Financial Perspective
    Category: Issues & Ideas By : Ardian Wibisono and Ulisari Eslita Read : 1392 Date : Wednesday, December 03, 2014 - 23:19:23

    Ahmad Zamroni / Forbes Indonesia

    The new Joko “Jokowi” Widodo administration has set out some big goals, such as targeting 7% growth in the next three years. To achieve that, it must tackle some perennial problems that have long resisted reform, such as corruption, bureaucratic inefficiencies and poor infrastructure. To get some perspective, Forbes Indonesia talked to Darmin Nasution, who has deep firsthand knowledge combating these issues.

    Darmin has served as the governor of the Bank Indonesia (2010-2013), the director general of Tax (2006-2009), and the head of Bapepam LK (2005-2006). Currently, Darmin, now 65, is the advisory board chairman at the newly launched Mandiri Institute, an independent think tank supported by Bank Mandiri, which aims to improve the banking and finance industry. He also serves as the chairman of ISEI (Indonesian Economists Association). While in tax agency, Darmin tried to implement a tax amnesty program, an idea currently being floated by the Jokowi administration. As a governor of the central bank, Darmin issued many policies that improved the nation’s banking sector.

    What do you see as the crucial challenges for the new government?

    The new government will face two sets of problems. One group they should solve immediately and the other group requires a long-term solution. On the short-term, the first is the primary balance, which is an indicator of whether there is enough income to cover spending, including paying debts. We have had a primary balance deficit since 2012 and even started to pay part of our debts with loans. The second one is ineffective spending. If these two things were solved then market perception, both domestic and global would improve.

    Other problem that needs to be solved immediately is the increased costs in the economy. It cuts our competitiveness when attracting investors or selling goods. It is caused by many factors but the very basic problem is actually market inefficiency. Just look at the huge discrepancy of the price of shallots in Brebes, where it’s planted, and the price in Jakarta. This huge discrepancy is not healthy and makes the farmers less motivated. Lastly the ASEAN Economic Community is coming next year, if we cannot compete than we can’t take any benefit and become only a market for others.

    What are the long-term challenges?

    After the New Order ended we often have had a current account deficit, but we had a surplus after the 2008 crisis despite the economy slowing down. That is because exports were high and the exchange rate was very attractive. That lasted until 2011 and the deficit returned because exports fell and so did commodity prices.

    We need some structural transformation to become a modern economy. It is hard to achieve high growth while maintaining an informal economy. For example, construction services are still dependent on daily workers who tend to come and go as they like. The quality of their work is therefore inconsistent. The difference can be seen in how employees work, with better productivity and services. Industrialization will not happen without structural transformation.

    Food security is another issue. When food prices are stable, inflation will only be around 4%. It is a problem especially when the world economy has not yet recovered. Having a huge population, food security has to be improved. We have the potential—Indonesia was the second largest sugar exporter after Cuba until World War II. Up until the early 1970s, we were exporting meat, and even sending cows to Singapore and Hong Kong. Now, we even import salt. This is not a decent thing.