TOWARDS IMPLEMENTATION OF INFLATION TARGETING IN INDONESIA

The experience of high inflation accompanying the economic crisis in 1998 has brought back painful memories of hyperinflation in the 1960s. Success with inflation targeting (IT) in other countries has prompted Indonesia to consider this framework as the basis for monetary policy,a response that seems justified on at least two grounds. First, monetary policy needs a new anchor after the abandonment in 1997 of the previous regime of managed floating. Second, the central bank law enacted in 1999 prescribes stability of the value of the rupiah as Bank Indonesia's sole objective. This paper explores the future framework of monetary policy under a formal IT approach and highlights the constraints Bank Indonesia faces in implementing such an approach. It discusses the monetary policy framework before and during the crisis, and in the post-crisis period. It then goes on to outline a preliminary design for a suitable IT framework for Indonesia.     

ECONOMIC REFORM WHEN THE CONSTITUTION MATTERS: INDONESIA'S CONSTITUTIONAL COURT AND ARTICLE 33

Article 33 of Indonesia's Constitution requires the state to ‘control’ important branches of production and natural resources. The meaning of ‘control’ has been a matter of significant debate since Indonesia's independence: does it require the state to manage directly, or is regulation enough? The government has recently sought to break down government monopolies and attract private investment in key sectors. To this end it has enacted a raft of new statutes, but they have been challenged in Indonesia's new Constitutional Court. The Court has opted for the ‘direct manage ment’ interpretation of article 33, striking down statutes that implicitly interpret it as requiring government regulation only. This paper discusses these decisions and, more broadly, problems arising from judicial intervention in economic policy formation. It also considers how the government has sought to circumvent the decisions, and the possible consequences of state non-compliance for the Court's future.     

Indonesia's Investment Negative List: an evaluation for selected services sectors

In March 2007, Indonesia's parliament approved a landmark new law on investment. Law 25/2007 replaces separate laws on foreign and domestic investment from 1967 and 1968, and provides a single legislative framework for domestic and foreign investment. The law states that all business sectors are open to investment, including foreign investment, unless specified in a presidential regulation containing Indonesia's Investment Negative List (DNI). This paper summarises the results of four sector studies undertaken to review implementation of the investment law. The purpose of the DNI is to provide certainty to investors by documenting restrictions in a single list, thereby eliminating the power of ministries to set their own rules. This paper finds that, in practice, considerable uncertainty remains, arising particularly from the law's implementing regulations. Furthermore, new ministerial decrees and laws appear to bypass the list and may reflect a trend towards greater restriction of foreign investment in Indonesia.     

INTERGOVERNMENTAL TRANSFERS AND DECENTRALISATION IN INDONESIA

A fundamental restructuring of intergovernmental relations involving decentralisation and expanded autonomy for provincial and local governments is under way in Indonesia. This paper explores the intergovernmental financial system that preceded the new General Allocation Fund (DAU), with particular attention to the old Inpres development grants. Like Inpres, the DAU attempts to address national development objectives, and can be seen as a logical consequence of reform efforts in intergovernmental finance that began long before the demise of the New Order government in 1998. The use of earmarked Inpres grants enabled the central government to ensure that key sectors such as roads, public health and education received adequate attention throughout Indonesia's diverse regions. Local governments' experience with Inpres should help in implementation of the DAU, yet Law 25/1999which restructures fiscal relations between the various levels of governmentmay actually have increased local reliance on the central government.     

Some Obscurities in Indonesia's New National Accounts

Indonesia's national accounts are subject to regular revisions. Some of these revisions have resulted in different estimates of GDP on both the output and the expenditure side of the economy in overlapping years. Unfortunately, the explanations accompanying the published national accounts make it difficult to understand the exact reasons why this is so. This article explores the possible explanations. It also discusses the consequences of changes to the base year used in the calculation of constant price series. The paper draws attention to several new national accounting initiatives developed at Indonesia's Central Statistics Agency that underscore the Agency's advanced professionalism in national accounting. It concludes with a call for greater openness in explaining national accounting procedures.     

