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2010 OECD Economic Surveys: Indonesia 2010

image of OECD Economic Surveys: Indonesia 2010

This 2010 edition of OECD's periodic survey of the Indonesian economy includes chapters covering achieving sustainable and inclusive growth, phasing out energy subsidies, tackling the infrastructure challenge, and enhancing the effectiveness of social policies. It finds that Indonesia's economy withstood the recent global crisis very well, thanks to appropriate stabilisation policies and increased economic and financial resilience.  Nevertheless, a number of institutional reforms and policy changes will be needed to deal with the several cross-cutting challenges of decentralisation, capacity-building at the local level, and improved economic governance.

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Phasing out energy subsidies

The oil price hike in 2007-08 underlined the vulnerability of Indonesia’s energy subsidy policy to oil price volatility. In addition to entailing significant economic and environmental costs, energy subsidies put pressure on the public budget and benefit mostly rich households. Phasing them out would benefit both the economy and the environment. At the same time, past experience in Indonesia and elsewhere suggests that such a reform is likely to face stiff opposition and will therefore need to be carefully designed and communicated. Compensation in the form of targeted cash transfers will help to shield low-income households from attendant rise in energy prices.

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