Several Factors Causing Economic Problems in Indonesia

Factors Causing Economic Problems in Indonesia – Hello, Sinaumed’s friends , did you know? Economic problems are problems that often arise in everyday life, including buying and selling, bargaining, or exports and imports. In this dark life, especially in Indonesia, there are several economic problems, including unemployment, poverty, prices, profits, inflation, debt, economic system, political economy, welfare and economic growth.

To better understand these economic problems, I will explain each of the economic problems that often arise.

The essence of the economic problem is an imbalance between unlimited human needs and limited means to meet these needs.

When asked to explain what the economic issues are, everyone may have a different interpretation. Without discussing complicated theory or economics, some of the simple buying and selling activities that you usually do can already be considered part of economics.

Basically economics is the study of people’s behavior in choosing and creating their own wealth. What other explanations could be given for this fundamental economic problem?

Understanding Economic Problems

Economic problems are problems that arise when wants and needs exceed available resources. People who have unlimited wants and needs, while the available resources cannot meet these needs, then economic problems arise there.

According to Robert B. Ekelund Jr. and Robert D. Tollison, economics is the study of how individuals and societies with unlimited wants allocate limited resources to satisfy their wants.

From this explanation, it is clear that economic problems have arisen. There cannot be an economy that produces all goods for all people, because no economy has unlimited resources.

Causes of Economic Problems in Indonesia

1. Low Economic Growth in Indonesia

Pertumbuhan ekonomi suatu negara merupakan salah satu indikator untuk mengukur keberhasilan pembangunan negara tersebut. Pertumbuhan ekonomi dapat dilihat dari tingkat produksi barang dan jasa yang dapat diproduksi dalam kurun waktu tertentu. Pertumbuhan ekonomi di negara berkembang seperti Indonesia seringkali terhambat oleh masalah pendanaan dan investasi. Indonesia masih mengandalkan dana investasi asing untuk mendukung kegiatan ekonominya.

Weak economic growth was also affected by rising world oil prices. The increase in world oil prices was caused by the scarcity of crude oil. The scarcity is caused by depletion of oil reserves and delays in oil distribution. The increase in oil prices caused the prices of other basic necessities to also increase. As a result, people’s purchasing power decreases and people’s economic activity decreases.

2. Poverty

Poverty is a condition where people cannot meet their basic needs. The basic needs of life are clothing, clothing, shelter, education and health.

Poverty is the result of reduced daily income of society. Communities are generally affected by the decline in purchasing power of basic needs. As a result, people cannot live their normal lives, so their standard of living decreases.

According to March 2012 BPS data, the number of people living in poverty is around 29.13 million (11.96%). That number is 890,000 less than the previous year. The decline in the poverty rate was supported by a decline in the price of food commodities which was slightly larger than the share of non-food commodities.

3. Unemployment

In general, unemployment is defined as people who do not work. Unemployment is the core chain of problems that can cause several problems in a country.

Unemployment is caused by an imbalance between the number of the labor force and the number of jobs or employment opportunities. As a result, many workers cannot be absorbed by employment, resulting in unemployment.

According to the Central Bureau of Statistics, Indonesia’s total workforce was 120.4 million in 2012. Meanwhile the number of unemployed in February 2012 was 7.61 million, down from 7.7 million in the previous year. This is expected to be a good indicator to improve labor conditions in Indonesia.

To achieve this expectation, the government needs to adopt policies in the field of employment, such as improving the quality of the workforce or human resources, creating jobs, encouraging investment and capital growth, providing employment information, and providing training and skills for the workforce.

4. Income Gap

Income is used by the community to meet various needs. In society to meet their needs. There are high-income groups and low-income groups in society. High-income people can meet their basic needs, starting from primary, secondary and tertiary needs. At the same time, low-income people cannot meet their basic needs even though they have the most basic needs.

Differences in community groups with certain incomes raise the issue of income disparity. Therefore, the government needs to play a role in equitable distribution of income.

This is done to balance the ability of the community to enjoy the benefits of development. In addition, the government’s efforts to achieve equal distribution of income aim to reduce inequality in society and social jealousy in society.

5. Inflation

According to BPS data, Indonesia’s inflation in 2011 reached 3.79%. Inflation that occurred in Indonesia was caused by high aggregate demand, while the demand for goods and services was not proportional to production capacity and increased production costs. Inflation is characterized by an increase in the general price of goods and services.

