What is inside Rapid Growth

I was disconnected to the outside world for a while due to my training camp of Indonesia Mengajar. About this movement called Indonesia Mengajar, I will spare some other time since I currently have limited time, and it needs a more extensive and intensive writing for that issue. Now, I am come up with an economic issue which I barely touched during this training camp.

I heard that our growth are expanding in a stable manner as targeted of around 6%. I would like to say that it was quite a good performance considering that we hardly reach that point and maintain it in a stable manner. However, another news that passed on me said that Singapore which suffered quite a major crisis recently has overshoot its growth into 13%. It is sure quite amazing if we look back on 2008/2009 where Singapore has minus growth (approximately -13%, if I'm not mistaken since I have limited access to information right now to confirm this number) due to Global Financial Crisis. With this fact, it might be looked like that Indonesia is performing relatively slow compared to Singapore's great performance.

But, let me correct it a little. It is true that our performance is slower than Singapore but you should view it in a different manner. If we reflect on the previous crisis which occurred in the past, we could see the pattern where economic growth (proxied by the growth of Real GDP) overshoots at two moments. First is during the completion of recovery process, a regime shifting from bust to boom condition) and sccond is during the last minutes into the crisis.

How do this matter in this issue?

If we look on the positive side, we will acquire two point of view. Both are appropriate for Indonesia's stability so that we are not that encouraged to strive for a more rapid growth with aim to exceed Singapore's rapid growth.

First, there is no surprise that Singapore has that rapid growth. They were under recession for some time ago which is indicated by its relatively slow growth. The economy was unstable and performing slower than Indonesia. However, that was merely because it was under recession, not because Indonesia is performing better than Singapore. Like I have said before, the loop happens when an economy reach a turning point of regime switching. It is natural for Singapore to has that high growth.

Second, an excessive growth bears the potential of causing an overheating economy which will end up in crisis like during 1980's Oil Boom, 1997/1998's Asian Financial Crisis and 2008 Global Financial Crisis. The more excessive the overheating process occurred, the deeper the economic crisis might happen in the end. It is explained as a pro-cyclical behavior which has been studied by countries recently. If we aim to achieve growth which higher than Singapore's, we might reach the overheating condition. It will lead us to another economic crisis if we do not march carefully in this point.

Therefore, it is necessary for us to maintain the growth in this stable manner rather than to boost it excessively. We must not make Singapore's growth as our criteria of good performance. We should be thankful that our economy has reach this point and maintain it well. Let us just maintain the stability and grow our economy gradually. It is to avoid more detrimental crises in the future.

Wirapati