The Private Sector And Investment Efficiency Are Key To Economic Growth

Indonesia's economic growth, which is targeted to reach 8% in the near future, is facing numerous challenges, particularly concerning the substantial investment needs and the current issues within the private sector. 

Nailul Huda, the Director of the Digital Economy Center of Economic and Law Studies (Celios), expressed his doubts regarding the achievement of this growth target. He emphasized that currently, both foreign direct investment (FDI) and domestic direct investment (DDI) amount to approximately Rp1,600 trillion annually. 

"This means that over five years, only about Rp8,000 trillion will be generated," Huda stated to Kontan.co.id on Sunday (June 15). 

Huda explained that not all of this investment directly contributes to Indonesia's economic growth. Furthermore, he noted that to achieve the 8% growth target, Indonesia must enhance investment efficiency. He mentioned that the Incremental Capital Output Ratio (ICOR) for Indonesia currently ranges between 6.7 and 7.7 points. 

"This implies that for every unit of GDP created, an investment of 7 units is required," Huda asserted. 

Huda reminded that countries that efficiently utilize capital have an ICOR value below 4.0. 

He stressed that with a high ICOR, Indonesia will need approximately Rp30,000 trillion over the next five years to achieve the 8% growth by 2029. He noted that 70% of this total must be borne by the private sector.  

"The private economic sector is also facing challenges," Huda remarked. 

Huda further explained that the private sector is currently not making significant investments, and this situation is exacerbated by the high interest rates set by The Fed. 

Given the limited liquidity conditions, Huda emphasized that this growth target appears exceedingly difficult for Indonesia's economy. 

"The Fed rate is also unlikely to decrease drastically, and the cost of investment will remain high," Huda added. 

Tag: DDI Economic Growth FDI Nailul Huda