Indonesia must bolster support for informal and rural businesses if it is to revive its slowing economy and meet President Prabowo Subianto’s ambitious goal of raising annual growth to 8 per cent by the end of his term, according to former officials and economists.
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Micro, small and medium enterprises (MSMEs) account for more than 60 per cent of Indonesia’s gross domestic product and employ nearly 117 million people – or 97 per cent of the total workforce – according to government data. Yet most operate in the informal sector and lack consistent support from national policy, observers say.
“The grass-roots economy has become important right now,” said Rudiantara, Indonesia’s former minister of communication and information, speaking at the Asia Grassroots Forum in Bali on Thursday. “There is a lot of resilience in these lower- and middle-income communities – so we need to ensure that we are supporting them.”
Rudiantara, who also serves as president commissioner at the microfinance platform Amartha, which hosted the forum, said Indonesia’s path to economic recovery would depend on empowering its rural and informal sectors – particularly with key indicators pointing to growing macroeconomic headwinds.
“Our economic performance in the first quarter has declined … we’re seeing this reflected in falling car and motorcycle sales, and in what’s known as the lipstick effect,” he said, citing the theory that consumers typically would opt for smaller, affordable luxuries during times of financial stress.
Indonesia’s economy posted its slowest growth rate in over three years in the January to March period, at 4.87 per cent year-on-year, down from 5.02 per cent in the previous quarter, according to official data released by Statistics Indonesia.