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Survey of recent developments

Author

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  • Chris Manning
  • Raden M. Purnagunawan

Abstract

There is a growing confidence in policy, business and finance circles about Indonesia's ability to withstand global economic and financial shocks, and a renewed belief in domestic sources of growth. Despite uncertainty in Europe and slower than expected recovery in the US, Indonesia is well placed for moderately high growth in the medium term, and economic stability in the shorter term. At the end of June 2011, foreign reserves were at a record high, inflation was down, annual growth was steady at 6.5%, and investment -- especially foreign direct investment (FDI) -- was up significantly. Consumer price inflation had fallen to just below 5% by August, from double-digit levels earlier in the year. This was due partly to low food prices and success in sterilising the effects of capital inflows. However, turmoil in international markets led to a sharp fall in the Indonesia stock exchange index and a mild currency depreciation in August-- September, prompting central bank intervention in the foreign exchange market. Fiscal policy has remained conservative, aiming for a balanced budget by 2014. However, the government has still not moved to reduce growing fuel and energy subsidies. While the service sectors have continued to record high rates of growth, there has been a revival of manufacturing in 2011. This is partly underpinned by strong inflows of FDI, and is especially evident in the labour-intensive textiles, clothing and footwear industries after a decade of stagnation. Multinationals have announced plans to expand operations in Indonesia in the past six months to take advantage of new tax incentives. Overseas investors have also been attracted by Indonesia's growing middle class -- a result partly of higher rural incomes driven by the commodity boom outside Java. Some recent ministerial announcements about initiatives to promote domestic industry have a protectionist flavour. A cabinet reshuffle in October may signal a more dirigiste approach to industrial policy -- especially the shifting of internationally respected economist Mari Pangestu from the trade portfolio to that of tourism and creative economy. One important outcome of recent growth has been falling unemployment rates. However, youth unemployment remains a major problem, and efforts to overcome it have been fragmentary. A recent ban on overseas migration of domestic helpers (maids) seems certain to add to labour supply pressures among young people. The government is now considering how to mobilise its large population base, abundant natural resources and strategic location to play a greater role in the world economy. These assets are central to the ambitious ‘Master Plan’ for longer-term development (2011--25), announced in May. It focuses on developing the resource-rich Outer Island regions, with massive investments in energy and ‘connectivity’ to link the major centres and islands with each other, and centres with their hinterlands. Funding (to come mainly from the private sector), implementation and coordination are all major challenges.

Suggested Citation

  • Chris Manning & Raden M. Purnagunawan, 2011. "Survey of recent developments," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 47(3), pages 303-332, December.
  • Handle: RePEc:taf:bindes:v:47:y:2011:i:3:p:303-332
    DOI: 10.1080/00074918.2011.619048
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    File URL: http://hdl.handle.net/10.1080/00074918.2011.619048
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    References listed on IDEAS

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    1. Emanuela di Gropello & Aurelien Kruse & Prateek Tandon, 2011. "Skills for the Labor Market in Indonesia : Trends in Demand, Gaps, and Supply," World Bank Publications, The World Bank, number 2282.
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    Cited by:

    1. Krishna, Vijesh V. & Pascual, Unai & Qaim, Matin, 2014. "Do emerging land markets promote forestland appropriation? Evidence from Indonesia," EFForTS Discussion Paper Series 7, University of Goettingen, Collaborative Research Centre 990 "EFForTS, Ecological and Socioeconomic Functions of Tropical Lowland Rainforest Transformation Systems (Sumatra, Indonesia)".
    2. Budy P. Resosudarmo & Ani A Nawir & Ida Aju P. Resosudarmo & Nina L Subiman, 2012. "Forest Land Use Dynamics in Indonesia," Departmental Working Papers 2012-01, The Australian National University, Arndt-Corden Department of Economics.
    3. repec:ilo:ilowps:471767 is not listed on IDEAS
    4. Shiro Armstrong & Sjamsu Rahardja, 2014. "Survey of Recent Developments," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 50(1), pages 3-28, April.
    5. Manning, Chris. & Aswicahyono, Haryo., 2012. "Trade and employment in services : the case of Indonesia," ILO Working Papers 994717673402676, International Labour Organization.
    6. Muhamad Purnagunawan & Victor Pirmana, 2013. "Labor market development in Indonesia Has it been for all?," Working Papers in Economics and Development Studies (WoPEDS) 201317, Department of Economics, Padjadjaran University, revised Jul 2013.
    7. Prema-chandra Athukorala & Archanun Kohpaiboon, 2013. "Global Production Sharing, Trade Patterns and Industrialization in Southeast Asia," Departmental Working Papers 2013-18, The Australian National University, Arndt-Corden Department of Economics.
    8. Latif Adam & Siwage Dharma Negara, 2015. "Improving Human Capital through Better Education to Support Indonesia’s Economic Development," Economics and Finance in Indonesia, Faculty of Economics and Business, University of Indonesia, vol. 61, pages 92-106, August.

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