Survey of Recent Developments

Haryo Aswicahyono and Hal Hill

Bulletin of Indonesian Economic Studies, 2014, vol. 50, issue 3, 319-346

Abstract: Following the remarkably successful 2014 parliamentary and presidential elections in Indonesia, attention now turns to the new president and his agenda for the next five years. President Joko Widodo, known as Jokowi, has emphasised the importance of strong economic growth and rising living standards. But he faces significant, broad-ranging economic challenges and, perhaps not surprisingly, serious discussion of these issues did not feature during the election campaigns. In many respects the economy is at a crossroads, facing the choice between a business-asusual scenario of no reform and consequently sluggish economic growth, and a politically difficult reform agenda that would set it on a higher growth path. Economic policymakers regard the events of 2013 as a mini economic crisis, and they feel vindicated in their explicit preference for stability over growth-that is, for slowing the economy through tighter fiscal and monetary policy and letting the currency decline. For now, the economy is slowing but holding up quite well, especially by comparative international norms and considering foreign and domestic headwinds, including possible macroeconomic and financial fragilities. Here we examine these headwinds-from global economic volatility and declining commodity prices, particularly in the wake of the so-called Bernanke shock of May 2013, to the continuing policy drift at home. We investigate whether there is evidence of an emerging adjustment from the commodity-driven growth of the past decade to some of the traditional tradables sectors, especially manufacturing. While the commodity boom is almost certainly a thing of the past-at least at levels witnessed since 2005-the country's political narratives and the government's microeconomic policies appear to be still premised on an era of plenty funded by a disappearing boom. We speculate on likely options and directions for what in all likelihood will be a 'Jokowi decade'.

Date: 2014
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DOI: 10.1080/00074918.2014.980374

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Bulletin of Indonesian Economic Studies is currently edited by Firman Witoelar Kartaadipoetra, Arianto Patunru, Robert Sparrow, Sarah Xue Dong and Sean Muir

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