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December 12, 2024 | 11:48 am
TEMPO.CO, Jakarta - Coordinating Minister for Economic Affairs Airlangga Hartarto has provided further context regarding the recent comments made by President Prabowo Subianto about Indonesia's relatively high Incremental Capital Output Ratio (ICOR). President highlighted that Indonesia's ICOR is higher than that of several neighboring countries, indicating a lower investment efficiency compared to its regional peers.
The ICOR serves as a crucial metric for assessing the efficiency of investment within a country. It essentially quantifies the amount of investment required to achieve a specific level of economic growth. According to the Central Statistics Agency (BPS), Indonesia's ICOR reached 6.33 in 2023.
“Indeed, Indonesia's ICOR remains relatively high, slightly exceeding 6. This means that with a 30 percent investment rate and an ICOR of 6, the expected growth rate would be 5 percent,” Airlangga explained during the 2024 National Investment Coordination Meeting (Rakornas) in South Jakarta on Wednesday, December 11, 2024.
He explained that one of the ICOR assessment points is the investment must align with productive sectors to ensure optimal returns. For instance, the construction of a dam should be strategically integrated with the development of primary, secondary, and tertiary sectors to maximize its impact on food production.
Airlangga cited the Patimban Port National Strategic Project (PSN) and its associated toll road in North Java as an example. Since the toll road is not yet connected, goods shipment is conducted via older, less efficient routes. “Therefore, we need to complete this. If this is completed, the government is optimistic our ICOR will improve,” he added.
Previously, Prabowo had previously highlighted Indonesia's comparatively high ICOR during the event to deliver the Budget Implementation List (DIPA) and the book on Transfer Allocation to Regions (TKD) for Fiscal Year 2025 at the State Palace in Jakarta on December 10, 2024. He noted that Indonesia's ICOR stands at 6, whereas several neighboring countries boast ICOR values of 4 or 5. “This means our investment efficiency is lower than that of some of our neighboring economies, potentially by as much as 30 percent,” he stated.
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