Survey of Recent Developments

As Indonesia heads to the polls in 2014, its economy is slowing. The end of the commodities boom and the global return to more normal monetary policy has exposed some weaknesses. Exchange-rate depreciation has absorbed some of the adjustment; but structural rigidities are still likely to limit the e...

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Main Authors:	Armstrong, Shiro, Rahardja, Sjamsu
Format:	Journal Article
Language:	en_US
Published:	Taylor and Francis 2014
Subjects:	macroeconomics of development policy reform trade protectionism mineral processing economic stabilization
Online Access:	http://hdl.handle.net/10986/20460

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recordtype	oai_dc
spelling	okr-10986-204602021-04-23T14:03:56Z Survey of Recent Developments Armstrong, Shiro Rahardja, Sjamsu macroeconomics of development policy reform trade protectionism mineral processing economic stabilization As Indonesia heads to the polls in 2014, its economy is slowing. The end of the commodities boom and the global return to more normal monetary policy has exposed some weaknesses. Exchange-rate depreciation has absorbed some of the adjustment; but structural rigidities are still likely to limit the expansion of non-commodity sectors, and the increased fuel-subsidy bill for imported oil is putting pressure on the current account and the budget. The immediate focus is on demand-side consolidation to manage inflation and the current account deficit. For an economy like Indonesia’s to be overheating, and for monetary and fiscal authorities to be engineering a soft landing, when growth is below 6%, points to major structural problems. If Indonesia is to prevent the current rate of growth from becoming the new normal, there will need to be a substantial supply-side response to lift productivity, as well as a restructuring of the economy and the introduction of policies that make the economy more flexible in adjusting to shocks. The current economic slowdown has yet to trigger sweeping reforms; policy coordination remains problematic as Indonesia enters a big political year. Compared with its neighbors, Indonesia is largely on the outside of the regional production networks, and its manufacturing sector does not play into factory Asia. Now, faced with lower commodity prices globally—and growth in non-resource sectors is critical— the lack of a large manufacturing base appears to be a weakness. Indonesia is attracting more foreign direct investment than ever and is climbing the global rankings of preferred economies in which to invest, but this is occurring without improvements to its investment environment or competitiveness. Indonesia can participate more fully in global supply chains and increase its potential for growth by upgrading its infrastructure, improving its investment environment, and using regional initiatives strategically to make strong commitments that reinforce its priorities for domestic reform. In its hosting of APEC in 2013, Indonesia championed infrastructure investment where the lack of structural reform and macroeconomic constraints are inhibiting much-needed expansion, both in Indonesia and in the region. The positive outcome, albeit only a small step forward for the Doha Round, at the WTO Ministerial Conference in Bali, in December, also builds momentum for better regional and global cooperation. The priority now is for Indonesia to commit to, and show leadership in, the Regional Comprehensive Economic Partnership (RCEP) and the implementation of the ASEAN Economic Community. 2014-10-21T18:58:12Z 2014-10-21T18:58:12Z 2014-03-24 Journal Article Bulletin of Indonesian Economic Studies 0007-4918 http://hdl.handle.net/10986/20460 en_US CC BY-NC-ND 3.0 IGO http://creativecommons.org/licenses/by-nc-nd/3.0/igo World Bank Taylor and Francis Publications & Research :: Journal Article Indonesia
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	en_US
topic	macroeconomics of development policy reform trade protectionism mineral processing economic stabilization
spellingShingle	macroeconomics of development policy reform trade protectionism mineral processing economic stabilization Armstrong, Shiro Rahardja, Sjamsu Survey of Recent Developments
geographic_facet	Indonesia
description	As Indonesia heads to the polls in 2014, its economy is slowing. The end of the commodities boom and the global return to more normal monetary policy has exposed some weaknesses. Exchange-rate depreciation has absorbed some of the adjustment; but structural rigidities are still likely to limit the expansion of non-commodity sectors, and the increased fuel-subsidy bill for imported oil is putting pressure on the current account and the budget. The immediate focus is on demand-side consolidation to manage inflation and the current account deficit. For an economy like Indonesia’s to be overheating, and for monetary and fiscal authorities to be engineering a soft landing, when growth is below 6%, points to major structural problems. If Indonesia is to prevent the current rate of growth from becoming the new normal, there will need to be a substantial supply-side response to lift productivity, as well as a restructuring of the economy and the introduction of policies that make the economy more flexible in adjusting to shocks. The current economic slowdown has yet to trigger sweeping reforms; policy coordination remains problematic as Indonesia enters a big political year. Compared with its neighbors, Indonesia is largely on the outside of the regional production networks, and its manufacturing sector does not play into factory Asia. Now, faced with lower commodity prices globally—and growth in non-resource sectors is critical— the lack of a large manufacturing base appears to be a weakness. Indonesia is attracting more foreign direct investment than ever and is climbing the global rankings of preferred economies in which to invest, but this is occurring without improvements to its investment environment or competitiveness. Indonesia can participate more fully in global supply chains and increase its potential for growth by upgrading its infrastructure, improving its investment environment, and using regional initiatives strategically to make strong commitments that reinforce its priorities for domestic reform. In its hosting of APEC in 2013, Indonesia championed infrastructure investment where the lack of structural reform and macroeconomic constraints are inhibiting much-needed expansion, both in Indonesia and in the region. The positive outcome, albeit only a small step forward for the Doha Round, at the WTO Ministerial Conference in Bali, in December, also builds momentum for better regional and global cooperation. The priority now is for Indonesia to commit to, and show leadership in, the Regional Comprehensive Economic Partnership (RCEP) and the implementation of the ASEAN Economic Community.
format	Journal Article
author	Armstrong, Shiro Rahardja, Sjamsu
author_facet	Armstrong, Shiro Rahardja, Sjamsu
author_sort	Armstrong, Shiro
title	Survey of Recent Developments
title_short	Survey of Recent Developments
title_full	Survey of Recent Developments
title_fullStr	Survey of Recent Developments
title_full_unstemmed	Survey of Recent Developments
title_sort	survey of recent developments
publisher	Taylor and Francis
publishDate	2014
url	http://hdl.handle.net/10986/20460
_version_	1764445430730457088

Survey of Recent Developments

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