Interest and investment

Interest and investment

From Koran Tempo

President Susilo Bambang Yudhoyono has introduced three economic strategies for the banking sector, namely (i) an average economic growth rate of 6.5 percent in five years, (ii) creation of macro-economic stability to drive the real and business sectors and (iii) fulfillment of people's basic rights.

Investment is necessary if you wish to achieve a growth level of about 5 percent. It has also been generally accepted that investment plays a major role in promoting a nation's welfare.

Regarding development undertakings, there may be debate on the purpose and targets of these undertakings. This debate may also touch on the limits of growth and the adoption by Third World countries of the Western model of development or industrialization. Investment, however, is not usually touched on in this debate, especially with regards the role it plays in modernization and industrialization efforts.

Theoretically, we are familiar with consumption-led growth and export-led growth. The bottom line, however, is that economic growth is based on whether or not there are investment activities.

If a country fails to maintain investment growth at a certain level, for example, to counter its population growth or the growth of its labor force or even migration to the cities, this country will first undergo economic stagnation and then economic decline.

When the economy plunges, this country will face a host of problems other than the inability to carry out capital-generating activities. Even the capital at hand will drop because it cannot be maintained and augmented.

PEBRIJANA SUNARDI

Jakarta