Survey of recent developments
Date
2015
Authors
Damuri, Yose
Day, Creina
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Publisher
Routledge, Taylor & Francis Group
Abstract
Amid global economic uncertainty and tumbling world oil prices, Indonesia�s economy
faces pressure on its external balance and a continued growth slowdown. The government
of President Joko Widodo (widely known as Jokowi) has set an agenda of reform, including
simpler, faster investment licensing, historic cuts to fuel subsidies to generate fiscal
savings, and increased spending on infrastructure. On the political side, Jokowi has had to
deal with several political issues coming not only from parties in opposition but also from
parties supporting his government, including during the formation of the new cabinet. We
examine the consequences so far of the government�s policy initiatives and of the policymaking
process. While some initiatives have been implemented with success, some seem to
have been launched without enough preparation, consultation, or empirical evidence, and
many have been poorly communicated. Although inflation accelerated after the November
fuel-price rise, efforts have been made to contain inflationary expectations and to mitigate
the effects on poverty through social-assistance programs. The government took steps to
cushion the impending impacts of higher fuel prices on vulnerable households by giving
cash handouts of Rp 200,000 per month to 15.5 million disadvantaged families who receive
the lowest level of welfare, and by promoting publicly funded education and health care.
The partial removal of gasoline subsidies and the introduction of a fixed-subsidy policy
for diesel in the revised 2015 budget reduce uncertainty about the fiscal position, although
increases in government spending in infrastructure development were announced at the
same time. The revised budget for 2015 increases spending on infrastructure development
by 63% from the 2014 budget, mostly on projects to improve connectivity on land and
at sea�such as the development of toll roads, railways, and ports�and to increase the
performance of the agricultural sector. However, the recent drop in international oil prices
forced the government to increase its target for tax revenue by 30% on last year�s target,
raising concerns about the effect of falling oil prices on the economy. Trade and investment
policy reform is important in unlocking Indonesia�s growth potential and improving the
country�s current external balance. Jokowi�s administration, however, has been sending
mixed signals about its position towards more open policies. The country has yet to recommence
several trade negotiations that were postponed in 2014 and is still struggling to
meet its commitments under the ASEAN Economic Community. Although improvement
in investment procedures and licensing is currently underway, Indonesia needs to adopt a
more positive attitude if it is to attract more investment.
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Bulletin of Indonesian Economic Studies
Type
Journal article
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2037-12-31
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