Macroeconomic Policies in Indonesia: Indonesia economy since the Asian financial crisis of 1997

329 Pages·2014·2.64 MB·English

by  Anwar Nasution

Macroeconomic Policies
in Indonesia
This book gives insight on the dynamics and route of economic policies that
have been taken and implemented since the point of the institutional reforms
in 1998 that were triggered from the context of the fi nancial crisis in 1997/1998.
The condition brought a different paradigm on the landscape of economic and
development policies, especially in the case of the monetary and fi nancial struc-
ture, the international trade sector, the manufacturing sector, the taxes admin-
istration policy and the evolved context of decentralization and development of
public sector policies in general.
Given the state of current economic development, this book offers sugges-
tions to address economic issues that require improvements. This book is unique
as: (1) it is about Indonesia, a country mostly affected by the 1997/1998
fi nancial crisis, which also led to a change in regime; (2) it covers a broad range
of thematic topics on sectors of development and institutional changes from
major policies that have been taken; and (3) it posits both existing and future
challenges on monetary and fi nancial sectors, trade, manufacturing and com-
petitiveness, as well as on development of decentralization policies.
Anwar Nasution graduated from the Faculty of Economics, University of
Indonesia, in 1968. He obtained a Master’s degree in Public Administration
from the Kennedy School of Government, Harvard University, in 1973, and a
PhD in Economics from Tufts University in 1982. Anwar was a member of the
International Policy Advisory Group (Shadow G-20) in 2013, under the Chair-
manship of Professor Jeffrey Sachs of Columbia University, the Dean of the
Faculty of Economics at the University of Indonesia (1988–2001) and the Sasakawa
Distinguished Professor for the Chair in Development Economics at UNU/
WIDER Institute in Helsinki, Finland. He was consultant to UN-ESCAP, UN-
ECLAC, US-AID, ADB, the World Bank, IMF and MITI of Japan. He was a
visiting research fellow at NBER in Cambridge, MA, USA, IDE in Tokyo, the
Research School of Pacifi c Studies at the Australian National University in
Canberra and Kyoto University.
This page intentionally left blank
Macroeconomic Policies
in Indonesia
Indonesia economy since the Asian
fi nancial crisis of 1997
Edited by Anwar Nasution
First published 2015
by Routledge
2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN
and by Routledge
711 Third Avenue, New York, NY 10017
Routledge is an imprint of the Taylor & Francis Group, an informa
business
© 2015 Anwar Nasution
The right of the editor to be identifi ed as the author of the
editorial material, and of the authors for their individual chapters,
has been asserted in accordance with sections 77 and 78 of the
Copyright, Designs and Patents Act 1988.
All rights reserved. No part of this book may be reprinted or
reproduced or utilised in any form or by any electronic,
mechanical, or other means, now known or hereafter invented,
including photocopying and recording, or in any information
storage or retrieval system, without permission in writing from the
publishers.
Trademark notice: Product or corporate names may be trademarks
or registered trademarks, and are used only for identifi cation and
explanation without intent to infringe.
British Library Cataloguing in Publication Data
A catalogue record for this book is available from the British
Library
Library of Congress Cataloging in Publication Data
Macroeconomic policies in Indonesia : Indonesia economy since
the Asian fi nancial crisis of 1997 / edited by Anwar Nasution.
pages cm
Includes bibliographical references and index.
1. Finance—Indonesia. 2. Banks and banking—Indonesia.
3. Monetary policy—Indonesia. 4. Financial crises—Indonesia.
5. Indonesia—Economic policy. I. Nasution, Anwar.
HG187.I7M33 2015
339.509598—dc23
2014022471
ISBN: 978-1-138-79763-5 (hbk)
ISBN: 978-1-315-75698-1 (ebk)
Typeset in Galliard
by Apex CoVantage, LLC
Contents
List of contributors vii
Acknowledgements ix
Introduction 1
1 Towards a market-based monetary policy 7
ANWAR NASUTION
2 Rebuilding the banking system in Indonesia since 1997 50
ANWAR NASUTION
3 Developing Indonesia’s mutual fund industry: a tale of
booms, busts, frauds and scandals 90
LLOYD M. KENWARD
4 Are emerging Asia’s reserves really too high? 116
MARTA RUIZ-ARRANZ AND MILAN ZAVADJIL
5 Tax administration reform and fi scal adjustment:
the case of Indonesia (2001–7) 146
JOHN BRONDOLO, CARLOS SILVANI, ERIC LE BORGNE,
AND FRANK BOSCH
6 Intergovernmental transfers: effectiveness and response
on government 212
RAKSAKA MAHI AND RIATU MARIATUL QIBTHIYYAH
7 Managing Indonesia’s trade policy: how to remove
the agenda? 224
LILI YAN ING, MARI ELKA PANGESTU, AND SJAMSU RAHARDJA
vi Contents
8 Indonesian manufacturing sector: searching for identity
amidst a challenging environment 245
DIONISIUS NARJOKO AND SJAMSU RAHARDJA
9 Globalization and innovation in Indonesian manufacturing 261
ARI KUNCORO
10 Indonesia’s democracy and decentralization in the
