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Protectionism in Indonesia has been returning since the mid-2000s following a brief period of deregulation and liberalisation after the Asian financial crisis (AFC). This Survey reviews recent developments in Indonesia's trade policy. It argues that the current approach to trade appears to vacillate between ambivalence, pragmatism and nationalism. Three cases are used to demonstrate the interplay between these characterisations: 'downstreaming' and local content requirement policies, Indonesia's relationship with the World Trade Organization (WTO) and the proliferation of trade agreements, and the commodity balance sheet approach to trade. The paper argues that increasing trade and integrating further into the global value chains are important to have faster economic growth and one way to facilitate that is by improving logistics infrastructure. [ABSTRACT FROM AUTHOR]

Purpose: This paper estimates the possibility of a financial crisis in Indonesia using an early warning system (EWMS) model. Method: A quantitative EWMS model has been developed to detect a potential financial crisis in 2023 based on the econometric logistic probability model (Logit). Findings: Based on the model estimates, Indonesia is expected to enter a financial crisis without adequate macroeconomic policies in the next 12 to 24 months. In recent years, Indonesia has implemented prudent macroeconomic policies such as increasing the Bank Indonesia policy rate and sustaining the state budget to avoid the impact of a deep financial crisis. Implications: To avoid the potential for further financial crises, Indonesia must implement a wider range of crisis mitigation policies. Oiginality/value: Although many argue that financial crises are predictable, it has been demonstrated in the literature that little is known about how to prevent them. This paper contributes to providing empirical evidence to address these issues. [ABSTRACT FROM AUTHOR]

Indonesia has managed the complex challenges of the global economy well. The country's capital outflows were smaller in 2018 than during the Taper Tantrum in 2013; the rupiah had regained most of its lost ground by January 2019; the Indonesian stock market has outperformed its peers; growth is forecast to remain stable; inflation is low; unemployment remains below its five-year average; consumer and business confidence are robust; and the government budget has improved through a smaller deficit and cheaper borrowing costs. But significant risks remain. This paper assesses these risks and evaluates the adequacy of Indonesia's crisis management framework. It finds that the framework has serious deficiencies that could see liquidity challenges become systemic solvency crises. The framework effectively removes Bank Indonesia as the lender of last resort, risks politicising the process of crisis response, and could mean slower, less effective responses to crises. This paper explores how the framework could be improved and what reforms could be undertaken to deepen Indonesia's financial system, strengthen financial resilience, and boost the long-term growth outlook. [ABSTRACT FROM AUTHOR]

We re-examine the presence of rational speculative bubbles in the Singaporean and Indonesian stock markets in light of contradictory results in the literature. We employ a mix of descriptive statistics, explosiveness tests and duration dependence tests for an expanded dataset from 1970 to 2013 that covers at least two suspected bubble episodes - the 1997 Asian Financial Crisis (AFC) and the Global Financial Crisis (GFC). We find bubble footprints in Singapore and Indonesia using descriptive statistics and explosiveness tests. However, we find no evidence of rational bubbles in Singapore using the duration dependence test. On the other hand, in Indonesia we find evidence of rational bubbles in weekly but not in monthly data. Our results indicate that the duration dependence test could be sensitive to data frequency suggesting that the duration dependence test results are not always conclusive and that it should be used in conjunction with other tests. [ABSTRACT FROM AUTHOR]

Using Indonesian manufacturing census data (1991-2001), this paper rejects the hypothesis that the East Asian crisis unequivocally improved the reallocative process. The correlation between productivity and employment growth did not strengthen, and the crisis induced the exit of relatively productive firms. The attenuation of the relationship between productivity and survival was stronger in provinces with comparatively lower reductions in minimum wages, but not due to reduced entry, changing loan conditions, or firms connected to the Suharto regime suffering disproportionately. On the bright side, firms that entered during the crisis were relatively more productive, which helped mitigate the reduction in aggregate productivity. [ABSTRACT FROM AUTHOR]

