Impact Of East Asia’s Growth Interruption and Policy Responses: The Case Of Indonesia

Assessments to date of the consequences of implementing the Uruguay Round (UR) of multilateral trade negotiations have assumed medium-term rates of economic growth in East Asia that now seem unsustainable. This paper compares one set of those estimates to 2005 with an alternative set involving an interruption to East Asian economic growth in the late 1990s, using the global, economy-wide GTAP model. Attention focuses on results for Indonesia, the worst-affected country in the region. An important consequence of the crisis is that Indonesia is likely to become more agrarian for a time than it otherwise would have been. Also, both income levels and the gains from the UR will be lower at the completion of UR implementation in 2005 than would have been the case without the crisis. Hopefully this will boost support in Indonesia (and other East Asian countries) for a push to catch up through further unilateral, regional and global trade and investment liberalizations and domestic policy reform. The benefits to Indonesia from embracing further unilateral reform, as estimated by the GTAP model, are contrasted with the costs of the alternative strategy of reneging on UR commitments to liberalize trade. Of particular importance are policies affecting agriculture’s capacity to be an engine of growth recovery.