Toward an Investment Society
    Category: Column By : Prof. Firmanzah Read : 910 Date : Thursday, September 05, 2013 - 05:23:49

    In dealing with global economic uncertainty, many countries are seeking new sources of growth. After three consecutive quarters of slowdown, China's authorities are starting to rethink their export-oriented policies and shifting to domestic consumption. Fiscal and monetary stimulus packages are needed to boost domestic consumption to compensate for global export turmoil. Presently, policymakers around the globe are engaging local resources to ensure economic growth in the long run. What about Indonesia?

    Currently, household consumption is the main engine for Indonesia's economic growth. Annually, it contributes around 56% to growth, followed by investment and government expenditures. It is a result of a specific policy called “keep buying” strategy that has been implemented since 2004. This policy aims to elevate domestic purchasing power and to maintain accessible domestic prices for goods and services. The “keep buying” strategy stimulates more products and services needed by local consumers. This strategy creates more business opportunities, and encourages the growth of national output.

    However, Indonesia is currently dealing with a new challenge: How to create a more investment-society to balance a high level of domestic demand. I consider an investment society as a society that has a high tendency to save, instead of to consume. Indonesia needs more investors, not only consumers, to assure that national production facilities and output can balance high domestic demand. 

    Designing an appropriate policy to move from a consuming-society to an investment society would be a challenge for any policymaker. Some countries have implemented a mixed policy of both fiscal and monetary stimulus to attract investors. It is a difficult policy to achieve since global investors are trying to consolidate their business in the midst of a global slowdown.

    Meanwhile, the Indonesia Investment Coordinating Board (BKPM) recorded an investment growth of more than 30% in the first half compared to the previous year. Domestic Direct Investment (DDI) grew rapidly at 31% and reached Rp 60.6 trillion. It is a good signal for the economy since doing business is growing. For small and midsized companies, the Indonesian government has launched a campaign to develop more entrepreneurs, including financial aid, training and workshops. The main aim is to help young Indonesian entrepreneurs to start up a business.

    In the financial sector, the possibility is still wide open. Currently, local investors in the capital market only represent 1% from a total population of 240 million. The Indonesian Stock Exchange (IDX) is also intensifying efforts to bring local investors into the capital market and investment products. Furthermore, financial institutions are bundling products to cope with local investors expectations. These product bundlings, from banking, insurance and investment companies, are innovative financial products and services.

    Efforts by Indonesian policymakers are resulting in increased investment awareness, capability and opportunity among the new middle class. The increasing amount of national income will be directed not only at national consumption but also increasing national-savings and investment. Investment is needed for job creation, to increase national output, as well as to reinforce purchasing power that assures more future consumption. Consumption and investment are both virtuous cycles and together are essential for sustaining growth in Indonesia.