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Survey of recent developments

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  • Anton Gunawan
  • Reza Siregar

Abstract

Two major elections and the increasingly severe global financial crisis (GFC) will dominate politics and economics in Indonesia in 2009. The parliamentary election will be held in April, followed by the presidential election in July. The public is now experienced at voting, and these events are expected to be peaceful and successful. The impact of the GFC is of much greater concern. The economy continued to perform well in 2008. With quite robust economic growth, commendable progress with administrative reform in the finance ministry, and higher than expected oil prices, both tax and non-tax revenues significantly exceeded their 2008 budget targets, leaving the government with unspent funds in excess of Rp 50 trillion. The banking sector also performed well, with lending continuing to expand rapidly. However, there was a significant fall in average capital adequacy as banks took on more risky assets and wrote down their capital in response to falling bond portfolio values. Signs of economic slowdown began to emerge in the second half of 2008, however. The collapse of the global financial services firm Lehman Brothers in September sparked massive sell-offs on stock exchanges and foreign exchange markets around the world, including in Indonesia. In the fourth quarter the disruption in the global economy finally hit Indonesia's real sector. General slowdowns were felt in both the tradable and non-tradable sectors, although the quarterly data were distorted by strong seasonal effects. The robust annual growth of non-oil and gas exports over the last four years came to an abrupt end in the fourth quarter, but the same was true of imports. Thus, although the GFC and a weak rupiah are likely to have a negative impact on export-oriented and high import content industries in 2009, potential balance of payments pressures are more likely to originate in the capital account than in the current account. With a growing expectation that the GFC's impact would intensify, a wide range of fiscal, monetary, finance and trade policy packages were announced in recent months. Financial sector safety net policies were given high priority initially, with the primary aim of supporting the balance of payments rather than avoiding worker lay-offs. Subsequently, fiscal stimulus packages have been introduced, expanded and modified, and the official stance of monetary policy has become more expansionary. However, institutional shortcomings and political bottlenecks seem likely to constrain the effectiveness of these policies as a whole.

Suggested Citation

  • Anton Gunawan & Reza Siregar, 2009. "Survey of recent developments," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 45(1), pages 9-38.
  • Handle: RePEc:taf:bindes:v:45:y:2009:i:1:p:9-38 DOI: 10.1080/00074910902836148
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    References listed on IDEAS

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