The ASEAN Free Trade Area: Implications for Indonesia's Imports

The Singapore Declaration of 1992, announcing the establishment of an ASEAN Free Trade Area (AFTA), effectively brings down tariff levels on intra-ASEAN trade to 0–5% by the year 2008. This paper estimates the changes in Inonesia's imports that will result from trade creation generated by AFTA. Our results show that Indonesia's imports from other ASEAN partners will increase by 6%, based on 1990 figures. This is far greater than the estimated effects of the existing PTA scheme. However, these results are upper- bound estimates and include only static changes.     

Indonesia's Non-Oil Export Performance During the Economic Crisis: Distinguishing Price Trends from Quantity Trends

Despite an enormous currency depreciation, the growth rate of Indonesia's non-oil exports, measured in dollars, did not accelerate during the first two years of the Asian crisis. In fact, during the second year of the crisis non-oil export value dropped sharply. This paper demonstrates that the main reason for the decline in the dollar value of non-oil exports was a collapse of export prices. Non-oil export dollar prices fell 26% between the second quarter of 1997 and the second quarter of 1999. Measured at constant prices, non-oil exports grew 24% and manufactured exports 31% during this period. Non-oil import prices fell by roughly the same amount as non-oil export prices during the crisis, with little change in the non-oil terms of trade. The decline in the price of traded goods significantly reduced the magnitude of the real exchange rate depreciation experienced by Indonesia.     

Indonesia's new tax reform: Potential and direction

This study aims to provide direction for policy and provide input to improve the quality of taxation services, by emphasizing and analyzing the existing tax potential and recommending a taxation reformation plan in accordance with fiscal sustainability and efforts to increase the level of Indonesian competence both for the transition period and in the long term. The result of the study has indicated that there is still the opportunity to increase national revenue without increasing rates and by increasing the capacity of tax administration and expanding the tax base, tax collection/revenue will increase. There are a number of indicators that illustrate this, such as the ratio of tax revenue to the GDP which is still relatively low compared to other countries, wide scope for increasing value added tax (VAT), PIT and CIT revenue productivity, etc. Our best estimation for potential tax revenue expansion for the next 2–3 years would be 2.1% of GDP where PIT and CIT contributed more than half of that expansion.     

Indonesia's Crisis: Implications for the Region

What began as a currency crisis in Indonesia in the third quarter of 1997 rapidly turned into a deep financial crisis with wide-ranging economic and social impacts, and finally became a serious political crisis that exploded in May 1998, forcing President Soeharto to resign. Soeharto's departure, however, did not resolve the crisis. He left behind an economy in shambles, a serious political vacuum and a highly polarised society. The issues to be dealt with are wide-ranging, including the loss of Indonesia's position in the international system, the domination of industry by foreign capital and the imposition by the IMF of a certain model of economic development. Regional and international aspects of the crisis have not become an issue in the public debate and policy discourse in Indonesia. This article looks at these implications.     

Designing the DPD: Indonesia's Regional Representative Council

This paper examines the design of the Regional Representative Council (DPD) that Indonesia set up in 2002. Why was it established with its current electoral system and responsibilities? The design of the DPD had to fit within a compromise made between the two then dominant parties and their leaders. The Indonesian Democratic Party of Struggle wished to preserve the revered People's Consultative Assembly structure, but without losing the power it then wielded by virtue of being the biggest party in the parliament. The other major party, Golkar, obtained the provincial chamber it sought, but was denied control of it when membership was closed to political parties. The public's demand for greater electoral power was appeased through the method of election chosen for the DPD. Institutionally, the design has not made the workings of the legislature more complicated for the established political actors, because the new chamber has little influence.     

Indonesia's missing multinationals: business groups and outward direct investment

Some countries produce more multinational enterprises (MNEs) than others. India and China, in particular, have produced a number of dynamic MNEs whose success abroad generates important economic benefits for the home economy. Motivated by this observation, we describe the internationalisation record of Indonesia's major business groups. Using an archival analysis method, we find that, with a few exceptions, Indonesia's largest business groupings focus predominantly upon the domestic market. We advance two explanations for this investment pattern. The first suggests that the apparent absence of Indonesian MNEs is an accounting error, because firms’ outward investment is under-reported in official statistics. The second suggests that Indonesian outward foreign direct investment is impeded by a combination of institutional and firm-level factors that arrest the internationalisation of all but the largest firms. We discuss the policy implications of these findings and reflect on their theoretical implications.     

