Posted on 23 Jan 2015
Infrastructure developments to speed up growth
Indonesia should focus on improving
its infrastructure if it is to become a middle-income country, according to a
leading economist.
In a lecture at the Center for Strategic and International Studies (CSIS) this
week, Wing Thye Woo, professor of economics at the University of California,
listed the top priorities for Indonesia to accelerate economic growth and
become a leader in the region.
“Infrastructure overcomes the obstacles to trade and trade is the engine of
growth,” Woo said.
“In this turbulent global economy […] it is more important than ever for
Indonesia to be able to generate internal ‘push’ forces to expand its economy.
In other words, domestic reforms are exceedingly important.”
Woo said two things in particular would generate these ‘push’ factors: “A focus
on infrastructure investment” and “the rejuvenation of Indonesia as a maritime
power”.
He also advocated for deregulation to allow more foreign investment. “If the
private sector is not mobilized, the state will crash,” he said.
In light of China’s slowing economy, Woo said that Indonesia should no longer
rely on exporting resources for economic growth. On Tuesday Beijing announced
its 2014 economic growth was 7.4 percent, down on previous forecasts. “We have
got a slower demand for Indonesian resources in the near future,” he said.
While encouraging infrastructure development, Woo highlighted the importance of
ensuring that infrastructure was targeted and beneficial, saying Indonesia
should learn from countries that have failed.
“Many countries built things that did not increase production. Worse, sometimes
they built infrastructure that produced benefits that are no more than the cost
of building that infrastructure. So you’re actually worse off and a lot of
infrastructure spending was an excuse to give money to your political friends,”
he said, warning that “infrastructure spending and corruption moves together”.
Woo warned against focusing too heavily on any one aspect of infrastructure
development, such as on roads and ports, preferring instead a multi-pronged
approach that included a focus on technology and education, “so you have
balanced investments across the board”.
“Progress comes about because of good new ideas and good ideas are what makes
the world go forward,” he said.
In addition, Woo said maintaining peace in the South China Sea was crucial to
ensuring stability in the region while promoting Indonesia’s own economic
growth. “Indonesia can play a role in stopping the South China Sea dispute from
escalating,” he said. Increased tensions in the region would force Indonesia to
pick sides, he suggested.
The looming ASEAN Economic Community (AEC), scheduled to launch on Dec. 31, posed
both an opportunity and a threat to the Indonesian economy, according to Woo.
“The country that will have the biggest adjustment in the ASEAN Economic
Community would be, in my opinion, the Indonesian economy,” Woo said.
“If there is one automobile market for all of Southeast Asia, the Thai
automobile industry will kill the Malaysian automobile industry and most likely
it would do terrible things to the automobile industry here,” he said.
“If there were to be one economic region, so that if we were able to move
production and ownership of firms freely across the region then I think […]
Indonesia could be negatively impacted.”
Indonesia
should focus on improving its infrastructure if it is to become a
middle-income country, according to a leading economist.
In a
lecture at the Center for Strategic and International Studies (CSIS)
this week, Wing Thye Woo, professor of economics at the University of
California, listed the top priorities for Indonesia to accelerate
economic growth and become a leader in the region.
“Infrastructure overcomes the obstacles to trade and trade is the engine of growth,” Woo said.
“In
this turbulent global economy […] it is more important than ever for
Indonesia to be able to generate internal ‘push’ forces to expand its
economy. In other words, domestic reforms are exceedingly important.”
Woo
said two things in particular would generate these ‘push’ factors: “A
focus on infrastructure investment” and “the rejuvenation of Indonesia
as a maritime power”.
He also advocated for deregulation to allow
more foreign investment. “If the private sector is not mobilized, the
state will crash,” he said.
In light of China’s slowing economy,
Woo said that Indonesia should no longer rely on exporting resources
for economic growth. On Tuesday Beijing announced its 2014 economic
growth was 7.4 percent, down on previous forecasts. “We have got a
slower demand for Indonesian resources in the near future,” he said.
While
encouraging infrastructure development, Woo highlighted the importance
of ensuring that infrastructure was targeted and beneficial, saying
Indonesia should learn from countries that have failed.
“Many
countries built things that did not increase production. Worse,
sometimes they built infrastructure that produced benefits that are no
more than the cost of building that infrastructure. So you’re actually
worse off and a lot of infrastructure spending was an excuse to give
money to your political friends,” he said, warning that “infrastructure
spending and corruption moves together”.
Woo warned against
focusing too heavily on any one aspect of infrastructure development,
such as on roads and ports, preferring instead a multi-pronged approach
that included a focus on technology and education, “so you have balanced
investments across the board”.
“Progress comes about because of good new ideas and good ideas are what makes the world go forward,” he said.
In
addition, Woo said maintaining peace in the South China Sea was crucial
to ensuring stability in the region while promoting Indonesia’s own
economic growth. “Indonesia can play a role in stopping the South China
Sea dispute from escalating,” he said. Increased tensions in the region
would force Indonesia to pick sides, he suggested.
The looming
ASEAN Economic Community (AEC), scheduled to launch on Dec. 31, posed
both an opportunity and a threat to the Indonesian economy, according to
Woo.
“The country that will have the biggest adjustment in the
ASEAN Economic Community would be, in my opinion, the Indonesian
economy,” Woo said.
“If there is one automobile market for all of
Southeast Asia, the Thai automobile industry will kill the Malaysian
automobile industry and most likely it would do terrible things to the
automobile industry here,” he said.
“If there were to be one
economic region, so that if we were able to move production and
ownership of firms freely across the region then I think […] Indonesia
could be negatively impacted.” - See more at:
http://www.thejakartapost.com/news/2015/01/23/infrastructure-developments-speed-growth.html#sthash.ZmLBr6RQ.dpuf
