Indonesia – Trade Policy – 2013

Indonesia is Asia’s fifth largest economy, the fourth most populous nation in the world and endowed with abundant natural resources. Strong macroeconomic performance can be attributed to successful policy management and to the substantial reforms undertaken since the Asian crisis that strengthened the macroeconomic framework and liberalized the international trade regime. Considerable investments in network industries have boosted potential output, and further improvements are expected with the gradual implementation of the Master Plan for the Acceleration and Expansion of Indonesia’s Economic Growth.

Indonesian economy was continuously improving during 2010, bolstered by solid domestic demand and favourable external condition. The global economic recovery that began gaining traction during the first half of 2009 progressed further during 2010, underpinned by vigorous growth in emerging market nations. This upward trend was accompanied by sustained increases in global commodity prices that have increased inflationary pressure, particularly in emerging market economies. In advanced economies, however, economic growth is relatively limited, accompanied by low inflationary pressure. This condition prompted emerging markets to start monetary tightening by implementing macro prudential policies and raising policy rates. In contrast, advanced countries have generally opted for maintaining a loose monetary stance by holding interest rates down, while some countries have even injected their economies with substantial amount of liquidity (quantitative easing). The difference in the crisis responses between emerging market countries and the developed world spurred massive capital inflows to emerging market economies, including Indonesia.

Indonesia also plays a much bigger role in the global economy. Currently, it ranks 17th as the world’s largest economy. Indonesia will continue its significant involvement in many regional and global forums, e.g. WTO, ASEAN, APEC, G-20 and other bilateral activities. In 2013, Indonesia will be a host country for APEC Summit Meeting (October 2013) and WTO Ministerial Conference IX (December 2013) in Bali. Indonesia had successfully overcome the 2008’s global economic crisis, which was highly praised by international economic agencies. While other countries experienced their debt rating being down-graded, Indonesia on the contrary improved its debt rating significantly.


Main economic and policy development

The near-term global economic outlook is fragile and emerging economies, including Indonesia, again face the risk of a potential crisis that is not of their making. The growth outlook for Indonesia’s major trading partners (MTP), at 3.3% in 2012, remains relatively weak as increased Euro zone uncertainty adds to the ongoing drags on global growth from budget cutting and deleveraging in developed economies, and capacity constraints in some developing economies. Recent international financial market turbulence looks set to continue in the near-term and, while this baseline scenario remains the most likely outcome, capital flows to emerging economies and sentiment are likely to remain volatile. Further enhancing crisis preparedness is therefore a policy priority for economies such as Indonesia but, at the same time, it is important to push ahead with reforms and investments which can support medium-term growth in what is likely to be a weaker global economic environment.

In 2011, the Indonesian economy showed excellent performance in the midst of the global economic slowdown, Europe debt crisis, climate change and natural disasters on a global level, as well as political tensions in the Middle East and North Africa. Indonesia's economy grew by 6.5 in 2011, the highest in the period 2007-2011, and it was the highest growth rate since the economic crisis in 1997/1998. Economic growth in 2011 was mainly supported by domestic resiliency in the form of increased investment, a stable purchasing power, and the growth of exports of goods and services. From the expenditure side, economic growth in 2011 was primarily driven by investment in the form of Gross Fixed Capital Formation as well as exports of goods and services that grew respectively by 8.8% and 13.6%. Purchasing power was maintained, people’s consumption and government consumption grew respectively by 4.7 and 3.2%. From the field of business side, the economic growth of 6.5% was mainly sourced from non-oil manufacturing sector, agriculture and trade, hotels, and restaurants as well as transport and communication sectors grew respectively by 6.8%, 3%, 9.2% and 10.7%.

The improved performance of non-oil industries became the driver of economic growth from the production side. In the whole year of 2011, non-oil manufacturing grew by 6.8% and was primarily driven by base metals, iron and steel; food, beverages, and tobacco; textiles, leather goods, and footwear; cement and mining, as well as transportation vehicle, machinery, and equipment. The improvement of this non-oil manufacturing industry will generate optimism of resurgent of industrial sector as a driver of the economy, after non-oil manufacturing industry slowdown since 2006.
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