Productivity and long term growth

Going for Growth 2018 - Indonesia note

 

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Going for Growth is the OECD flagship report analysing structural policy settings and economic performance to provide policymakers with concrete reform recommendations to boost growth and ensure that the gains are shared by all. The 2018 Interim Report reviews the main growth challenges and takes stock of reforms enacted over the past year -- in both advanced and emerging economies -- on policy priorities identified in the previous issue of Going for Growth.

Country highlights

The gap in GDP per capita relative to the most advanced OECD countries remains large but gradually narrows as the economy is shifting away from low-productivity primary sectors to services and manufacturing. Employment is overall relatively high, and continues to contribute to economic growth, but tackling informality remains a challenge. Income inequality remains persistent, but not particularly high in comparison to other emerging-market economies. The rise is driven by a growing gap between the rich and the poor within cities, combined with the very rapid pace of urbanisation.

The targeting and coverage of programmes designed to increase access to education remain a key priority, while measures to improve the quality of teaching should be stepped up. Measures to encourage private-sector participation in infrastructure investment also need to be improved.

Going for Growth 2017 recommendations include:

  • Enhance outcomes in education by continuing increasing spending in education. Encourage higher enrolment and quality at primary and secondary levels through regular teacher assessment and professional development. More closely link teacher salaries to not just qualifications, but also performance and ongoing training. 
  • Improve the regulatory environment for infrastructure by concentrating Government spending on infrastructure in transportation, logistics, and rural infrastructure. Sub-national governments should be encouraged to step up infrastructure spending, including by making greater use of targeted and matching grants. Given looming fiscal constraints, consideration should be given to issuing infrastructure bonds, including allowing sub-national governments to do so. 
  • Reform labour regulations to reduce informality by reforming regulations impeding labour market flexibility, notably by reducing overly generous severance payments. 
  • Further reduce energy subsidies by continuing to phase out fuel and electricity subsidies, which will allow a reprioritisation of government spending programmes. Compensate the poor through existing targeted schemes, including the conditional transfer scheme. 
  • Ease barriers to entrepreneurship and investment, and strengthen institutions to fight corruption by continuing to streamline business regulations, paying special attention to regulations in sub-national jurisdictions. Ease barriers to foreign investment by removing non-strategic sectors from the Negative Investment List. Sustain the fight against corruption, including by increasing resources to the Corruption Eradication Commission and vigorously defending its independence.

Recent policy actions in these areas include:

  • Spending on infrastructure has been increased significantly as the government has injected more funds into the State Asset Management Agency (LMAN) for land acquisition to facilitate strategic projects, including roads, ports and dams. Electrification in rural areas has also been increased.

Indonesia: Latest Economic Forecast 

Indonesia: Latest Economic Survey

 

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