How Risk-Taking Could Result in Higher Growth for Indonesia

The Institute for Economic and Social Research at the University of Indonesia believes that Indonesia's financial governance system needs reform to allow the government more leeway to take risks and potentially achieve higher economic growth. The current system, shaped by the 1997 financial crisis, has been overly cautious, resulting in steady 5% economic growth, according to LPEM UI Director Chaikal Nuryakin.

During a parliamentary meeting, Chaikal argued that the rigid and cautious approach is partly due to a "straitjacket" paradigm that emphasizes fiscal control and prevents mistakes, including potential losses. This mindset has caused policymakers, including state-owned enterprises directors, to shy away from risk due to fear of criminal charges for decisions that result in losses.

Chaikal stressed that losses do not automatically imply wrongdoing or unlawful acts. He urged that criminal investigations should focus on the decision-making process' fairness, prudence, and adherence to procedures rather than the state's losses. Chaikal pointed out that even with corruption, the state could still make a profit.

He concluded that excessive focus on losses, while restricting the government's freedom to act, undermines the goal of maximizing economic and social value. However, he emphasized that improving financial governance should not weaken anti-corruption efforts, but rather shift focus towards decision-making procedures rather than profit and loss as the primary indicators.

Chaikal argued that without taking risks and innovating, it is impossible for the state to achieve an 8% economic growth rate. Instead, he urged that the state's financial governance should prioritize creating economic and social benefits.