Recollections of my Career

Subroto, Professor at the Faculty of Economics, University of Indonesia (FEUI), is one of the architects of the economic policies that brought growing prosperity to Indonesia over the New Order years Educated in Dutch colonial and Japanese occupation schools, he joined Indonesia's independence struggle, and later studied economics at FEUI, McGill University, MIT, and Stanford and Harvard Universities. He taught international economics and business cycles at FEUI and was Secretary of the Faculty. With Widjojo Nitisastro, Mohammad Sadh, Ali Wardhana and Emil Salim, Subroto was appointed a Personal Economic Adviser to General (later President) Soeharto's new government in 1966 In 1968 he joined the Department of Trade, and later was minister of departments responsible for transmigration, cooperatives, mining and energy. After a 17-year ministerial career serving in four consecutive cabinets, Subroto was Secretary General of OPEC for six years from 1988 He remains active in Indonesia's nongovernmental Indonesian Institute for Energy Economics (IIEE), writing on energy problems, and is also Rector of the private Pancasila University in South Jakarta As part of our occasional series of interviews with economists who have helped shape New Order Indonesia, Professor Subroto talked with Chris Manning and Thee Kian VVie of the Bulletin's Editorial Board about his experience as a cabinet minister and as Secretary General of OPEC, and about his views on Indonesia's economic development, particularly its energy problems.     

Forestry,Forest Fires,and Climate Change in Indonesia

In recent months, strong global growth, rebounding commodity prices, and relatively accommodative financial conditions have benefited the Indonesian economy. The first quarter of 2017 in Indonesia saw resilient GDP growth, moderate inflation, stable exchange rates, an increase in the growth of non-oil exports, and an investment upgrade from ratings agency Standard & Poor's. Investment growth, however, did not pick up enough to drive overall growth to a higher rate. The poor quality of banking-sector assets and the gaps in tax revenue—despite the fulfilment of the government's tax-amnesty program—are two of the most immediate economic concerns. President Joko Widodo (Jokowi), who is well into the second half of his term, is under pressure to deliver on his development platform, which includes making progress in sustainable development and climate change mitigation. The effective management of forests is key to this platform. There has been longstanding tension over Indonesia's forests between the protection of environmental values, including carbon storage, and the production of valuable commodities, including timber, palm oil, and pulpwood, which generate revenue and employment. We survey recent developments in four storylines related to forestry and climate change: first, Indonesia's commitment to reducing emissions to 29%–41% below projected business-as-usual levels by 2030, as well as the international climate agreements and finance that can help achieve this commitment; second, land-use rights and regulations, including a moratorium on clearing, draining, or setting fires on peatland; third, measures to prevent catastrophic forest fires like those during the 2015 El Niño, including the establishment of the Peatland Restoration Agency; and, fourth, the actions of non-state actors, especially large agribusinesses, in managing forests and peatland. We conclude by discussing differences in the approaches of Jokowi's administration and those of former president Susilo Bambang Yudhoyono's administration and by questioning whether Indonesia's budgeted resources, actions, and results to date are commensurate with its climate commitments.     

Implications for Indonesia of Asia’s Rise in the Global Economy

This article projects Indonesia's production and trade patterns to 2020 and 2030 in the course of global economic development under various growth and policy scenarios. We support our projections of the global economy by employing the Global Trade Analysis Project (GTAP) model and version 8.1 of the GTAP database, along with supplementary data from a range of sources. Our baseline projection assumes that trade-related policies do not change in each region, but that endowments and real GDP do change, at exogenously selected rates. We use this baseline and its assumptions to analyse how potential global changes may affect the Indonesian economy over this and the next decade. We then consider the potential impacts of three policy reforms by 2020: an increase in global rice exports, associated with the opening of Myanmar; the recently imposed export taxes in Indonesia on unprocessed primary products; and the implementation of Indonesia's new food law.     