post-1997 era 280
MARIA MONICA WIHARDJA
References 299
Author Index 313
Subject Index 316
Contributors
Frank Bosch works for the International Monetary Fund and has conducted
IMF missions in Indonesia, Egypt and Moldova.
John Brondolo has been involved in various IMF missions. He has extensive
knowledge on tax administration and tax reform. He has been involved in
several tax reform country strategy plans.
Lili Yan Ing is an Economist at the Economic Research Institute for ASEAN
and East Asia (ERIA).
Lloyd M. Kenward was a staff member at the World Bank offi ce in Indonesia
for several years at the time the crisis began and has also worked in the
IMF’s representative offi ce in Jakarta. Dr Kenward holds a PhD from Queen’s
University in 1974.
Ari Kuncoro is Professor and Dean of the Department of Economics at the University
of Indonesia. He received his PhD in Economics from Brown University.
Eric Le Borgne is a World Bank Lead Economist. He has been the IMF’s
Senior Economist since June 2001 and during his post for 20 years with the
IMF, he has worked on numerous countries such as Indonesia, Thailand,
Lebanon, Azrbaijan, Libya, Tanzania and Cameroon.
Raksaka Mahi is a Senior Lecturer and Researcher in the Department of
Economics at the University of Indonesia. He received his PhD from the
Department of Economics, University of Illinois at Urbana Champaign, in
1996.
Dionisius Narjoko is a Trade Economist at the Economic Research Institute for
ASEAN and East Asia (ERIA), and was previously a researcher at the Department
of Economics, Centre for Strategic and International Studies (CSIS) in Jakarta,
Indonesia. He received his PhD from the Australian National University.
Anwar Nasution was a member of the International Policy Advisory Group
(Shadow G-20) in 2013, under the Chairmanship of Professor Jeffrey Sachs of
Columbia University, the Dean of the Faculty of Economics at the University
of Indonesia (1988–2001) and the Sasakawa Distinguished Professor for the
viii Contributors
Chair in Development Economics at UNU/WIDER Institute in Helsinki,
Finland. He was consultant to UN-ESCAP, UN-ECLAC, US-AID, ADB,
the World Bank, IMF and MITI of Japan.
Mari Elka Pangestu was the Minister of Trade for Indonesia for seven years
(2004–2011) prior to her current position as Minister of Tourism and Cre-
ative Economy. Mari Pangestu obtained her PhD in Economics from the
University of California Davis, specializing in macroeconomics and interna-
tional trade and fi nance.
Riatu Mariatul Qibthiyyah is Associate Director in Research at LPEM-FEUI.
She is a public fi nance expert who has been involved in various research
projects on policy evaluation and monitoring, design of fi scal related schemes,
intergovernmental transfer and regulatory impact assessment.
Sjamsu Rahardja is a Senior Economist for the World Bank offi ce in Indonesia
and leads the World Bank country program on competitiveness. Dr Rahardja
has a PhD in Economics from Georgetown University.
Marta Ruiz-Arranz is Deputy Division Chief in the Fiscal Affairs Department
of the IMF, and coordinates the work of the Fiscal Monitor team. She holds
a PhD in Economics from Harvard University.
Carlos Silvani is an independent consultant working in projects supported
by the World Bank, the IMF, the Inter-American Developing Bank (IDB)
and the Gulf Cooperation Council (GCC).
Maria Monica Wihardja received her PhD (2009) and Master of Science degree
(2008) in Regional Science from Cornell University, Ithaca, New York. She also
received a Master of Philosophy in Economics from the University of Cambridge
in 2002, and Master of Arts in Economics from Brown University in 2002.
Milan Zavadjil is the Director of MTM Advisors Ltd. Pte, based in Singapore. He
teaches at ESSEC business school and other institutions and has had numerous
consulting assignments with both private and public sector institutions.
Acknowledgements
The editor expresses his appreciation and gratitude to the authors of the articles
in this book: Lloyd M. Kenward, Marta Ruiz Arranz and Milan Zavadjil, John
Brondolo, Carlos Silvani, Eric Le Borgne and Frank Bosch, Raksaka Mahi and
Riatu Mariatul Qibthiyyah, Lili Yan Ing, Mari Elka Pangestu and Sjamsu
Rahardja, Dionisius Narjoko, Ari Kuncoro and Maria Monica Wihardja. Special
thanks go to: Riatu Mariatul Qibtiyyah who served as Secretary to this book
project; Anton Gunawan, who was involved during early stage of the process;
and Ashintya Damayanti and Veny Nanin Puruitasari, the Secretaries from the
Department of Economics who offered their great assistance to processing the
manuscript. Also the Department of Economics of the Faculty of Economics,
University of Indonesia, and KANOPI FEUI, the economic student organiza-
tion, jointly organized two public seminars in Jakarta to get valuable inputs for
improvements to the articles. Last but not least, special thanks go to Denise
File from Apex CoVantage Limited, the Project Manager and editor of this
book, Elisabet Ainsworth, the Production Editorial Manager at Routledge, and
Yong Ling Lam of the Routledge offi ce in Singapore who edited and published
the book.