The issue of fiscal space has currently gained prominence due to the prevalence of debt crisis in developed countries. Indonesia, taking lessons from the 1997 Asian financial crisis, has been able to keep its debt-to-GDP ratio low. However, if it hopes to promote greater economic growth and infrastructure development, Indonesia must take advantage of its fiscal space and expand it even further particularly considering the high economic trajectory it is currently on. The objective of this paper is to explore the theoretical framework of fiscal space and apply it to the case of Indonesia. The paper is further divided into three sections: 1) measuring fiscal space availability in Indonesia; 2) formulating policies to expand it; and 3) discussing its effective allocation to ensure future sustainability. [ABSTRACT FROM AUTHOR]

Turbulence has been the hallmark of the course of Indonesian economic growth. Indonesia was dubbed a "chronic drop-out" in economic performance in 1968, but it then immediately embarked on a growth spurt. Just as accolades to Indonesia's economic pragmatism and economic orthodoxy were reaching a new height, Indonesia's economy shattered during the Asian financial crisis of 1997-99. Indonesia has once again risen phoenix-like from that disaster, and the bounce back has been resilient in the face of the 2008 global financial crisis. Despite the commendable progress, however, its growth seems to be hindered. Indonesia must now tackle the two most important constraints to its continued high growth: logistics and infrastructure. [ABSTRACT FROM AUTHOR]

The 1997 Indonesian financial crisis resulted in severe economic dislocation and political upheaval. Previous studies have established the detrimental consequences for economic welfare, physical health, and child education. The crisis also affected the psychological well-being of the Indonesian people. Comparing responses of the same individuals interviewed before and after the crisis, this study documents substantial increases in several dimensions of psychological distress among men and women across the age distribution. It shows larger impacts of the economic crisis on the more vulnerable groups, including those with low education, the rural landless, urban residents, and those in provinces most affected by the crisis. Elevated psychological distress persists even after the economy returns to precrisis levels, suggesting that the deleterious effects of the crisis may persist longer on the psychological well-being of the Indonesian population than on standard measures of economic well-being. [ABSTRACT FROM AUTHOR]

At the turn of the twenty-first century, Indonesia was at the forefront of international attention due to its multi-dimensional conflicts from Aceh in the west to Irian Jaya in the east, which threatened to tear the nation, already stricken by economic crisis, apart. This paper seeks to critically examine the various economic, social, and political aspects of Indonesia that have led to the sectarian conflict in various parts of the archipelago, which has threatened the very integrity of the Indonesian republic. [ABSTRACT FROM AUTHOR]

Although signs have emerged that some of the forces that caused the 1997-98 Asian financial crisis have begun to diminish and progress has been made in macroeconomic affairs, 10 years after the meltdown Indonesia's recovery is still among the slowest in Asian crisis countries. During the last few years, the relatively rapid growth of the financial sector (inadequately restructured) reflects the presence of excess liquidity and the sector's vulnerability. The slow growth of investment explains the economy-wide effects on the real sector and the stagnancy or deterioration of some social indicators. This paper focuses on two issues related to the slow recovery: the financial structure of lenders and borrowers that dampened credit, and the dismal performance of regional growth following the 2001 decentralization policy. There is some evidence indicating that agency costs have slowed credit and investment growth (credit channel), and that institutional constraints produced a lack of growth incentives among local governments. Efforts to raise the sub-national welfare post-decentralization have also been constrained by national policies such as a tight budget and the relatively conservative monetary policy despite the fact that they are not too effective at controlling inflation. The decomposition analysis also shows that an aggregate demand expansion would have been effective to stimulate growth. [ABSTRACT FROM AUTHOR]

What happens to firms during periods of deep economic crisis? Depending on the nature of the crisis, the general effects are well known. However, owing to data availability, there are relatively few detailed firm-level studies. With the aid of an unusually rich database, the present paper investigates the effects of Indonesia's 1997–1998 crisis on manufacturing establishments. Consistent with studies of other crisis episodes, foreign ownership and prior export orientation are found to be highly significant determinants of survival and recovery. The effects of firm size are ambiguous. The industry in which firms are located, in particular its factor proportions, is also found to be significant. [ABSTRACT FROM AUTHOR]