Post-crisis export performance: The Indonesian experience in regional perspective

This paper examines post-crisis export performance in Indonesia against the backdrop of pre-crisis experience and the comparative export performance of other Southeast Asian countries. It surveys trends and patterns of export performance, focusing on comparative experience in major commodity categories and changing revealed comparative advantage. It also examines the implications for Indonesia's export performance of China's emergence as a major competitor in world trade, considers market prospects for textile and garment exports following the demise of the Multi-fibre Arrangement, and explores the factors contributing to the post-crisis export slowdown. The findings support the view that Indonesia's poor export performance in the post-crisis era is largely supply driven. They strengthen the case for reversal of recent backsliding in macroeconomic policy reform, and for speedy implementation of the unfinished reform agenda. Prudent macroeconomic management, while necessary, is not sufficient to achieve rapid and sustained export growth in an era of rapid economic globalisation.     

Insolvency Reform and the Indonesian Financial Crisis

Treatments of Indonesia's financial crisis customarily focus on exchange rate collapse, neglecting the question of why enterprises were so highly leveraged beforehand. This article reviews controlling shareholder-debtor behaviour both before and during the crisis. It then examines Indonesia's emergency bankruptcy legislation effective August 1998—which enjoys a mixed record in implementation—and articulates bankruptcy policy principles for the replacement legislation now being drafted. Progress on the insolvency front has been limited to a relatively small number of voluntary debt reorganisations. Early indications are that such restructurings largely take the form of debt rescheduling rather than debt-equity swaps, loan write-offs, or other approaches that would lessen enterprises' heavy leveraging. This outcome reflects problems in creditor as well as debtor preferences. What began as a private sector insolvency problem increasingly overlaps with efforts to address general banking sector difficulties. Further, nationalism questions complicate the resolution of insolvencies.     

The road to pro-poor growth: the Indonesian experience in regional perspective

Indonesia's long-run ‘pro-poor growth’ record is among the best in Asia. It shows that appropriate policies can free societies from poverty's worst manifestations in a generation, a crucial message as democracy begins to influence the policy process. This paper places Indonesia's record in regional perspective, analysing determinants of income distribution in Asia and connecting this analysis to Indonesia's pro-poor growth process and the policy mechanisms that encourage pro-poor growth. Using a data set for eight Asian countries, it examines patterns of change in incomes and distribution across countries and over time. Building on Indonesian experience, the paper presents a pro-poor growth model encompassing three levels: improving the ‘capabilities’ of the poor, lowering transactions costs in the economy, especially between rural and urban areas, and increasing demand for goods and services produced by the poor. It finds that rapid pro-poor growth requires simultaneous and balanced interaction between growth and distribution processes.     

The Manpower Law of 2003 and its implementing regulations: Genesis,key articles and potential impact

This paper reviews Indonesia's Manpower Law 13/2003 and related regulations, against a backdrop of slow employment growth, business concerns about the legislation and government attempts to change it in 2006. The paper focuses on severance rates and dismissals, short-term contracts and out-sourcing, and minimum wages, also briefly discussing other articles, and comparing the law with those in neighbouring countries. It suggests that certain articles have contributed to significantly higher wage costs and reduced flexibility in the management of labour in Indonesia's formal sector, even though compliance is by no means universal within the private sector. Key provisions, especially large increases in severance rates, and needs criteria imposed for the purpose of setting minimum wages, are also out of step with labour market policies in other developing countries. Circumstantial evidence suggests that these measures have adversely affected the investment climate and damaged prospects for a recovery in employment.     

Comparative Advantage and Protection in Indonesia 1

The comparative advantage of Indonesia's traded goods producing sectors is examined in this paper. Comparative advantage is studied by computing the domestic resource costs of foreign exchange earned or saved in each of the 138 such sectors defined in the 1985 input-output tables for Indonesia. The paper also computes measures of effective rates of protection. It is found that these two types of measures are highly correlated across industries. The paper also shows that between 1975 and 1987 the distortionary effects of Indonesia's trade policies declined markedly. Nevertheless, Indonesia's most highly protected industries continue to be those in which its comparative advantage is least.     