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This will lead to a decrease in people’s purchasing power for goods and services. Inflation has an impact on sluggish economic activity, lack of public confidence in government performance, weakening of the rupiah and instability of the country’s economy. The origins of inflation can be classified into 2, namely demand-driven inflation and cost-driven inflation.

6. Foreign Debt

Indonesia has a very large foreign debt, more than 100 billion dollars. Every ministry has a debt. Indonesia is a country with the third largest foreign debt in the world after Brazil and Mexico. Debt that continues to accumulate causes various economic problems, for example the value of the rupiah continues to fall.

Indonesia’s government debt must be repaid after careful calculation and consideration of Indonesia’s financial situation. The debt collection process has been regulated in such a way that regulations are made so that government agencies are not arbitrary in accepting debt.

In times like these, the government seems to be in debt to cover the state budget deficit so that it can continue to achieve state development so that the economy continues to function, besides that interest in global sukuk has also been renewed by Indonesia.

The increasing interest in the sukuk issued by Indonesia is a good thing because it means that many foreign investors believe in Indonesia’s economic development, but on the other hand the government must also be able to pay interest to these foreign investors.

Foreign debt that should help the government implement development backfires and creates additional costs that slow down the country’s growth.

Although affected by the increase in debt in the second quarter, Indonesia still has a foreign debt rating that can be considered stable for investment due to the relatively good prospects for medium-term economic growth and high, relatively low debt levels.

Thus, the Indonesian state can give a good impression to those who wish to invest so that Indonesia can develop amidst a pandemic like this.

7. Budget Deficit

Indonesia’s state budget is always in deficit, a deficit is when the expenditure budget is greater than the income budget. This is one of the reasons our national debt continues to grow. The main causes are corruption, wasteful government practices and poorly targeted subsidies.

8. Industrial incompetence

Most of the industries in Indonesia only assemble goods. Even if there is a large industry, it must be owned by foreigners. The industry is still heavily dependent on foreign economies, sources of raw materials and technology. the country has enormous human and natural resources.

But because the state could not handle it, the state had to ask foreign aid. As a result, some of the profits are sent abroad while Indonesia only collects income from taxes and labor wages.

9. Inability to Manage Human Resources

Even though Indonesia’s population is the 4th largest in the world, the quality is still very poor. So that Indonesia always lacks experts and must bring them from abroad. While most Indonesians who work abroad can only be helpers.

10. Less Mastery of Science and Technology

Mastery of science and technology in Indonesia is still lacking. This is because the number of professional staff in Indonesia is still very small. Instead, they prefer to work abroad because their income is much higher. The lack of mastery of science and technology makes Indonesia unable to manage its own natural resources.

11. Corruption

Corruption is a serious problem in our country. In almost every sector there is corruption and bribery, both small and large. As a result, there are all kinds, from government programs that have gone awry, to law enforcement gone awry and wasting money.

12. Food Problems

The government’s failure to control food prices has pushed up food prices, especially staple commodities. Along with that, the area of ​​agricultural land is shrinking due to land conversion into housing.

It is ironic considering that Indonesia is a very fertile agricultural country. One reason is the lack of attention to the welfare of farmers. To meet current food needs, the government must import from abroad.

13. Centralized Development

Indonesia is really growing rapidly. But unfortunately, only part of the area was built while others were abandoned. This causes social inequality and increasingly crowded urban areas. If the government carries out development in an integrated manner, each region will grow faster and can also accelerate Indonesia’s progress.

How to Solve Economic Problems

Broadly speaking, we find four economic systems that develop and grow according to the conditions and ideology of the country concerned. The four economic systems are the traditional economic system, centralized economic system, market economic system, and mixed economic system. Through this economic system, we can apply it according to a country’s economic situation to solve economic problems.

1. Traditional Economic System

This economic system is an economic system that is organized jointly for the common interest (democracy), according to the procedures commonly adopted by previous ancestors.

In this system, all goods and services needed are provided by the community itself. You must be asking what is the role of the government in this traditional economic system?

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In a traditional economic system, government duties are limited to protection in the form of defense and maintenance of public order. In other words, economic activity, namely what and how much, how and for whom it is produced, is determined by society.

