The economic challenge facing Aceh is enormous. Growth trend declined both for the total as well as the non-oil GRDP. It is obvious that the past growth trajectory could not be replicated . Agricultural output growth declined as the green revolution ended and massive deforestation occurred. Oil and gas reserves are depleting rapidly and would likely to end in the next five to ten years. So is also with their related manufacturing industries such as refineries and petro -chemicals. Recent boom in building, construction and services would not be sustainable as the tsunami related reconstruction is ending very soon.

New sources of growth would have to be identified and developed. The prospect is not that rosy. However there are some potential . Some agricultural product (corn, palm oil, soya beans), aqua culture, small to medium scale manufacturing, and their related infrastructure and services may become significant drivers of growth in the future. But this would not materialize without coherent efforts from the government.

Reviving growth is absolutely vital especially in view of the rising inequality. (See separate policy brief on “Inequality in Aceh: dimensions and policy issues”). The case is even more pressing as otherwise the peace dividends in Aceh would be short lived. If social and political instability resurges, as in the past, the economy would slump again. Failure to revive and sustain growth also means that Aceh would depend on central government transfers for a considerable period of time if not forever. The unpleasant status as a “backward” region in Indonesia would by itself socially and politically
destabilizing.

With substantial financial resources, local governments in Aceh would have adequate resources to lead growth and development. But government consumption expenditure which grew rapidly after the special autonomy status would have to be restrained. More public spending on infrastructure, social services as well as promoting growth, investment and productivity is indispensable.

Finally, a coherent long term development strategy needs to be developed. Essentially the strategy should integrate growth and equity issues, promoting new sources of growth and managing declining industries (or areas) as well as capacity building in government, private sector and civil society . The process of new strategy formulation should involve extensive and structured consultation with stakeholders so that a common vision is built and
coherent development programmes, implemented.