DIGIVESTASI - Funding Requirements for Boosting Indonesia's Economic Growth by 1%-2% Are Substantial, Especially to Meet President-Elect Prabowo Subianto's Ambitious Target of 8%. The funding needed to increase Indonesia's economic growth by 1%-2% from the stagnant 5% is substantial. This is particularly significant in achieving President-elect Prabowo Subianto's ambitious target of 8% within his five-year term.

Senior economist and former Indonesian Finance Minister (2013-2014), Chatib Basri, stated that to achieve economic growth of 6%-7%, an investment equivalent to 41%-47% of GDP is required. This means, if the current nominal GDP is IDR 19,500 trillion, the additional investment needed ranges between IDR 780 trillion and IDR 1,950 trillion.

“In nominal terms, if our GDP is IDR 19,500 trillion, we need an additional investment of IDR 780 trillion to grow by 6%, or IDR 1,950 trillion to grow by 7%,” said Chatib via his Instagram account late last year, as quoted on Tuesday (23/7/2024).

To acquire these funds, Chatib emphasized the importance of efficiency. Indonesia’s current economic growth is burdened by a high incremental capital output ratio (ICOR), meaning the additional investment needed for 1% economic growth is very large. Consequently, Indonesia’s economic growth has stagnated around 5%.

Chatib explained that Indonesia's ICOR stands at 6.8. This means 1% economic growth requires an additional investment ratio to GDP of 6.8. Therefore, the investment requirement relative to GDP must increase to drive 1% economic growth.

Additionally, the government must raise the gross domestic savings ratio to GDP, which has been around 37%. "Since savings are less than investment, we need to increase savings. This can be achieved by raising savings and increasing the tax-to-GDP ratio, meaning increased tax revenues through administrative reforms," said Chatib.

Furthermore, it is crucial to boost domestic productivity to reduce the still high ICOR. This productivity increase can be achieved through economic efficiency, improving the quality of human resources, and good governance.

The third step is to enhance the inflow of foreign capital in the form of foreign direct investment (FDI). Thus, Indonesia's investment climate must be maintained to attract investors to invest domestically, creating jobs and absorbing domestic labor.

Prabowo Subianto agrees with Chatib. He stated that to achieve the economic growth target of 8%, from the stagnation around 5% over the last decade, the government must carry out economic efficiency, ensure good bureaucratic governance, and issue reasonable policies.

"I am very optimistic. Our wealth is enormous, our potential is enormous, but we must be more efficient, manage well, and make reasonable policies," said Prabowo.

"We must be determined to reduce leaks, misappropriations, and policies that do not benefit the national interest and the people," he emphasized.

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