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Survey of recent developments

Author

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  • Jason Allford
  • Moekti P. Soejachmoen

Abstract

In the 15 years since the Asian financial crisis, the Indonesian economy has benefited from a stable macroeconomic policy framework and prudent macroeconomic policy settings. Economic growth has been solid, inflation has been contained and government finances have strengthened. Indonesia weathered the global financial crisis better than many countries, and it subsequently benefited from the low global interest rates resulting from highly stimulatory monetary conditions in many advanced economies, especially the US.In the middle of 2013, however, speculation on when the US Federal Reserve would begin to unwind its program of quantitative easing saw global interest rates jump. Short-term capital flowed out of Indonesia, causing the stock market to fall, the currency to depreciate and interest rates to rise. On top of this, GDP growth appeared to be slowing, the trade balance worsening and inflation increasing. In late September and October, the failure of the US to raise its legislated debt ceiling led to speculation that it might fail to meet some of its debt obligations, which fuelled financial-market volatility.It is yet to be seen whether the Indonesian economy and its financial markets are sufficiently flexible to make a smooth transition to the new external reality. The policy tools available to the government to deal with the short-term economic challenges are limited: it introduced an economic policy package in August, and Bank Indonesia (BI) raised official interest rates in August and September, following two increases earlier in the year.These pressures from global financial markets have drawn attention to the need for further structural reforms in Indonesia, including those aimed at deepening financial markets, strengthening financial-sector supervision, freeing up trade and encouraging competition, and maintaining the government's revenue base in the face of falling commodity prices. While some reforms, particularly in financial-sector supervision, are already in train, it may be difficult for Indonesia to make serious gains on longer-term economic reforms before the 2014 presidential elections.

Suggested Citation

  • Jason Allford & Moekti P. Soejachmoen, 2013. "Survey of recent developments," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 49(3), pages 267-288, December.
    • Handle: RePEc:taf:bindes:v:49:y:2013:i:3:p:267-288
    DOI: 10.1080/00074918.2013.850627
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    References listed on IDEAS

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    1. Kosim Gandataruna & Kirsty Haymon, 2011. "A dream denied? Mining legislation and the Constitution in Indonesia," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 47(2), pages 221-231.
    2. Greg Fealy, 2011. "Indonesian politics in 2011: democratic regression and Yudhoyono's regal incumbency," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 47(3), pages 333-353, December.
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    4. George Fane, 2012. "Allocating and taxing rights to state-owned minerals," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 48(2), pages 173-189, August.
    5. Ross McLeod, 2011. "Survey of recent developments," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 47(1), pages 7-34.
    6. Katy Cornwell & Titik Anas, 2013. "Survey of recent developments," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 49(1), pages 7-33, April.
    7. Paul J. Burke & Budy P. Resosudarmo, 2012. "Survey of recent developments," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 48(3), pages 299-324, December.
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    1. Haryo Aswicahyono & Hal Hill, 2014. "Survey of Recent Developments," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 50(3), pages 319-346, December.
    2. Shiro Armstrong & Sjamsu Rahardja, 2014. "Survey of Recent Developments," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 50(1), pages 3-28, April.

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