Indonesia was deeply affected by the 1997–1998 crisis, more so than its East Asian neighbors. Its economic contraction was deeper and more prolonged. It was the only one to experience a (temporary) loss of macroeconomic control. It also suffered “twin crises,” in the sense that its serious economic and financial problems were accompanied by regime collapse. Consequently, recovery was a slow and complex process, as new institutions had to be created, and old ones reformed under successive short-lived administrations. But this process is largely over. The directly elected president with a strong popular mandate is in power. The new institutional framework for economic policy-making is in place. Macroeconomic stability has been restored. Although growth has yet to return to pre-crisis levels, by 2004 per capita income and poverty incidence had recovered to levels prevailing in the mid-1990s, and in the circumstances economic recovery has arguably proceeded about as quickly as could reasonably have been expected. [ABSTRACT FROM AUTHOR]

This paper examines the entry and exit, and the labour productivity, of Indonesian manufacturing firms with 20 workers or more, using a firm-level panel dataset constructed for the years 1994–2000. Overall change in manufacturing labour productivity reached 27.2%—an average growth of 3.5% per annum—between 1994 and 2000, a period that includes the 1997–98 Asian financial crisis, which hit Indonesia hard. Vibrant firm dynamics characterised this period, in which about 10% of manufacturing enterprises were renewed in any one year. By 2000, one-third of all enterprises in existence in 1994 had closed, but the number of enterprises that closed was lower than the number that entered and survived up to the year 2000. The replacement of exiting firms with newly entering firms contributed significantly to increases in overall labour productivity. Regulatory reform in support of this process should lead to gains in productive employment for Indonesian workers. [ABSTRACT FROM AUTHOR]

The paper evaluates the international linkage of Indonesian stock market during pre-crisis and post-crisis periods using time series techniques of cointegration and vector autoregression (VAR). We find evidence for lack of cointegration among the Indonesian market, other ASEAN markets (Malaysia, the Philippines, Singapore and Thailand) and two advanced markets (the US and Japan) during both pre-crisis and post-crisis periods. Looking at short run dynamics, we document evidence for substantial interactions among the ASEAN markets. However, it seems that the Indonesian market becomes more segmented from other ASEAN markets during the post-crisis period. Additionally, while most ASEAN markets respond quickly to shocks in the US regardless of the sample period and seem to be less influenced by the Japanese market post crisis, the Indonesian market becomes more responsive to the developed markets of the US and Japan during the post crisis period. [ABSTRACT FROM AUTHOR]

Presents abstracts of doctoral theses on the Indonesia economy. Rural financial institutions and households in Indonesia after liberalization; Case study of the Indonesian automotive industry; Nonlinear impacts of the Asian financial crisis on income distribution in Indonesia; Economic governance and crises in emerging economies.

The Asian crisis devastated the Indonesian banking sector and led to astronomical losses, almost entirely paid for by the government, i.e. by the general public. The paper provides a new perspective on the crisis, stressing that bank losses are not the same as losses to the economy: most of the 'losses' of the banks are actually transfers to borrowers and depositors. It should be possible to recover part of the amounts concerned through taxation of the major beneficiaries. The paper contrasts the conventional approach, embedded in business accounting, used to manage the banking crisis, with an alternative approach that relies on national accounting concepts. It shows how the latter can provide a new perspective, elucidating the massive transfers of wealth that took place during the crisis. This suggests possible improvements in bank resolution strategies, through the identification and quantification of the main transfers of wealth, followed by their taxation. [ABSTRACT FROM AUTHOR]

During the 1997-98 financial crisis, Bank Indonesia provided liquidity support to many banks experiencing difficulties. This policy became controversial because of the magnitude of the likely losses to the government, which in the end would have to be borne by the general public. Suspicions of corruption involving bankers and officials of Bank Indonesia fuelled the debate. Surprisingly, however, concerns of this kind have not been raised in relation to the far larger amount of support provided to banks by the government in the form of recapitalisation bonds. The public's lack of understanding of the operations of the banking sector further complicated the debate. This paper attempts to shed some light on the central bank's actions and on the proposed solutions to the problems that arose from them. [ABSTRACT FROM AUTHOR]

Introduces articles published in the April 2004 issue of the periodical "Bulletin of Indonesian Economic Studies." Way in which banking crisis was handled; Criticisms that have been levelled at the large-scale last resort undertaken by Bank Indonesia; Radical proposal as to how the government could recoup a substantial proportion of the losses incurred.

