The Ninth Sadli Lecture
Indonesia’s resources boom from an international perspectives
The 9th Sadli Lecture was held on 21 April 2015 at the Hotel Borobudur, Jakarta with Professor Ross Garnaut AO, Professorial Research Fellow in Economics, Faculty of Business and Economics, The University of Melbourne, as speaker on the topic of Indonesia’s resources boom from an international perspective, examining the resulting policy dilemmas as well as options for sustained and equitable growth. As a background to the resources boom, Professor Garnaut provided an overview of the eight years from 2003, where prices in real terms for most energy and metals and some agricultural commodities rose to the highest ever. The boom was caused by exceptionally strong and resource-intensive growth in China. During those years, most resource-exporting countries experienced high terms of trade and strong growth in investment in expanding exports of resource-intensive goods, which in turn supported faster growth in incomes and sometimes in output. At the same time, export and import-competing industries beyond resources became less competitive and grew slowly or declined.
Indonesia was one of the countries heavily influenced by the resource boom. Indonesian exports in United States dollars tripled in value between 2003 and 2011 and the commodities share of exports rose from 52 to 68 percent. Indonesian average incomes grew reasonably strongly for a while without sustained focus on economic policies that were supportive of strong economic growth.
The resources boom continued with only a brief interruption during the global financial crisis until Chinese economic development began to show the influence of a new model of economic growth from 2011. As a consequence, most resource rich countries, including Indonesia and Australia, face large economic challenges in the aftermath of the China resources boom. The maintenance of strong growth in economic output again requires large contributions from export and import-competing industries other than resources. The boom has left policies and institutions that are less than ideally suited to such development, and require reform. However, while there is widespread recognition in Indonesia of the need for reform, the boom-time legacy in political culture makes reform difficult.
Was the resources boom a blessing or a curse for Indonesia? According to Professor Garnaut, there were exceptional cases where a resources boom was a curse for development, for example in the cases of Norway, Australia and Canada. However, “the evidence to date says that the China resources boom was an ambiguous influence on Indonesian development” said Prof Garnaut. On the one hand, the boom allowed reasonably strong economic growth to proceed through the first decade of democratic government, while on the other hand, it lulled the newly democratic polity into a false confidence that reasonable economic outcomes could be achieved despite weaknesses in economic policy.
The keynote remarks for the event were delivered by Professor Iwan Jaya Azis. He raised the issue that the biggest problem faced by not only Indonesia but also many other Asian countries was the decreasing trend of the growth of productivity. In contrast with past experience when Asian countries were struck down by the Asian Financial Crisis, this trend would continue for a long time, for a number of reasons. One of the reasons was, he argued, the weak current global economic condition. Another was the deceleration of the share of manufacturing value-added to GDP, for manufacturing was one of the sources of productivity.
Two discussants delivered comments on Professor Garnaut’s paper: Raden Pardede (CReco Consulting) and Mubariq Ahmad (FEB UI). Pardede questioned whether the recent resource boom and bust was different compared with the ones in the past, and he argued that, fundamentally, it was not. He then identified six problems that caused the boom and bust and offered policy guidelines accordingly. Ahmad, on the other hand, questioned the fact that Garnaut did not elaborate on the equity aspect of the resources boom, where there were indications that profits went overseas while welfare inequality increased in Indonesia. He added that poor monitoring meant that extraction processes generated a legacy of environmental degradation.
The 9th Sadli Lecture was attended by about 160 people (of which 63% were male) which was quite unexpected given that it was a busy week, with both the Asia Africa Conference and the World Economic Forum on East Asia convened in Jakarta at the same time. Attendants comprised mainly academics and staff of research organizations (about 50%), with many representatives from government agencies (especially the Ministries of Finance, Energy and Minerals, and Trade) and international organisations.
This report was written by the late Bayu Tegar Perkasa.
Photos by Nia Kurnia Sholihah