Indonesia Study Group
Date & time
Bappenas is currently preparing the technocratic background study for the Indonesian medium term development plan (RPJM), which will be incorporated with the elected president’s priorities to form the RPJM 2020-24. In collaboration with Bappenas, our study contributes to four areas: (i) Setting the macroeconomic framework and projections; (ii) Undertaking the growth diagnostics to determine the binding constraints on growth; (iii) Determining the scale and areas of focus for infrastructure consistent with the macroeconomic outlook; and (iv) Defining a strategy for the financing of investment over the medium term.
As Indonesia’s potential growth is falling, productivity needs to be stronger than any time over the past decade. The study finds that increasing the amount of investment is not an option, therefore it argues that boosting productivity requires better investment, which includes: (i)) Getting more effective financing; (ii) Relaxing binding constraints in the enabling environment; and (iii) Solving the infrastructure conundrum. Improving the efficiency of investment is the key to driving Indonesia’s development agenda. This includes aligning investment incentives and allocating investment to more productive sectors, including through the financial system. This is especially the case for infrastructure investment. The study finds that regulations and institutions are the most binding constraints to growth in Indonesia, particularly the conflicting and harmful regulations in trade and investment. The institutional shortcomings include insufficient strategic oversight and a lack of alignment between responsibility and accountability, resulting in overlapping institutional responsibility in critical crosscutting areas.