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G20: Ensuring that Growth is the Good Kind

17 Oct 2014
Maria Monica Wihardja
KRD Lokal Bandung Raya, Indonesia. Image credit: Flickr (Badia Harrison)

A G20 focus on infrastructure investment, long-term financing and implementing necessary structural reforms will ensure global economic growth is more robust.

The agenda for this year’s G20 Australian presidency is “leaner” compared to many precious Summits. With a clear goal of stronger and resilient growth, supported by vigorous and robust private sector contribution and necessaty structural reforms, it’s a narrowing of focus that is welcomed by Indonesia.

More than just “growth” is required

When each G20 member submits its commitment for the Brisbane Action Plan, there are a few things that the IMF must pay attention to. The first being identifying where exactly the collective two per cent increase in global growth actually comes from. In
light of declining growths of the BRICS countries, it is not very clear yet where this growth will originate. For example, from 2010-2013, India’s real GDP growth rate declined by more than one-half, China’s by about 2.8 percentage points, Russia’s by 3.2 percentage points, while South Africa’s and Brazil’s have grown weaker as well. So, unless there is robust recovery in the US and big EU countries, it might be difficult to see the goal achieved in the coming five years.

The second thing to recognise is that growth itself is not enough. It must be quality growth arising from necessary structural reforms and fitted to individual country’s needs.

The third is that strategic economic commitments are not independent from domestic political environments or their constituents in each individual country. For example, the US’s failure to ratify the IMF quota reforms agreed to in 2010 is just one example of how difficult or unpopular it is sometimes to bring home the sort of reforms agreed to at an international forum like the G20.

Infrastructure financing and fiscal reform

When it comes to infrastructure investment, the challenge is how to finance it. The G20 this year has put a lot of focus on private sector participation in infrastructure financing through Public Private Partnership (PPP) and institutional investor support. Private sector participation is important not only as a source of capital, it can also help with improving efficiencies, accountabilities, asset delivery and service performances over the lifetime
 of the projects, as well as the allocation of risks and rewards. Private sector involvement, however, is not a panacea to addressing the financing gap in infrastructure investment. Therefore, fiscal and tax system reforms remain vital. In Indonesia, for PPPs and supporting institutional investors to invest 
in long-term infrastructure projects requires appropriate financial instruments – such as infrastructure bonds – as bank loans are often limited to shorter-term maturity that only support construction but not operational phases of long-term projects.

Indonesia’s outlook

Indonesia is awaiting the presidential election this coming July, and the candidacy of 
Joko Widodo brings much hope with it. If elected, not only will he be the first “non-elite” president in the country’s history, it’s hoped his presidency will also be accompanied by pragmatic reforms – although the coalition government means he’ll have to “share seats” with other political parties, that may make reforms more complex. While he may or may not be present at the Brisbane Summit*, given his business background, “Jokowi” 
(as he is popularly known) will understand very well the need for a better economic climate to support growth – crucially through infrastructure investment. Upgrading Indonesia’s ports and airports could be a priority, or pilot projects aimed at improving Indonesia’s domestic supply chain and connectivity that have disadvantaged our competitiveness in the past.

Either way, whatever resolutions the G20 emerge with in November, the convergence between domestic policies and the global objectives is important, and will have an impact on Indonesia and the world stage.


Dr Maria Monica Wihardja is a former researcher at the Centre for Strategic and International Studies and an economist at World Bank, Jakarta Branch.

This is an extract from G20: Words into Action Brisbane 2014, to be published by Faircount Media in association with the Australian Institute of International Affairs in October 2014.

* President Widodo subsequently announced that he will attend the Brisbane Summit.