Urbanization can be the next big thing to Indonesia's economy, yet need bold institutional reforms - Photo: Finance Ministry

JAKARTA (TheInsiderStories) – Indonesia, the world’s fourth most populous country, stands as a country transformed by urbanization. It can be the next big thing to Indonesia’s economy, yet need bold institutional reforms, according to a World Bank report released on Thursday (10/03).

The report titled “Time to ACT: Realizing Indonesia’s Urban Potential” said the country has not benefitted as much from urbanization as other countries. Between 1996 and 2016, every percentage point increase in the share of Indonesia’s population living in urban areas was associated with a 1.4 percent increase in GDP per capita, compared to 2.7 percent for other developing countries in East Asia and the Pacific.

Even though, Indonesia has urbanized as it has climbed the ladder of development. Since 1950, the average GDP per capita has increased almost nine-fold. At the same time, the share of the population living in urban areas has increased from 12 to 56%. Indonesia’s prosperity gains are closely linked to the benefits of urban agglomeration and the transition to an economy based on services and industry.

Sameh Wahba, World Bank Global Director for Urban, Disaster Risk Management, Resilience, and Land Global Practice said that though urbanization has slowed from the breakneck pace of the 1980s and 1990s, Indonesian cities continue to grow in population at a rapid pace. Today, about 151 million people live in urban areas. By 2045, the centenary of Indonesia’s independence, around 220 million people, or over 70 percent of its population, will live in cities.

“Better economic opportunities in cities have helped lift millions of Indonesians out of poverty and millions more join the middle-class,” he said.

He added, Indonesian cities also face challenges to their livability due to traffic congestion, pollution, insufficient affordable housing, and continued deficits in access to basic services. Moreover, while urbanization has made an important contribution to the overall rise of living standards, the benefits have not been shared equally.

The report also proposes three basic policy principles, namely Augment the coverage and quality of basic services and infrastructure to reduce congestion, boost equality of opportunities, and reduce disparities in human capital outcomes.

Then connect people with jobs and basic services within cities, and connect urban areas of different sizes with each other, with surrounding rural areas, and with international markets. Last, target places and people left behind by the urbanization process to ensure that they share the prosperity benefits of urbanization and that urban areas are livable for everyone.

“No large country has ever reached high-income status without also becoming urbanized. Because the urban environment is difficult and costly to change once built, delays in action will risk locking Indonesia further into a suboptimal trajectory of urban development. To succeed, Indonesia needs to act now,” Rodrigo A. Chaves, World Bank Country Director for Indonesia and Timor-Leste added.

Responding to the report, Finance Minister Sri Mulyani Indrawati said that its fiscal policy already accommodates the need to strengthen urbanization domino effect to the county’s economy.

In the 2020 State Budget, she adds, the government allocates Rp508.1 trillion (US$36.03 billion) for human resource quality improvement, Rp132 trillion also allocated for health budget as well as Rp372.5 trillion allocated for the social security program. Also, Rp423.3 trillion allocated for infrastructure development in order to support urban areas that are liveable.

“We need to develop outside Java, Java currently are interconnected and integrated already, and no longer an island but a city that joined together. We need to make another city across Sabang until Merauke,” she said, adding that the government also keen to adopt China’s approach in building well urbanization programs.

US$1=Rp14,100

Written by Yosi Winosa, Email: Yosi@theinsiderstories.com