Given the strong performance and resilience of the Indonesian economy over the previous three decades, the depth and duration of the 1997-98 crisis was unexpected. The IMF's initial policy prescription was in keeping with the nature of the crisis--characterised by a reversal of foreign capital inflows, interacting with a weak domestic financial sector. But this prescription would work only if there was a quick restoration of market confidence. This was not achieved, and indeed public disputation over the elements of policy undermined confidence. Additional policy elements were needed that would address the capital outflows more directly and resolve the banking collapse. There was a loss of policy cohesion between the Fund and the Indonesian authorities, and among the authorities themselves. Before alternative policies could be put in place, the political dimension became paramount. [ABSTRACT FROM AUTHOR]

Focuses on a study which examined the financial crisis which affected Indonesia. Review of events between August 1997 and March 1998 that led to the crisis; Factors that contributed to the crisis; Discussion on the banking crisis; Impact on politics. "Crony capitalism" as cause of economic collapse in Indonesia and other areas of East Asia. Role of poor macroeconomic management by the government of Haji Mohammad Suharto and the International Monetary Fund in creating and exacerbating the crisis.

The social safety net programmes, which were created by the Government of Indonesia in early 1998, are intended to help protect both the traditionally poor and those who have become the newly poor -- due to the economic crisis -- in coping with the impacts of the crisis. The objectives of the programmes include: ensuring the availability of food at affordable prices, supplementing purchasing power through employment creation, and preserving access to critical social services, particularly health and education. The findings of this study indicate that in many cases the programmes have not reached the specified target groups due to low coverage and loose targetting. The effectiveness of the programmes varied across different programmes and regions. The general conclusion from this study points to the need for improvements in the implementation of the programmes, particularly in terms of targetting the beneficiaries of a particular programme, and in raising coverage within the target groups. [ABSTRACT FROM AUTHOR]

Discusses the state of the Indonesian economy after the Asian economic crisis of 1997-1998 and the Indonesian government's efforts to recover under the leadership of President Abdurraham Wahid. Factors that are shaping the country's future; Separatism in Indonesia; Need for foreign capital to strengthen economy.

Examines the developments in Indonesia following the Asian crisis in relation to the legacy left by the authoritarian rule of Indonesian leader Makam Suharto. Competition between dominant groups over the control of the state and its authority in relation to the allocation of state resources and patronage; Emergence of a capitalist oligarchy; Economic implications of state power.

Three sets of factors came together to cause the economic meltdown in Indonesia in 1997: negative external shocks (financial contagion, adverse terms of trade), weak fundamentals (financially fragile banks, over-reliance on foreign loans by corporations), and incompetent management (overly-rigid exchange rate, inadequate prudential supervision). When the crisis unfolded, the government was paralysed by indecision over adoption of a currency board, reduction of large state-guaranteed investments, and implementation of economic deregulation. The IMF's insistence on abrupt bank closures accelerated the bank-run, and its insistence on abrupt fiscal tightening deepened the output collapse. Recovery to sustained growth will require recapitalization of banks, improved monitoring of the financial system, prudent regulation of capital inflows, external debt relief greater flexibility in the exchange rate, comprehensive microeconomic deregulation, and better macroeconomic management. [ABSTRACT FROM AUTHOR]

Among the East Asian crisis economies, Indonesia has been by far the worst affected. Its economic contraction has been about twice as great as the next most affected economy, Thailand. It is the only crisis economy to experience serious inflation. Its political turmoil and social tension have also obviously been much deeper than elsewhere. Finally, unlike Thailand, the early warning indicators of a looming crisis were much less obvious. This paper seeks to explain why Indonesia's crisis has been so much worse than its neighbours. [ABSTRACT FROM AUTHOR]

The Indonesian currency crisis has escalated into a full-blown national crisis one year after its eruption. The economy is afflicted with serious damage through severe inflation, a large budget deficit, an estimated contraction of 15 per cent in output for 1998, and a steep increase in unemployment. Heavy currency devaluation has inflated the rupiah value of private sector debt. With plunging sales, the extent of non-performing loans has risen sharply, pushing many banks to insolvency. Causes of the crisis are manifold. In retrospect one discovers that Indonesia's economic fundamentals were weak on the eve of the crisis. The nation was exposed to speculative frenzy in the years after 1993 when a sense of prosperity was spread by the privileged few who benefited from flagrantly violating non-discrimination during the course of financial deregulation. Poor governance in politics and business are the root causes of the crisis that is now very likely to drag on pending solutions to the external debt, the banking crisis and the budget deficit. To prepare for reconstructing the economy, the concept and practice of governance must be reinvented, centered on notions of transparency, non-discrimination, clean government and openness toward the rest of the world. [ABSTRACT FROM AUTHOR]

Presents results of a survey on the severity of various dimensions of the financial crisis impact and of the regional heterogeneity of the impact across Indonesia. Correlation between the food, employment and coping indices; Finding that urban areas and Java were hardest hit by the crisis; Ranking of problems.