The Indonesian Environmental Impact Management Agency (Bapedal): Its Role,Development and Future

This paper looks at the setting up and initial growth of the new Indonesian Environmental Impact Management Agency (Bapedal). Coming into being at a crucial time in the development of Indonesia's overall environmental management policy, Bapedal is the first national specialised environmental regulatory body to be established in Indonesia with implementation powers to monitor pollution and the negative impacts of development on the environment. As with any new agency in Indonesia, it has faced some major hurdles in its early development. However its ultimate success as an agency is of crucial importance if Indonesia is going to effectively handle its growing environmental problems over the next decade.     

Indonesia's economic performance in comparative perspective and a new policy framework for 2049

This is the first paper of a planned ‘Indonesia 2049’ project, which asks how far Indonesia's economy will have developed 100 years after actual political independence in 1949. We compare dimensions of Indonesia's economy with those of two oil exporters (Mexico and Nigeria), three large populous developing economies (China, India and Brazil) and three Southeast Asian neighbours (Malaysia, Thailand and the Philippines). Under Soeharto, Indonesia's economic performance was better than it had been under Soekarno, and above the average of the eight comparator countries, but below that of the East Asian economies. Our view is that Susilo Bambang Yudhoyono's second administration must adopt a new economic policy framework to ensure successful transition to knowledge-based growth. This proposed new framework goes beyond the Washington Consensus of ‘getting prices right’ and ‘getting institutions right’ to include ‘getting the role of science right’ and ‘getting the conception of the reform process right’.     

Jokowi's First Year: A Weak President Caught between Reform and Oligarchic Politics

When President Joko Widodo (Jokowi) took office in October 2014, he promised to usher in a new style of politics, generating optimism among many Indonesians that his government would enthusiastically promote reform. Yet Jokowi has since placed greater value on realpolitik than on reform, as evidenced by his choice of cabinet members, his response to the controversy surrounding senior police officer Budi Gunawan, and his handling of attempts by the police and others to weaken Indonesia's respected Corruption Eradication Commission (KPK). This article shows that Jokowi failed to deliver on his promises of reform largely owing to a combination of personal and external factors. He failed to show leadership on anticorruption and human-rights issues, for example—in part because he prefers economic development over democratic reform, but also because he is not immune to the oligarchic politics that dominate Indonesia's political life and promote the interests of Indonesia's elite.     

Indonesian politics in 2010: the perils of stagnation

In the first year after President Yudhoyono's re-election, Indonesian politics continued to evolve in largely familiar patterns. Contrary to the expectations of some observers, Yudhoyono's strong popular mandate and his Democratic Party's newly won parliamentary plurality did not result in significant changes to the president's cautious style of governing or the fickle nature of president–parliament relations. Most political parties also opted for continuity over change, electing or re-electing established figures as leaders despite high levels of public dissatisfaction with their performance. The fact that the 2009 election failed to generate any new momentum for reform does not augur well for the remainder of Yudhoyono's second term. Although the basic parameters of Indonesia's democracy remain intact, political developments during 2010 have also confirmed a pattern of stagnation that is likely to see Indonesia barely muddle through as a reasonably stable yet low-quality democracy.     

Risks,Resilience, and Reforms: Indonesia’s Financial System in 2019

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.     

Indonesian universities in transition: catching up and opening up

Indonesia's higher education system is changing rapidly: in 2010 there were about 5 million students, up from 2,000 in 1945. Effectively the tertiary system has four tiers, three of which are within the public sector. However, the system is increasingly private sector driven. The key themes of this paper on universities are rapid growth; overcoming the historical backlog; and the need for further fundamental reform. The quality of Indonesia's tertiary institutions is highly variable. Governance structures and incentives regimes within the state universities are complex and obscure. The government both over-regulates and under-regulates. Major reforms are under way and increasing financial resources are available.     

国库集中支付制度对高校理财的挑战与对策

国库集中支付制度是我国公共财政体制改革的重要内容,是解决当前高校资金收支管理问题的一项重要措施。文章阐述了高校实施国库集中支付改革取得的成效及存在的问题,这些问题对高校理财形成了极大的挑战。从高校具有与政府部门不同的特殊性入手,重点探讨了产生这些问题的原因。提出了完善高校实施国库集中支付制度改革的对策。