Survey of recent developments
ABSTRACT In the recent legislative elections the Democrat Party of President Susilo Bambang Yudhoyono (SBY) was by far the most successful. Support for other major secular-nationalist parties fell significantly, as did that for the Islamic parties as a group. Two new parties led by former generals also performed relatively poorly. At the time of writing SBY seemed the likely winner of the forthcoming presidential election, supported by running mate Boediono, the former governor of Bank Indonesia. Indonesia's performance during the global financial crisis has been vastly better than during the Asian financial crisis, and superior to that of most other countries in the region. Output growth remained positive through Q1 2009, although there were signs of heightened caution within the business community. Deft monetary policy saw inflation decline significantly, with little negative impact on output growth or the banking sector. Much of the earlier declines in the financial markets had been reversed by mid-June. Successful management of exchange rate policy in late 2008 and early 2009 raises the question whether Indonesia would fare better with a more genuinely floating exchange rate and a much lower level of international reserves. Economic outcomes during the SBY administration fell well short of the president's 2004 election campaign promises, but were comparable with those under former president Megawati, reflecting the great policy similarities of the two regimes. A key feature of the presidential election campaign has been the use of the term 'neo-liberal' to attack one's opponents. It has been implied that those following 'neo-liberal' policies favour the business sector and foreigners over the people, whereas the real issue is what types of policies are more likely to benefit the Indonesian people as a whole. The debate provides the opportunity potentially to resolve long-standing disagreements as to the relative efficacy of free market- and interventionist-type policies. Public sector accounting reform is an important aspect of efforts to improve governance. Newly introduced accounting standards require a shift to double-entry accounting, and away from the single-entry system inherited long ago from the Dutch. This requires the listing of government entities' assets and liabilities in a balance sheet, and should lead to far greater accuracy in government financial reporting. In turn, this has the potential to be a powerful anti-corruption instrument. But progress is significantly limited by a severe shortage of accountants in the public sector, and by dysfunctional personnel management practices.
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ABSTRACT: Considerable media criticism has been directed recently at parliamentarians' enthusiasm for costly overseas 'working visits' with little obvious benefit to the nation, and at their plans for a new parliamentary building. The criticism may not be fully justified, especially in relation to the latter, but is symptomatic of a high level of cynicism towards the parliament. Many of its members have been embroiled in corruption, and it is performing poorly in terms of the number of bills passed. Indonesia experienced two bomb explosions in the period covered here, while at least eight other bombs were defused. In contrast with previous patterns, the recent bombings are the work of small, mainly localised groups with only tenuous links to established terrorist organisations. This suggests that terrorism will remain a problem for many years. Economic growth remains quite healthy, albeit not as strong as had been indicated by the data for the December quarter of 2010. Of greater concern is disequilibrium in the balance of payments, manifested in rapid accumulation of reserves. The current account is strong, and capital inflow is soaring in response to relatively high domestic interest rates, now combined with significant appreciation of the rupiah and the unlikelihood of any depreciation in the near future. The consequence is a rapidly increasing cost to Bank Indonesia (BI), because losses resulting from the negative interest margin between its assets and liabilities are now being exacerbated by the declining value of its foreign assets. On current trends the central bank's capital will be quickly exhausted. There is renewed concern about the fuel subsidy as world oil prices continue to rise, pushing the budget further into deficit and wasting vast sums that could be used for vital investments in infrastructure, education and health. Given that it is not possible to avoid these opportunity costs except by taking the politically difficult decision to raise petrol prices, the government has postponed indefinitely any action to reduce the subsidy. The government is putting considerable emphasis on efforts to reduce poverty and increase household resilience to shocks. The focus is on the multi-dimensional and long-term nature of poverty reduction, and on shifting from universal subsidies to properly targeted social protection programs. The National Team for Accelerating Poverty Reduction is coordinating many of these efforts, under the guidance of the vice president. Poor quality education inhibits poverty reduction and economic growth, so international mathematics, science and reading assessments showing that Indonesia lags far behind its neighbours are of great concern. The government's flagship program to address educational quality, a teacher certification system initiated in 2007, appears to hold little promise, since policy makers have backed away from any attempt to reward good performance on the part of individual teachers. For comparison, the survey also describes two programs to improve school quality being implemented by non-government organisations.Bulletin of Indonesian Economic Studies 08/2011; 47(2):155-181. · 1.45 Impact Factor
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ABSTRACT: Outgoing Indonesian president Susilo Bambang Yudhoyono's second-term record is creditable, measured against the targets he set himself in 2010, but deficient in key areas: economic reform, infrastructure investment, and anti-corruption. Indonesia's 2009–14 parliament has been active in economic policymaking, and will leave as its legacy a raft of protectionist legislation. Both presidential candidates, Joko ‘Jokowi’ Widodo and Prabowo Subianto, have appealed to nationalism in their campaigns, calling for Indonesia to assert its sovereignty and increase its self-sufficiency, but Jokowi's economic platform is more moderate and economically literate than Prabowo's. The incoming president will inherit an economy that continues to slow. Growth is now not expected to approach 6% until 2015 at the earliest. Having engineered a reduction in the current account deficit, Indonesian policymakers now face the more difficult problem of structural fiscal adjustment. Energy subsidies are the most immediate problem, but fiscal reform more generally will emerge as an overriding and unpleasant imperative for whoever wins the presidential election on 9 July. Unless difficult fiscal policy measures are taken, Indonesia will face major trade-offs between deficit control and investment in social programs and economic infrastructure. The new president will struggle to restrict the deficit to the cap of 3% of GDP: a balanced budget will likely not be feasible for several years. He will need to increase the ratio of revenue to GDP and eliminate fuel subsidies—through a more systematic approach than the infrequent price increases of the past. He will need to choose carefully between competing expenditure priorities, such as infrastructure and defence. The new president would also be well advised to tread cautiously in implementing the legal mandates he will inherit, and to work with parliament to avoid further and unwind current earmarking of public expenditure.Bulletin of Indonesian Economic Studies 07/2014; 50(2). · 1.45 Impact Factor