This paper examines the view that the recent Indonesian crisis was largely unforeseen. The broadest macroeconomic indicators were of virtually no help in presaging the crisis; neither were high-frequency financial indicators. But warnings were there, just below the surface, in some of the macro indicators and in certain structural weaknesses that were long recognised as threats to financial stability. That said, none of these warnings suggested crisis of the magnitude that eventually occurred. The Indonesian experience indicates that macroeconomic stability should never be taken for granted. Signs of vulnerability to financial instability include: the degree of reliance on gross private capital inflows (taking into account maturities and the implications for rollovers); the extent of unhedged foreign exchange positions; and certain indirect indicators, such as policy slippages and key personnel changes. Finally, in a world of volatile capital flows, crisis will tend to occur before standard economic data suggest that crisis is imminent. [ABSTRACT FROM AUTHOR]

Focuses on the economic conditions in Indonesia, with emphasis on the outcomes of the financial crisis, with reference to the International Monetary Fund (IMF). Amount of money contributed by the IMF to various countries experiencing the economic crisis; Indication that the IMF and other commentators were identified as the main causes of the crisis; Insight on the currency crisis and the struggle over economic policy.

The author comments on an article about economic development and obstacles in Indonesia. It is noted that Indonesia has recovered from impact of the 1997-1998 Asian financial crisis (AFC) and the 2008-2009 global financial crisis (GFC), with strong economic performance compared with Malaysia, the Philippines and Thailand. The key factors that contributed to this recovery are increasing private consumption expenditure and free trade agreements (FTA) entered into by the country.

An abstract of the article "Struggling out of Recession: The Influence of Crisis on Economic Performance and Welfare in Java" by Sukamdi is presented.

Before the 1997/1998 economic crisis that enhanced the fluctuation of some Indonesian macroeconomic indicators, Indonesian economic indicators seemed to run quite well as to make it attractive as business destination. The economic turbulence has brought about the enhancement of its macroeconomic indicators fluctuation: the depreciation of Indonesian Rupiah's exchange rate, the sharp contraction of GDP, the ever-increasing inflation pressure, and the interest rate hike. The objective of this paper is to identify the right timing of the major structural break on Indonesian economy through the application of Zivot and Andrew's procedure (ZA) (Zivot and Andrews, 1992), with time series data in the period of Q1 1990-Q4 2008. The ZA model empirical test outcome shows that endogenously the significance of structural break for most macroeconomic variables necessitates at least one hypothesis of null unit root that can be rejected for most of the investigated variables. The potential structural break in series (ADF-test) also allows some originally non-stationary-unit contained variables to turn into a stationary ones. These results are statistically significant as the endogenously appropriate break (ZA-test) coexisted with the Indonesian financial-crisis shocks in 1997/1998. [ABSTRACT FROM AUTHOR]

The article presents a general discussion on an article involving the slow economic recovery of Indonesia after an economic crisis. It notes that the post-crisis economic performance of the country was not disappointing, considering the massive economic decline triggered by the Thai contagion and the hesitant policy response of Indonesia's government. Its major focus is on the continued decline in the rate of investment during the post-crisis period. It also questions the reason behind the decline of poverty level in the country in the immediate post-crisis period.

Highlights a discussion of the trade policies and practices of Indonesia as of June 2003. Trade policy reforms after the 1997 economic crisis; Decline in the country's tariff as a result of unilateral liberalization; Requirements to experience the full benefits of economic reforms.

Reports on how the economic crisis in Indonesia is effecting research centers and scientists in the area. How new policies which are created to help revive the country's economy are hurting the finances of scientific research; How the economic cuts are affecting research programs; How the government is still continuing its international scientific collaborations; Comments.