2. Centralized Economic System

In this economic system, the government is very active, all necessities of life, including security and defense, are centrally planned by the government. Deployment is carried out by regions under the central command.

So the questions about what and how much, how and for whom these goods are produced, are all resolved by the government at the central level. Freedom to carry out economic activities is limited so that individual initiative cannot develop.

In general, this centralized economic system applies to countries with communist ideology. However, because it was not in accordance with the wishes of the community, it was recently abandoned.

3. Market Economy System

In a market economy system, economic life is said to take place freely according to market mechanisms. Everyone is free to produce goods and services, thus encouraging people to work harder and more efficiently.

Only in this way can manufacturers get maximum profit. If goods or services can be marketed, then producers will eventually adjust to the desires and purchasing power of consumers.

One of the characteristics of a market economy system is free competition. As a result, the strong become stronger, while the weak become more and more powerless. To remedy this situation, the government intervenes through statutory regulations deemed necessary, so that a controlled market economy system is formed, and no longer a free economy.

4. Mixed Economic System

Mixed economic systems are often implemented in developing countries. In this system, the private sector and the government are also recognized. This means that apart from the private sector of the economy, there is also a state planning agency that regulates the direction and development of the economy.

This mixed economic system is basically a combination of a centralized economic system with a market economic system.

Solutions to Overcome Economic Problems in Indonesia

As a developing country, Indonesia has never been without difficulties. As in economics, there are always new problems to be solved before there are no more problems. Every existing problem is also influenced by certain causes to cause the problem in question.

However, it requires a lot of effort and hard work. Talking about the problems that exist in Indonesia economically, actually there has been a case. Here are some reasons:

  • Unemployment cases range from refusal to work to dismissal
  • Slow economic growth such as crop yields below optimal levels, the selling value of domestic products is lower than foreign products, consumption of foreign products is in greater demand.
  • The amount wagered or won is not enough for everyone’s needs. This could be due to disproportionate wages, large number of families and the like.

Examples of Economic Problems in Indonesia

Economic problems are one of the problems that are currently emerging in our beloved country. Some of these economic problems are:

  • The urgency to increase the quantity and quality of economic growth

Economic growth in Indonesia has grown by an average of $5.27 over the last two decades (2000-2018). This growth is not enough to move beyond middle-income status to become a developed country.

  • Import

Import is the movement of goods or goods from one country to another. The relatively high level of imports to Indonesia makes the domestic industry unable to compete.

  • Purchasing power is stagnant

There was inflation which was recorded at around 2.48 percent per year compared to the same period last year, but this was not able to increase people’s purchasing power. It is possible that the current low inflation will be accompanied by a decline in people’s purchasing power.

  • Low competitiveness

Indonesia is currently experiencing a decline in the number of investment destinations over the last 3 years. Foreign companies such as Japan invest more in Vietnam than in Indonesia.

  • Not ready for revolution

4.0 The industrial revolution has not been carried out properly because there is no basic infrastructure that is ready to face this industrial revolution.

  • Inconsistent energy subsidy policies

Energy subsidies in 2015 were reduced to 65.16%, then continued in 2016 and 2017. Then in 2018, these energy subsidies increased again to 57% in 2019, increased again to 23%. The government needs to set more specific subsidy targets so that subsidy funds become more optimal.

  •  Low Taxes and Increased Debt 

INDEF noted that Indonesia’s tax rate had fallen between 2012 and 2017. Achievement of the tax rate was also very far from the 2015-2019 RPJMN target of 15.2%.

Less than optimal tax revenue is also reflected in the ongoing tax revenue deficit. At the same time, the debt-to-GDP ratio increases inversely with the tax rate. This shows that the burden of paying interest on central government spending increased from 11% in 2014 to 17.13%.

In 2015, economic problems were serious problems that needed to be dealt with quickly and precisely. If this is not handled immediately, it is possible that households, companies and the state will suffer losses or even go bankrupt, impacting all sectors of the economy.

All types of economies need a good accounting system. Financial reports are also important to ensure the smooth running of the economy. With a good accounting and financial reporting system, it is hoped that all business actors in the economy will remain healthy and continue to function productively for the benefit of many people.

Author: Ziaggi Fadhil Zahran

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