, avoid the skill gap and ensure an adequate trained human capital to support business activity is obviously needed. Technology adoption to schools and universities, soft skills and entrepreneurship training for students, and scholarship granted to poor students who have passion are some of the ways to build high quality of human resources. The increase of human resources quality, considering the outcomes of entrepreneurship training for example, will create more entrepreneurs thus providing more and more job opportunities to Indonesian citizens. In this way, GDP per capita will increase and thus higheconomic growth will be achieved. Profiling the Performance of Government Institutions in Emerging Countries Emerging countries are those that perform the fast-growing economies as a result of their economic development and reform programs to open up their markets and "emerge" onto the global scene. Many countries in Asia, Africa and Latin America are fall into this category, such as China, India, South Korea, Indonesia, Thailand, Philippine, Egypt, South Africa, Tunisia, Brazil, Mexico, etc. Among all of the emerging countries, China is by far considered as the fastest growing country followed by South Korea in the second place (Bloomberg market magazine, March edition 2014)andin the reverse position according to GCR 2013-2014. Country Overall Index Basic Requirement Efficiency Innovation Rank Score Rank Score Rank Score Rank Score South Korea 25 5.01 20 5.6 23 4.89 20 4.82 China 29 4.84 31 5.28 31 4.63 52 3.83 Thailand 37 4.54 49 4.86 40 4.43 52 3.83 Indonesia 38 4.53 45 4.90 52 4.3 33 4.13 Philippine 59 4.29 78 4.46 58 4.20 58 3.8 Sources: GCR (Global Competitiveness Report) 2013-2014
  4. 4. China’s success in transforming its economic system from Communist into Capitalist has a lot to do with the central government and its institutions. The desire of the leader, Deng Xiao Ping, government institutions and all of its citizens to step forward beyond the vicious poverty is the key element of its success. The performance of its institution under the power of Deng Xiao Ping, despite his centralize planning, is also proven to be outstanding. The three basic elements of China’s reform, i.e. high technology and economic efficiency to foster economic growth, disregarding ideology and promoting the peace, development and cooperation from over the world, and creating harmonized socialist society are all implemented successfully under the performance of government institution. The improvement of citizens living in east coast, thecleaned up area short time process for foreign investor’s plant, the broaden trade connection across Asia, Africa and America, and the increasing number of students’ sent abroad are all the concrete examples of high quality performance ofchina’s government institutions. In addition to that of in China, government institutions in South Korea are also considered performing very remarkably. The government officials’ principle of walk the talk brought this country to develop beyond itsimagination. Electrification by Korea Electric Power Corporation along with government institution is not only success in providing electricity for domestic needs, but also supporting the construction of power plants in 22 countries, including Saudi Arabia and China.360 degree evaluation system in government institution in which not only boss value the staffs but also the staffs value the boss triggers Koreans to increase their productivity. The policies to synergize research and development, education and training as well as ICT utilization from the government institutions also indeed play a significant role in the Korea’s economic growth. In contrast to those above, some countries in Southeast Asia are still sinking in the performance of their bureaucracy system or government institutions, such as in Indonesia, Thailand, and Philippine. Politicization, unstable regulation and corruption in one side, low quality of education, sanitation and infrastructure in the other side are some of the factors attributed to this patchy performance of institutions.
  5. 5. According to GCR 2013-2014, there are twelve pillars that measure the competitiveness of a country’s economy as shown in the table below. it is noted that these twelve pillars is not independent, rather they tend to reinforce each other. Thus, if one wants to increase the competitiveness of a country, these twelve pillars should significantly be first improved. Improving Quality of Government Institutions to Achieve Indonesia’s Economic Growth Government transition is one of a decent momentum in improving the quality of institutions. The new leader as well as representatives are hoped to create a new breakthrough in boosting the economic growth and prospering the citizens through the performance of its institutions.According to GCR 2013-2014, there are still many problems that should be adjusted by Indonesian government to increase its competitiveness. Sources: GCR (Global Competitiveness Report) 2013-2014
  6. 6. Looking back at the first pillar measuring the competitiveness of one economy, i.e. institution, should make Indonesia’s transitional government aware of its importance. The role of institutions that goes beyond the legal framework should be maximized for stabilizing micro and macro economy environment.To force the maximization of these government institutions’ productivity, it needs a tough leader to direct them. This leader with clear vision and commitment is by far one of elements that the Indonesian government lacks of during a couple of last decades. Presidential and legislative elections are mostly colored with coup and individual interest. The new transitional government is hoped to be free of such those practices. The commitment to embrace the transparency and trustworthy among government institutions should be realized. The evaluation of officials’ performance in government institution should be improved. Innovative and creative policies in social, political, and economic sector should be taken to maximize the resources and prosper citizen disregarding political interest of one party. The implementation of all policies taken should also be realized and controlled to keep it on track as proposed. Finally, the transitional government along with its institutions should be brave and tough to drive a highereconomic growth. Sources: GCR (Global Competitiveness Report) 2013-2014
  7. 7. Conclusion Considering the fact that the government institutions play a very significant role for a country’s economic growth, it is of high importance for the new transitional government of Indonesia to acquiregood and competent people to perform and make an improvement to the government institution. A tough leader with clear vision and commitment is absolutely demanded to track back the current government institution’s ineffectiveness. New transitional government along with its new leader and institutions is hoped to embrace a higher economic growth and bring up prosperity for its citizens.
  8. 8. References K.SOBHEESANJEEV, 2006. Quality of Institutions and Economic Growth in Developing Economies. University of Mauritius. Mauritius. WORLD BANK, 2002. World Development Report. Overview Sustainable Development in a DynamicWorld Transforming Institution, Growth and Quality of life. The World Bank. Washington. SCHAWB KLAUS & MARTIN XAVIER, 2014. The Global Competitiveness Report 2013- 2014. World Economic Forum. Geneva. CIPTO BAMBANG, 2012. Politik Ekonomi Indonesia Diantara Cina dan Kekuatan-Kekuatan Baru Lainnya. MAARIF Institute For Culture and Humanity. Jakarta. MARR CAROLYN, 2011. Twenty-two Years of Top-Down Resources Exploitation in Papua. Down to Earth. Papua.