OECD Economic Surveys: Indonesia

Frequency :
Irregular
ISSN :
2072-5108 (online)
ISSN :
2072-5116 (print)
DOI :
10.1787/20725108
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OECD's periodic reviews of Indonesia's economy.  Each review examines recent economic developments, policies and prospects, and presents a series of recommendations.
Also available in: French
 
OECD Economic Surveys: Indonesia 2015

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Author(s):
OECD
Publication Date :
25 Mar 2015
Pages :
136
ISBN :
9789264229693 (PDF) ; 9789264229686 (print)
DOI :
10.1787/eco_surveys-idn-2015-en

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This OECD Economic Survey of Indonesia examines recent economic developments, policies and prospects. Special chapters cover inclusive and sustainable growth; and natural resources.

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    Basic statistics of Indonesia, 2013
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    Executive summary
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    Assessment and recommendations

    Recent macroeconomic developments and short-term prospectsMonetary and financial policiesThe fiscal position is strong, but the government budget is smallRaising government revenuesImproving living standards by sustaining long-term inclusive growthReducing poverty and inequalityEnsuring the regulatory framework and civil service perform betterMaking the most of natural resources while preserving the environment

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    Progress in main structural reforms

    This Annex reviews progress in the area of structural reform based on the policy recommendations made in the 2012 Survey.

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  • Expand / Collapse Hide / Show all Abstracts Thematic chapters

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      Policies for inclusive and sustainable growth

      Indonesia has a very good record of poverty reduction, having halved its incidence over the past two decades. Nevertheless, almost 30 million people still live below the national poverty line, mostly in rural areas and in certain provinces. In order to make further progress in lifting these people out of poverty and economic vulnerability, policy needs to focus on generating strong, inclusive and sustainable growth. Pro-poor growth can assist in the process of economic convergence by facilitating the migration of workers out of the low-productivity agricultural sector into the industry and services sectors. By putting in place the right fundamentals, such as a well-designed and inclusive education system, efficient infrastructure and a stable macroeconomic environment, Indonesia will have decades of strong growth ahead by virtue of economic convergence with frontier countries. This has the potential to lift millions more out of poverty without exacerbating income inequality. Moreover, it will set Indonesia up for the next phase of innovation-driven growth that will propel it into the ranks of high income countries. While existing poverty-reduction programmes have become increasingly effective, more resources are required, and efficiency could be further enhanced, especially through better targeting. The distribution of income has become markedly more unequal over the past decade and needs to be kept in mind when formulating growth policies.

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      Making the most of natural resources

      Indonesia abounds with natural resources. But the unique nature of its geography, coupled with the lack of transport infrastructure, makes their exploitation challenging. Moreover, a lack of investment, protectionism and an unwieldy regulatory environment are all inhibiting the sector from reaching its full potential. Agriculture has been held back by low productivity, under-investment, unclear property rights on land, ill-advised trade regulations, misplaced support for staples and restrictions on foreign ownership. By pursuing crop diversification, encouraging co-operation between smallholders and large estates and easing constraints on foreign investment, Indonesia could raise its farmers’ productivity. Fossil fuels have become central to Indonesia’s energy policy and its main source of export revenues. Growing environmental concerns, both domestically and internationally, combined with subsiding coal prices and the on-going shale gas revolution, call into question the sustainability of such a strategy. Indonesia should increase its energy efficiency and further develop gas to plug the gap until sufficient renewable energy, especially geothermal, comes on line. Government control over the oil industry via state-owned Pertamina should be gradually reduced. Clarifying, streamlining and publicising simple regulations in energy and minerals, especially regarding land rights and on-shore processing, and removing foreign-ownership restrictions will help bring much needed investment. The pressure on the environment that natural resource exploitation is creating should be addressed by increasing the share of gas and renewables in the energy mix, properly defining property rights and regulations regarding forest land, and implementing a positive implicit carbon price. More resources should be devoted to combating widespread illegal mining and deforestation.

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