Indonesia's New Banking Law

An accumulation of old banking laws was replaced with a single new one early in 1992. The previous focus on the lending side of banks' activities has been replaced by greater emphasis on their deposit mobilisation and intermediation functions. Distinctions between commercial, savings and development banks have been dropped—the only functional distinction remaining being that between banks which offer cheque account services and the much smaller ones which do not. Important changes relating to ownership include placing the state banks on the same legal footing as those from the private sector, allowing them to sell their shares to the public, and permitting foreigners to purchase shares in domestic banks listed on the stock exchange. Those who breach the new law are liable to heavy fines and gaol terms. The law allows the government to require all (not just state) banks to undertake special developmental or equity-oriented programs.     

Indonesia's Clean Air Program

Unprecedented industrial development during the last two decades, accompanied by a growing population, has increased the amount of environmental damage in Indonesia. A critical environmental problem is the rising level of air pollution in several large cities. This has stimulated the government to develop a national program designed to control the quantity of pollutantsin the air. However, the program's impact on economic performance and incomes has not yet been studied systematically. This paper analyses the expected impact of the clean air program on national economic performance and household incomes for various socio-economic groups.     

Indonesia's new national accounts

This note addresses some of the main changes in Indonesia's national accounts, from 2000. These have resulted in higher estimates of GDP and slightly higher rates of GDP growth. The changes are part of a regular cycle of revisions and improvements in national accounting by the central statistics agency, BPS. On the output side, the higher level of GDP in 2000 is mainly due to upward revisions of value added in manufacturing industry, banking and trade. On the expenditure side, the higher level is mainly due to an upward revision of exports and the introduction of an estimate of investment in inventories. The choice of a new base year has resulted in higher weights for sectors with relatively high growth. This explains the higher rates of total GDP growth during 2000–03.     

Indonesia's Debt-for-Development Swaps: Past,Present, and Future

This article systematically reviews recent debt-for-development swaps in Indonesia, the only debtor country where the number of such swaps warrants their being considered as a deliberate government debt-relief policy and development finance strategy. We show that the 11 swaps Indonesia has signed with its bilateral creditors since 2002 have performed rather erratically across four criteria: an increase in resources at the debtor country or government budget level or both; an increase in resources for intended sector purposes; whether, taken together, these swaps ease debt burdens; and the extent of their alignment with government policy and systems. We find little evidence of learning on the Indonesian side. We believe that Indonesia can take a more proactive stance in negotiating the economic terms underlying its debt swaps, and we suggest concrete ways for it to do so.     

Indonesia's stock market: evolving role,growing efficiency

The banking sector traditionally dominated Indonesia's financial system, and until the 1990s the stock market remained of little significance. Re-opened in 1977 after two decades of inactivity, the stock exchange made little contribution to Indonesia's development until a series of reform and deregulation measures were implemented from December 1987. This study examines the evolving role of the stock market in the financial system, and analyses changes in its efficiency over time. We find that stock market activity grew markedly in importance relative to banking after the reforms began to take effect, gaining the ascendancy in 2004 and moving well ahead subsequently. One contributor to this success is improvement in efficiency. Using two simple technical trading rules, we demonstrate that the stock exchange secondary market has indeed become significantly more efficient over time.     

Indonesia's new deposit guarantee law

The blanket guarantee introduced in 1998 in response to the emerging banking and economic crisis resulted in $50?billion of losses to the general public. The government has now introduced a law that allows the phasing out of this blanket guarantee, but also allows its reinstatement in the event of a threatened collapse of the banking system. Rather than eliminating the possibility of any repetition of the previous banking disaster, the new law effectively mandates an almost identical approach to handling system-wide banking collapses in the future, suggesting that the authorities and their advisers learned very little from the recent bitter experience. It is argued here that the crucial starting point for formulating policy in this field is to specify correctly the exact purpose that government intervention is intended to serve: namely, the avoidance of major macroeconomic disruption as a result of bank failures.     

Indonesia's Slow Economic Growth: 1981–86 1

The object of the paper is to explain the sharp decline in Indonesia's growth rate since 1981 compared with the period before 1981. It is argued that the slow growth of the later penod was mainly due to the net effect of investment, the government's domestic budget deficit and imports in depressing domestic demand, reflected in turn in a slower growth of money supply. These demand policies were followed to deal with the deteriorating balance of payments situation. Therefore, some alternative policies are suggested for dealing with this situation which will not have adverse effects on economic growth.