In the midst of a global financial crisis, Indonesia enjoyed an impressive 6.5 percent growth rate in 2011. Yet, there have been some concerns over the sustainability of this growth in the long term.
One factor is related to the government’s policy on resource management, particularly the fuel subsidy policy.
With global oil prices exceeding US$100 per barrel, the Indonesian government’s finances will be stretched. Between 1990 and 2010, world energy consumption increased by 45 percent.
The process of economic rebalancing from West to East will potentially create energy supply problems and there is a strong indication that energy prices will continue increasing for the foreseeable future.
Indonesia’s decision on fuel subsidies will have economy-wide implications on growth through inflation rates and budget allocations to other important sectors including education, infrastructure development and poverty reduction programs. Data suggests that in 2011 fuel subsidies topped Rp 165 trillion ($18 billion).
To date, the Indonesian government and House of Representatives are still mulling the best option to deal with the increased demand for fuel and increased fuel prices.
ASEAN-Japan economic relationships are not all about government-to-government partnerships. The two regions have witnessed continuing progress in industry-to-industry partnerships too. The panellists in the ASEAN-Japan business and investment relationship session include Setsuo Iuchi (President of JETRO Thailand and Southeast Asia), Suparno Djasmin (Deputy Director PT Astra International Tbk), Karen Agustiawan (President Director of Pertamina), and Arifin Panigoro (Founder of Medco Group).
In my paper for the PECC conference earlier this year on Growing APEC Economies: New Challenges & Approaches (all the papers are available here and my chapter is at page 45), I observe that Indonesian growth has been reasonably good in recent years.
Indonesia is still growing quite well, although its growth performance is below that of the 1980s. During the Asian financial crisis, Indonesia was the most severely hit country in the region, with a contraction of 13%. However, in the recent global financial crisis, its growth was surprisingly quite impressive with a resilience of 4.5%. (p. 47)
Indonesian cities appear to have excellent opportunities to contribute to growth and development, given their scale and the comfort of their communities with the social media. But success depends on complementary investment and policy decisions by governments on infrastructure, education and entrepreneurship. The same forces which make cities a success can drive political change if expectations are not met.
By Yuen Pau Woo, President and Chief Executive officer of the Asia Pacific Foundation of Canada
The Pacific Economic Cooperation today in Washington released a report on the outlook for the Pacific region. This included a paper on the prospects for Transpacific Energy Trade which is available at PECC website. In this article, I summarise some key points from that report in the Toronto Globe and Mail (the full text is here). Briefly, I point out that at present there is hardly any trans-Pacific energy trade. The markets for energy on the two sides of the Pacific are segmented and prices are different. Continue reading →
“The global economy has entered a new dangerous phase”, said the International Monetary Fund’s Chief Economist Olivier Blanchard. Just recently the IMF cut its growth forecasts for the global economy to 4.0 percent for 2011 and 2012. Global economic uncertainties have led to high volatility in financial markets across the world. In Indonesia, Rupiah has shown a quite dramatic drop as foreign investors got rid of risky assets amid fears of worsening conditions in Europe which may significantly affect the Indonesian economy. A fiscal stimulus plan has been on the central bank of Indonesia (BI)’s agenda if things get worse to loosen monetary policies in addition to cutting the benchmark interest rates.
About two months ago discussion on fuel subsidy was headlines at various Indonesia’s news portals. However, this issue’s popularity seems to be taken away recently by the Nazaruddin case, Eid Fitr festive season (where thousands of cars, motorbikes, busses and flooded the Indonesian roads) and some other ‘not so important’ news (eg. Bollywood cops). Should we expect that the government makes some change in terms of their attitudes to fuel subsidy responding to the worsening global economy?
Professor Christopher Findlay of University of Adelaide interviewed the Indonesian Trade Minister, Dr Mari Pangestu, about the role of fuel subsidy in Indonesia.
Indonesia is on its way to add “I” to the term BRIC which refers to emerging economies Brazil, Russia, India and China that experience signficant growth (should we now say BRIIC or BRICI?). The country is now the biggest economy in the South East Asian region. Trade Minister Mari Pangestu was recently interviewed by FT and explained that manufactured goods, coal and tin as well as growing middle income are the fuel behind Indonesia’s economic rise. See the full-video here.
We are proudly promoting and organising discussion on various topic and issues relating to Indonesia and the relationship between Indonesia and Australia through our GoLive Discussion Series. See our past and upcoming events here.